-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I+Qun91rwTUpBL4kJJjtoGzLpZ33AeNL8tYJzprBg2t6r3hzYNVB9yZ4/pmRwjBL OqcRPuVg0GnqoExwupfllg== 0000950117-96-000184.txt : 19960308 0000950117-96-000184.hdr.sgml : 19960308 ACCESSION NUMBER: 0000950117-96-000184 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960307 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AT&T CAPITAL CORP /DE/ CENTRAL INDEX KEY: 0000897708 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 223211453 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11237 FILM NUMBER: 96532387 BUSINESS ADDRESS: STREET 1: 44 WHIPPANY ROAD CITY: MORRISTOWN STATE: NJ ZIP: 07962-1982 BUSINESS PHONE: 2013973000 MAIL ADDRESS: STREET 1: 44 WHIPPANY RD CITY: MORRISTOWN STATE: NJ ZIP: 07962 10-K405 1 AT&T CAPITAL UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended December 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From________ to ________ Commission File Number 1-11237 AT&T CAPITAL CORPORATION A DELAWARE I.R.S. EMPLOYER IDENTIFICATION CORPORATION No. 22-3211453 44 Whippany Road, Morristown, New Jersey 07962-1983 Telephone Number 201-397-3000 ------------------ Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered - ------------------- ------------------- Common Stock, New York Stock Exchange $.01 par value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES...x... NO....... Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( x ) The aggregate market value of the common stock of the registrant held by non-affiliates as of February 29, 1996 was approximately $261,750,143. For purposes of the foregoing calculation only, all directors and officers of the registrant have been deemed affiliates. As of February 29, 1996, there were 46,975,583 shares of the registrant's common stock $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive proxy statement dated March 19, 1996 issued in connection with the 1995 annual meeting of shareholders (Part III). TABLE OF CONTENTS PART I Item Description Page 1. Business 1 2. Properties 18 3. Legal Proceedings 18 4. Submission of Matters to a Vote of Security-Holders 18 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 18 6. Selected Financial Data 19 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 8. Financial Statements and Supplementary Data 41 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 85 PART III 10. Directors and Executive Officers of the Registrant 85 11. Executive Compensation 86 12. Security Ownership of Certain Beneficial Owners and Management 86 13. Certain Relationships and Related Transactions 87 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 87 PART I ITEM 1. BUSINESS RESTRUCTURING AND INITIAL PUBLIC OFFERING AT&T Capital Corporation ("AT&T Capital" or the "Company") was incorporated on December 21, 1992, as AT&T Leasing, Inc., and was renamed AT&T Capital Corporation on March 31, 1993. The Company is the successor entity to certain businesses of AT&T Capital Holdings, Inc. (formerly known as AT&T Capital Corporation) ("Old Capital"), a wholly owned subsidiary of AT&T Corp. ("AT&T"), and its subsidiaries, including AT&T Credit Holdings, Inc. (formerly known as AT&T Credit Corporation) ("Old Credit"), a wholly owned subsidiary of Old Capital that commenced operations in 1985. In a restructuring that occurred on March 31, 1993 (the "Restructuring"), Old Capital and Old Credit transferred substantially all of their assets, except for certain assets consisting principally of equity interests in project finance transactions and leveraged leases of commercial aircraft ("Lease Finance Assets"), in exchange for shares of the Company's common stock and the assumption by the Company of certain related liabilities. In connection with the Restructuring, AT&T issued direct, full and unconditional guarantees of all existing indebtedness outstanding as of March 31, 1993 for borrowed money incurred, assumed or guaranteed by Old Capital entitled to the benefit of a Support Agreement between AT&T and Old Capital (the "Support Agreement"), including the debt of Old Capital assumed by the Company in the Restructuring. Debt issued by the Company subsequent to March 31, 1993, however, is not guaranteed or supported by AT&T (see Note 7 to the Consolidated Financial Statements). An initial public stock offering combined with a management stock offering totaling approximately 14% of the Company's stock ("IPO") occurred on August 4, 1993 (see Note 8 to the Consolidated Financial Statements). As a result of the IPO, approximately 86% of the outstanding common stock of the Company is owned indirectly by AT&T (through Old Capital and Old Credit.) In connection with the IPO, the Company entered into certain intercompany, operating, license and tax agreements with AT&T. The Intercompany Agreement includes a provision requiring minimum ownership by AT&T of 20% of the Company's common stock outstanding immediately after the IPO for a period of five years. Provisions for management by the Company of certain portfolios owned by AT&T (for a fee), allowing the Company to utilize certain AT&T corporate and administrative services (for a fee) and generally requiring the Company to continue certain equipment financing programs for AT&T are also included. The Operating Agreement, provides, among other things, that AT&T is required to promote the Company's financing and ancillary services and to provide the Company with certain preferred provider rights in connection with the financing of AT&T products and services. In addition, the Operating Agreement restricts AT&T from competing with the Company with respect to certain products of the Company. 1 The License Agreement defines the Company's rights to use certain AT&T service marks and trade names, and to use "AT&T" and "NCR" as part of the corporate names of the Company and certain of its subsidiaries. The initial term of the License Agreement will expire on the seventh anniversary of the date of the IPO. The License Agreement may be terminated prior to the end of its term by either party if the other party breaches or defaults on terms of the Intercompany Agreement, the Operating Agreement or the License Agreement. Additionally, AT&T can elect to terminate the License Agreement if the long-term unsecured debt of the Company is rated below investment grade by at least two nationally recognized rating agencies, or if the Company receives a qualified audit opinion from its independent accountants. Because such license is an important strategic asset of the Company, termination of the License Agreement could have an adverse effect on the Company. For a discussion of AT&T's restructuring plans and their potential impacts on these agreements, see Note 16 to the Consolidated Financial Statements. On September 20, 1995, AT&T announced a plan to pursue the public or private sale of its remaining 86% interest in AT&T Capital. As noted in AT&T's 1995 Annual Report on Form 10-K, AT&T has stated that it cannot predict the timing or terms of any such transaction. On such date, AT&T also announced a plan to separate (the "Separation") into three publicly-held stand-alone global businesses that will each be focused on serving certain core businesses: communication services, communications systems and technology, and transaction-intensive computing. The Separation is targeted by AT&T to be completed by the end of 1996, but remains subject to a number of conditions. For a more detailed discussion of AT&T's restructuring plans and their potential impacts on the Company, see Note 16 to the Consolidated Financial Statements. 2 DESCRIPTION OF THE BUSINESS AT&T Capital is a full-service, diversified equipment leasing and finance company that operates in the United States, Europe, Canada, the Asia/Pacific Region, Mexico and South America. The Company is one of the largest equipment leasing and finance companies in the United States based on the aggregate value of equipment leased or financed. The Company, through its various subsidiaries, leases and finances equipment manufactured and distributed by numerous vendors, including AT&T and its affiliates, principally Lucent Technologies Inc. ("Lucent") and NCR Corporation ("NCR"). In addition, the Company provides equipment leasing and financing and related services directly to end-user customers. The Company's customers include large global companies, small and mid-size businesses and federal, state and local governments and their agencies. AT&T Capital leases and finances a wide variety of equipment including telecommunications equipment (such as private branch exchanges, telephone systems and voice processing units), information technology (such as personal computers, retail point-of-sale systems, and automatic teller machines), general office, manufacturing and medical equipment ("General Equipment"), and transportation equipment (primarily vehicles), and also finances real estate (including real estate related loans in the Company's Small Business Administration ("SBA") lending and franchise finance businesses). The Company is the largest lessor of telecommunications equipment in the United States. At December 31, 1995, the Company's net portfolio assets (net investment in finance receivables, capital leases and operating leases), which aggregated $9.1 billion, were diversified across various types of financed equipment: telecommunications equipment 23%; information technology 23%; General Equipment 28%; and transportation equipment 19%; as well as real estate 7%. The Company leases and finances such equipment through a variety of financing and related products and services, including capital leases, operating leases, inventory financing and other secured working capital loans for equipment dealers and distributors, SBA lending, asset based loans and equipment management and remarketing services. In addition, the Company offers its customers certain equipment rental and administration services. AT&T Capital's portfolio assets are diversified among a large customer base, as well as numerous industries and geographic regions. The Company has one of the largest customer bases in the commercial equipment leasing and finance market with approximately 500,000 customers. At December 31, 1995, the Company's 99 largest customers (after AT&T and its affiliates) accounted for approximately 21% of the Company's net portfolio assets, and no single customer (with the exception of AT&T and its affiliates) accounted for more than 1% of such net portfolio assets. 3 Although the Company operates principally in the United States, the Company began operations in the United Kingdom in 1991 and in Canada in 1992. In 1994, the Company acquired Australian Guarantee Corporation Finance (H.K.) Limited ("A.G.C. Finance"), a Hong Kong-based vehicle and equipment leasing finance company with assets at that time of approximately $150 million. Also in January 1994, the Company, through its wholly-owned Canadian subsidiary, acquired the vehicle portfolio and infrastructure assets constituting the Avis Canada Leasing Division of AvisCar, Inc. This unit provides automobile leasing to small and mid-size commercial and corporate clients in Canada and had approximately $90 million in assets at the time of acquisition. Later in 1994, the Company opened offices in Mexico and Australia. In January 1995, the Company acquired the vendor leasing and finance companies of Banco Central Hispano and certain of its affiliates (collectively, "CFH Leasing International") located in the United Kingdom, Germany, France, Italy, Belgium, and the Netherlands. This European network of leasing operations provides financial services to equipment manufacturers and vendors. It served approximately 4,600 customers and had approximately $540 million in assets at the time of acquisition. In June 1995, the Company also acquired an Australian equipment finance company with approximately $40 million in assets. In the third quarter of 1995, the Company entered into a joint venture with Banco Frances, a leading Argentine commercial bank, to operate an equipment leasing operation in Argentina. The Company, from time to time, investigates potential opportunities to make acquisitions abroad, and the Company may open additional foreign offices on a limited basis either directly or through acquisitions or joint ventures. A significant part of the Company's total United States assets, revenues and net income are attributable to leasing and financing of AT&T equipment provided to customers of AT&T and its affiliates (collectively, "Customers of AT&T Equipment"). AT&T and its affiliates and employees (collectively, "AT&T as End-User") are also significant customers of the Company, primarily with respect to leased information technology equipment and vehicles. 4 The following table shows the respective percentages of the assets, revenues and net income (loss) related to United States and foreign operations attributable to (i) leasing and financing services provided by the Company to customers of AT&T, (ii) transactions involving AT&T as end-user and (iii) the Company's non-AT&T business, in each case at or for the years ended December 31, 1995, 1994 and 1993. The net income (loss) shown below were calculated based upon what the Company believes to be a reasonable allocation of interest, income taxes and certain corporate overhead expenses. - --------------------------------------------------------------------------------
At or for the year ended December 31, 1995 Assets Revenues Net Income (Loss) -------------------- --------------------- --------------------- U.S. Foreign Total U.S. Foreign Total U.S. Foreign Total % % % % % % % % % - --------------------------------------------------------------------------- Customers of AT&T 29.4 0.1 29.5 32.3 0.4 32.7 67.2 0.7 67.9 AT&T as End-User 5.3 - 5.3 8.3 - 8.3 8.2 - 8.2 Non-AT&T Business 47.8 17.4 65.2 46.3 12.7 59.0 27.0 (3.1) 23.9 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total 82.5 17.5 100.0 86.9 13.1 100.0 102.4 (2.4) 100.0 - --------------------------------------------------------------------------- At or for the year ended December 31, 1994 Assets Revenues Net Income (Loss) -------------------- --------------------- --------------------- U.S. Foreign Total U.S. Foreign Total U.S. Foreign Total % % % % % % % % % - --------------------------------------------------------------------------- Customers of AT&T 34.3 0.3 34.6 33.1 0.3 33.4 83.9 (1.4) 82.5 AT&T as End-User 6.8 - 6.8 9.5 - 9.5 8.5 - 8.5 Non-AT&T Business 48.0 10.6 58.6 47.8 9.3 57.1 11.8 (2.8) 9.0 ----- ----- ----- ----- ----- ----- ----- ----- ---- Total 89.1 10.9 100.0 90.4 9.6 100.0 104.2 (4.2) 100.0 - --------------------------------------------------------------------------
5
At or for the year ended December 31, 1993 Assets Revenues Net Income (Loss) -------------------- --------------------- --------------------- U.S. Foreign Total U.S. Foreign Total U.S. Foreign Total* % % % % % % % % % - --------------------------------------------------------------------------- Customers of AT&T 38.1 0.3 38.4 31.1 0.2 31.3 99.8 (1.7) 98.1 AT&T as End-User 9.5 - 9.5 14.9 - 14.9 20.8 - 20.8 Non-AT&T Business 46.1 6.0 52.1 47.8 6.0 53.8 (6.9) (12.0) (18.9) ----- ----- ----- ----- ----- ----- ------ ----- ------ Total 93.7 6.3 100.0 93.8 6.2 100.0 113.7 (13.7) 100.0 - ---------------------------------------------------------------------------
*The customers of AT&T, AT&T as end-user and non-AT&T business net income (loss) before cumulative effect of the 1993 accounting change and impact of the tax rate change was 89.0%, 20.2% and (9.2%), respectively. For a description of the 1993 accounting change and impact of the tax rate change, see Note 10 to the Consolidated Financial Statements. The Company intends to continue its strategy of expanding its non-AT&T businesses, while at the same time enhancing its relationship with AT&T and its affiliates. Because the growth in revenues generated by the Company's non-AT&T businesses can be expected to lag behind the incurrence of expenses necessary to expand and operate such businesses, the Company anticipates that the percentage of its total net income and revenues attributable to non-AT&T businesses may vary from year to year depending upon the stage of development of these non-AT&T businesses. The 1995 increases in the non-AT&T business assets and revenues (as a % of total Company) were generated almost equally from U.S. and foreign operations. The significant increase realized from U.S. non-AT&T related net income was primarily generated from the Company's large-ticket specialty and structured finance activities, SBA loan sales and growth in the automobile portfolio. Net losses from foreign non-AT&T businesses somewhat offset the strong U.S. results. The securitization of certain non-AT&T portfolio assets positively affected net income of the non-AT&T businesses in all years presented; however, the Company decreased the amount of securitizations each year from 1993 to 1995. Partly as a result of the reduction in securitized assets, the portion of the Company's non-AT&T net income attributable to securitization has decreased by 88.7% from 1993 to 1995 (see Note 6 to the Consolidated Financial Statements). Marketing and Business Activities The Company offers a wide range of financial products and services to its customers through two principal marketing channels. The first, which the Company refers to as "Global Vendor Finance", provides leasing and 6 financing services, together with related services, to customers of its equipment vendor clients (i.e., manufacturers, dealers and distributors) with which the Company has an ongoing marketing relationship. With the second approach, "Direct Customer Finance", the Company provides leasing and financing services, together with related services, directly to its small, mid-size and large business customers. GLOBAL VENDOR FINANCE The Company's vendor finance marketing activities commenced in 1985 when the Company's predecessor (Old Credit) was organized to provide financing and related support to equipment customers of AT&T. Since then, the Company has established on-going relationships with other select manufacturers and distributors that seek to increase equipment sales, gain customer loyalty, enhance their control over the marketing life cycle of their products through the use of customized financing programs, and leave the management of credit risk to AT&T Capital. The Company offers its vendor clients one of the most extensive global financing networks in the equipment leasing and finance industry. AT&T and Affiliates AT&T is the Company's original and largest vendor client. Historically, the Company has financed (for AT&T's customers) a large volume of AT&T's telecommunications and information technology equipment. Since AT&T's 1991 merger with NCR, the Company has financed an increasing percentage of NCR's information technology and related equipment. In the first quarter of 1996, AT&T's telecommunications manufacturing and marketing businesses were transferred to Lucent, currently a wholly-owned subsidiary of AT&T. AT&T intends to distribute to its shareholders by the end of 1996 all its interest in Lucent, which will be preceded by a public offering of less than 20% of Lucent's shares. AT&T has also announced plans to separate NCR from AT&T by the end of 1996. During the year ended December 31, 1995, the Company generated $1.1 billion of financing volume from AT&T and affiliate related vendor finance activities. Of such financing volume, 86% was related to the AT&T businesses that will comprise Lucent and 14% was related to the NCR business. To facilitate the financing of sales of AT&T (including NCR and Lucent) equipment, the Company has connected its data and telecommunications systems with those of AT&T's sales and marketing offices and maintains personnel and equipment at AT&T sales and marketing sites. The Company uses these linkages, personnel and equipment in conjunction with its competitive strengths (e.g., credit scoring capabilities) and its personnel and equipment based at its own sites to provide high volume processing capabilities that enable the Company to serve large numbers of customers in an efficient and timely basis. In addition, these linkages permit AT&T to invoice the Company electronically for certain types of telecommunications and information technology equipment and permit the Company to pay invoices electronically. 7 Other Vendor Clients In serving AT&T's vendor finance needs over the past decade, the Company has gained core competencies in vendor program development and administration, credit analysis, equipment residual management, sales support, and high volume small-ticket processing. The Company has leveraged these skills in developing similar vendor finance programs for other large manufacturers and distributors. Some of the many leading global vendors that are clients of the Company, include Hyster Company, Tandem Computer, Abbott Laboratories, Gestetner Holdings, and Canon Inc. The Company's non-AT&T global vendor activities are strategically focused on four equipment markets: (i) computer technology; (ii) medical; (iii) material handling and manufacturing; and (iv) document imaging and printing. The Company has enhanced its relationships with vendor clients by providing: a variety of customer financing products; sales aid services, including the training of vendor personnel and point-of-sale support; private label programs, in which the Company provides financing to the vendor's customers under the vendor's name; customer operations support and interfaces; alternate channel programs (distribution channels not involving the vendor's direct sales force); inventory financing; and support for value-added retailers or distributors (retailers or distributors that modify products and re-sell them). AT&T Capital's management believes its ability to identify creditworthy accounts represents a strategic competitive resource to vendors seeking to increase sales without increasing their personnel costs. In addition, the Company's high volume processing capabilities, relationship-based transaction skills and residual assessment, equipment management and marketing expertise provide vendors with competitive pricing and enhanced customer account control after sales close. During the year ended December 31, 1995, the Company generated $1.6 billion of financing volume from its non-AT&T Global Vendor Finance activities. DIRECT CUSTOMER FINANCE The Company's Direct Customer Finance activities are a logical extension of its Global Vendor Finance activities. The Company's Global Vendor Finance activities have laid the foundation for what management believes is one of the largest customer bases in the commercial equipment leasing and finance market with approximately 500,000 customers. This customer base provides the Company with the opportunity to offer these customers additional financing and equipment management services. Commercial Finance and Leasing The Company leverages its large customer base, sophisticated transaction structuring skills, and high volume transaction processing capabilities to provide niche financial services directly to business customers (including AT&T and its employees). AT&T Capital targets small and medium-size companies in the United States with a wide range of 8 products including SBA loans, asset based loans, franchise financing, and other financing products (such as pre-approved credit lines). In addition, the Company serves large commercial customers by providing highly structured transactions and project financing solutions. For the year ended December 31, 1995, the Company generated $1.0 billion of financing volumes from its commercial financing and leasing activities. Specialized Equipment Financing and Services The Company's specialized equipment knowledge and effective equipment management competencies have been integral to its success in executing its Global Vendor Finance and Direct Customer Finance strategies. Building on its equipment knowledge and management skills, the Company has identified related growth opportunities in managing and financing specialized equipment for customers. The Company's specialized equipment financing activities have been concentrated in vehicle and computer leasing markets. The Company's equipment management services have included procurement, tracking, deployment and remarketing of equipment. AT&T Capital has principally focused its specialized equipment management and remarketing services in the following markets: (i) vehicle and high technology equipment leasing and financing; (ii) vehicle fleet management; and (iii) high technology equipment rental and related services. For the year ended December 31, 1995, the Company generated $.9 billion of financing volumes from its specialized financing activities. The following table shows approximate financing volumes and total assets for each of the AT&T and other global vendor marketing channels and the commercial finance and leasing and specialized equipment financing services direct customer marketing channels as a percentage of total Company financing volumes for the year ended December 31, 1995 and total Company assets as of December 31, 1995.
- -------------------------------------------------------------------------------- Financing Total Volume Assets --------- ------ Global Vendor AT&T & Affiliates 24% 29% Other Vendor Clients 34% 27% Direct Customer Commercial Finance & Leasing 22% 23% Specialized Equipment Financing Services 20% 21% - --------------------------------------------------------------------------------
9 Income Tax Considerations The Company is currently a member of AT&T's consolidated group for federal income tax purposes. The Company would cease to be a member of such consolidated group for federal income tax purposes (a "Tax Deconsolidation") if, among other events, AT&T's ownership interest in the outstanding common stock decreases to below 80%. Tax Deconsolidation would have certain adverse effects on the Company (see Notes 10 and 16 to the Consolidated Financial Statements). As long as the Company is a part of the AT&T consolidated federal income tax group, the payment of federal income taxes associated with sales of products manufactured by AT&T is deferred (the amount of such taxes so deferred being herein called "Gross Profit Tax Deferral"), generally as the products are depreciated or until sold outside the group. Pursuant to the Gross Profit Tax Deferral Interest Free Loan Agreement between the Company and AT&T, AT&T has extended and has agreed to extend interest-free loans to the Company from time to time in an amount equal to the then outstanding amount of Gross Profit Tax Deferral. Such loans, the outstanding balance of which totaled $249.8 million as of December 31, 1995, are repayable by the Company when and to the extent that any such deferred taxes are required to be paid by AT&T. Upon any Tax Deconsolidation, the Company would be required to repay such loans and would no longer receive such loans, which have constituted a competitive advantage to the Company in financing AT&T products. Pursuant to the Federal Tax Sharing and the State Tax Sharing Agreements between the Company and AT&T, the AT&T consolidated federal income tax liability is generally allocated among the members of the AT&T consolidated group that report taxable income. Members of the AT&T consolidated group that report tax losses are compensated currently by AT&T (through cash payments made on a periodic basis) for their losses to the extent those losses are used to reduce the AT&T consolidated federal income tax liability. Similar principles and cash payments also apply to certain state and local income tax liabilities. Upon any Tax Deconsolidation, the Company would no longer be entitled to receive quarterly cash payments from AT&T in compensation for the use of any tax losses. The tax losses would, instead, be available to the Company to reduce future taxable income. Thus, the Company may derive a benefit in the future from tax losses, but only to the extent the Company has taxable income in later years. In 1995, on a stand-alone basis, the Company had taxable income. In addition, upon Tax Deconsolidation, it is possible that the Company could be subject to the federal alternative minimum tax. A taxpayer's alternative minimum tax liability is computed by applying the alternative minimum tax rate, which is lower than the regular tax rate, to a measure of taxable income that is broader than that used in computing the regular tax. Payments of any alternative minimum tax incurred by the Company after a Tax Deconsolidation would be available in the future as credits against the Company's regular tax liability. 10 AT&T announced on September 20, 1995 plans to pursue a sale of its remaining 86% interest in the Company to the general public or another company. In light of AT&T's announcement, it is possible that a Tax Deconsolidation will occur by the end of 1996. Credit Quality The control of credit losses is an important element of the Company's business. The Company seeks to minimize its credit risk through diversification of its portfolio assets by customer, customer type, geographic location and maturity. The Company's financing activities have been spread across a wide range of equipment types (e.g., telecommunications, General Equipment, information technology, transportation and real estate) and a large number of customers located throughout the United States, and to a lesser extent, in foreign countries. The following table shows the components of the Company's allowance for credit losses related to (i) lease financing (capital leases and rentals receivable on operating leases) from United States operations, (ii) finance receivables from United States operations and (iii) lease financing and finance receivables from foreign operations; collectively "finance assets". In addition, other key credit quality indicators, by loan type, are also provided. The breakdown of the allowance for credit losses at each year-end reflects management's estimate of credit losses and may not be indicative of actual future charge-offs by loan classification.
(Dollars in Thousands) 1995 1994* 1993* 1992* 1991* - --------------------------------------------------------------------------- Balance at beginning of year: - - Lease Financing-U.S. $113,735 $ 95,196 $ 86,086 $ 74,019 $ 57,578 - - Finance Receivables-U.S. 46,637 56,974 36,139 19,861 17,791 - - Foreign 16,056 7,649 1,736 87 - - --------------------------------------------------------------------------- Total 176,428 159,819 123,961 93,967 75,369 - --------------------------------------------------------------------------- Additions Charged to Operations: - - Lease Financing-U.S. 66,505 62,447 91,605 87,156 100,445 - - Finance Receivables-U.S. 15,167 13,488 28,604 23,090 8,190 - - Foreign 4,542 4,953 3,469 1,469 - - --------------------------------------------------------------------------- Total 86,214 80,888 123,678 111,715 108,635 - --------------------------------------------------------------------------- Charge-offs: - Lease Financing-U.S. 48,834 47,585 61,233 76,462 76,422 - Finance Receivables-U.S. 10,446 22,908 14,135 18,183 15,466 - Foreign 5,595 3,024 284 125 - - --------------------------------------------------------------------------- Subtotal 64,875 73,517 75,652 94,770 91,888
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1995 1994* 1993* 1992* 1991* - --------------------------------------------------------------------------- Recoveries: - Lease Financing-U.S. 13,944 14,666 15,505 14,913 8,261 - Finance Receivables-U.S. 1,403 1,561 1,118 1,365 1,672 - Foreign 2,758 1,745 - 125 - - --------------------------------------------------------------------------- Subtotal 18,105 17,972 16,623 16,403 9,933 - --------------------------------------------------------------------------- Net Charge-offs: - - Lease Financing-U.S. 34,890 32,919 45,728 61,549 68,161 - - Finance Receivables-U.S. 9,043 21,347 13,017 16,818 13,794 - - Foreign 2,837 1,279 284 - - - --------------------------------------------------------------------------- Total 46,770 55,545 59,029 78,367 81,955 - --------------------------------------------------------------------------- Transfers and Other (a): - - Lease Financing-U.S. (684) (10,989) (36,767) (13,540) (15,843) - - Finance Receivables-U.S. (154) (2,478) 5,248 10,006 7,674 - - Foreign 8,186 4,733 2,728 180 87 - --------------------------------------------------------------------------- Total 7,348 (8,734) (28,791) (3,354) (8,082) - --------------------------------------------------------------------------- Balance at end of year: - - Lease Financing-U.S. 144,666 113,735 95,196 86,086 74,019 - - Finance Receivables-U.S. 52,607 46,637 56,974 36,139 19,861 - - Foreign 25,947 16,056 7,649 1,736 87 - --------------------------------------------------------------------------- Total $223,220 $ 176,428 $159,819 $123,961 $ 93,967 =========================================================================== Percentage of loan types to total finance assets: - - Lease Financing-U.S. 62.2% 67.9% 70.6% 73.3% 73.4% - - Finance Receivables-U.S. 20.8% 21.5% 23.1% 24.9% 26.4% - - Foreign 17.0% 10.6% 6.3% 1.8% 0.2% =========================================================================== Ratio of Net Charge-offs during the year to average finance assets: outstanding during the year: - Lease Financing 0.73% 0.78% 1.27% 1.94% 2.35% - Finance Receivables 0.58% 1.69% 1.13% 1.53% 1.34% - Foreign 0.24% 0.22% 0.15% - - =========================================================================== Nonaccrual assets $118,484 $120,494 $160,574 $151,562 $85,381
=========================================================================== * Amounts have been reclassified to conform to the 1995 presentation. 12 (a) Primarily includes transfers out of allowance for credit losses related to receivables securitized, transfers in of reserves related to businesses acquired and reclassifications. The ratio of net charge-offs to average Finance Receivables increased in 1994 compared with 1993, while the allowance for credit losses decreased in 1994 compared with 1993 due to reserves established for specific assets (particularly in the media portfolio) that were subsequently charged off in 1994. As a result, in 1994 there were fewer assets that required specific reserves. The following table reflects the Company's portfolio credit performance indicators. Portfolio Assets include the investment in finance receivables, capital leases and operating leases.
Year Ending December 31 1995 1994 1993 - --------------------------------------------------------------------------- Allowance for credit losses $223.2 $176.4 $159.8 Nonaccrual assets $118.5 $120.5 $160.6 Net charge-offs/Portfolio assets 0.50% 0.73% 0.95% Allowance for credit losses/Portfolio assets 2.39% 2.30% 2.56% Nonaccrual assets/Portfolio assets 1.27% 1.57% 2.58% Delinquency (two months or greater) 1.46% 1.49% 2.41%
Accounts are placed in nonaccrual status at 90 days past due or sooner if identified as a problem account. Revenue which would have been recorded in 1995 on nonaccrual assets had these assets been earning at the original contractual rate amounted to approximately $9.3 million. Revenue actually recognized in 1995 for assets in nonaccrual status at December 31, 1995 amounted to approximately $6.0 million. Pursuant to agreements with the Company, AT&T has agreed to repurchase or guarantee certain finance assets that go into default. Finance assets subject to such provisions were $238.8 million, $243.0 million, and $321.0 million at December 31, 1995, 1994 and 1993, respectively. The Company believes that the Company's total allowance for credit losses is adequate based on a review of historical loss experience, a detailed analysis of delinquencies and problem portfolio assets, and an assessment of probable losses in the portfolio as a whole given its diversification. Lease terms that are modified in the normal course of business, for which additional consideration is received or insignificant concessions are made, are accounted for as changes in a provision for a lease in accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases". The amount of impaired loans at December 31, 1995 is not material (see Note 4 to the Consolidated Financial Statements). 13 Residual Value Realization The establishment and realization of residual values on leases are also important elements of the Company's business. The Company's residual management capabilities include its equipment remarketing skills, its in-house equipment refurbishment facilities and its knowledge of developing technologies, products and obsolescence trends. These competencies are used in setting residual values upon the acquisition and leasing of the equipment based on the estimated value of the equipment at the end of the lease term. These estimates are determined by the Company from, among other things, studies prepared by the Company, professional appraisals, historical experience and industry data, market information on sales of used equipment, end-of-lease customer behavior and estimated obsolescence trends. The Company strategically manages its portfolio to ensure a broad diversification of residual risk by equipment type and lease expiration. The Company's risk management department, in conjunction with equipment experts in the Company's business units, regularly reviews residual values, and if they have declined, adjustments are made that result in an immediate charge to income for capital leases and adjustments to depreciation expense for operating leases over the shorter of the useful life of the asset or the remaining term of the lease. (On an aggregate basis, the Company historically has realized proceeds from the sale of equipment during the lease term and at lease termination in excess of the Company's recorded residual values). There can be no assurance, however, that such results will be realized in future years. The Company recognizes, in total revenue, amounts in excess of recorded residuals over the re-lease, or upon the sale or other disposition by the Company of leased equipment. 14 The Company actively manages its residuals by working with lessees and vendors during the lease term to encourage lessees to extend their leases or upgrade and enhance their leased equipment, as appropriate, and by monitoring the various equipment industries, particularly the information technology industries, for obsolescence trends. The Company utilizes its equipment management (including equipment remarketing), engineering and other technical expertise to help manage its residual positions. The following table shows projected residual expirations, as an approximate percentage of aggregate recorded residuals as of December 31, 1995, by equipment type for the years ended December 31, 1996, 1997, 1998, 1999 and 2000 and the years thereafter:
Equipment Type 1996 1997 1998 1999 2000+ Totals ---- ---- ---- ---- ----- ------ Telecommunications 5% 7% 7% 7% 8% 34% Information Technology 8% 7% 6% 2% 1% 24% Transportation 3% 4% 4% 2% 8% 21% General equipment & other 3% 4% 4% 4% 6% 21% Real Estate 0% 0% 0% 0% 0% 0% --- --- --- --- --- ---- Total 19% 22% 21% 15% 23% 100%
15 Competition and Related Matters The equipment leasing and finance industry is highly competitive. Participants in the industry compete through price (including the ability to control costs), risk management, innovation and customer service. Principal cost factors include the cost of funds, the cost of selling to or obtaining new end-user customers and vendors, and the cost of managing portfolios (including, for example, billing, collection, credit risk management, and residual management). Adequate risk management is required to achieve satisfactory returns on investment and to provide appropriate pricing of financing products. The Company believes that innovation is necessary to compete in the industry, involving specialization in certain types of equipment, financial structuring for larger transactions, utilization of alternative channels of distribution and optimization of tax treatment between owner and user. In addition, end-users of equipment generally desire transactions to be simple, flexible and customer-responsive. In its leasing and financing operations and programs, the Company competes with captive or related leasing companies (such as General Electric Capital Corporation and IBM Credit Corporation), independent leasing companies (such as Comdisco, Inc.), certain banks engaged in leasing, lease brokers and investment banking firms that arrange for the financing of leased equipment, and manufacturers and vendors who lease their own products to customers. In addition, the Company competes with all banking and other financial institutions, manufacturers, vendors and others who extend or arrange credit for the acquisition of equipment, and in a sense, with end-users' available cash resources to purchase equipment that the Company may otherwise finance. Many of the competitors of the Company are large companies that have substantial capital, technological and marketing resources; some of these competitors are significantly larger than the Company and have access to debt at a lower cost than the Company. Recently there have been substantial changes in the equipment leasing and finance industry, including the sale or cessation of operations of certain large competitors of the Company and an apparent trend toward consolidation. While these developments may on balance be favorable for the Company's prospects, they are indicative of the strong competitive pressures on all participants in the industry, including the Company. The Company's penetration rate for AT&T's sales of telecommunications equipment in the United States (i.e., the percentage of the dollar volume of such sales that the Company finances) was approximately 37% for the year ended December 31, 1995. The Company does not expect material increases in this penetration rate, and there can be no assurance that the existing rate will be maintained. The Company has a lower penetration rate (approximately 24% for the year ended December 31, 1995) with respect to sales of NCR's products (data processing and related products, including personal computers, retail point-of-sale computers, and automatic teller machines) relative to its penetration rates for telecommunications product 16 sales; however, such penetration rate increased from 1994. Additionally, the Company has an insignificant penetration rate with respect to international sales of AT&T's network systems products (large telecommunications switches, cable products, cellular telephone equipment and microwave dishes and equipment), which sales the Company has been financing for a relatively short period of time. Because the markets for financing these products are highly competitive and substantially different from the markets for financing telecommunications equipment in the United States, there can be no assurance that the penetration rates in these product areas will increase. In addition to competition within the leasing and financing industry, competition experienced in AT&T and its affiliates' industries may adversely affect the Company because of the significance to the Company of its business with customers of AT&T and its affiliates. Those industries are highly competitive and subject to rapid changes in technology and customer needs. Many of AT&T and its affiliates' competitors are large companies that have substantial capital, technology and marketing resources. In addition, the Regional Bell Operating Companies (the "RBOCs"), which have historically been prohibited from manufacturing telecommunications equipment by the terms of the Modified Final Judgment entered into in connection with the divestiture of the RBOCs by AT&T in 1984, will be permitted to manufacture such equipment and compete with Lucent, subject to satisfying certain conditions, pursuant to telecommunications legislation recently enacted by Congress. It is possible that one or more of the RBOCs may decide to manufacture telecommunications equipment or form alliances with other manufacturers. Either of such developments could result in increased competition for Lucent, reduce the RBOCs' purchases of equipment from Lucent, and consequently, adversely impact the Company's financing volumes. While the Company is not able to fully predict whether Lucent's and NCR's planned separation from AT&T and the cessation of their use of the "AT&T" brand name will affect their equipment sales, any resulting change in the level of equipment sales by Lucent and NCR would likely have a corresponding impact on the Company's future financing volumes associated with such sales. Employees AT&T Capital has approximately 2850 employees as of February 1, 1996, each of whom is referred to within the Company as a "member". Titles are not used internally. In general, members function using a team approach, with business generally conducted on a collaborative rather than hierarchical basis. Management believes that its members are skilled and highly motivated and that the Company's ability to achieve its objectives depends upon their efforts and competencies. None of the Company's members are represented by a union. The Company believes that its relations with its members are good. 17 ITEM 2. PROPERTIES The Company's properties consist primarily of administrative offices, warehouses for the storage and refurbishment of equipment and a number of geographically dispersed sales offices. The Company has its headquarters in Morristown, New Jersey, with its principal domestic offices and warehouses located in Morristown and Parsippany, New Jersey; Framingham, Massachusetts; Bloomfield Hills, Michigan; Towson, Maryland; and Dallas, Texas. The Company's principal international offices are in London, England; Toronto, Canada; Hong Kong; Sydney, Australia; and Mexico City, Mexico. All these offices and warehouses are leased (some being subleased from AT&T or one of its affiliates), except for one building (of approximately 9,000 square feet) in Framingham, Massachusetts, owned by a subsidiary of the Company. This building is designed as office space and storage and is sublet to a nonaffiliated company. The Company considers its present locations suitable and adequate to carry on its current business. ITEM 3. LEGAL PROCEEDINGS The Company is not currently a party to any pending litigation nor is the Company aware of any threatened litigation which in the opinion of the Company's management will have a material adverse impact on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information The principal market on which the common stock of the Company is traded is the New York Stock Exchange. 18
Quarter Ended Quarterly Stock Prices Dividends declared per share High Low March 31, 1994 $27.000 $22.875 $0.09 June 30, 1994 $24.750 $21.625 $0.09 September 30, 1994 $24.375 $21.375 $0.09 December 31, 1994 $24.500 $19.750 $0.10 March 31, 1995 $27.250 $21.625 $0.10 June 30, 1995 $27.750 $24.000 $0.10 September 30, 1995 $38.625 $27.125 $0.10 December 31, 1995 $40.375 $35.750 $0.11
(b) Holders As of February 29, 1996, there were 827 holders of record of the Company's common stock, including AT&T through Old Capital and Old Credit (which held 40,250,000 shares or approximately 86% of total shares outstanding). (c) Dividends It is anticipated that the Company will continue to pay regular quarterly dividends. The declaration of dividends and their amounts will be at the discretion of the Company's Board of Directors, and there can be no assurance that additional dividends will be declared. ITEM 6. SELECTED FINANCIAL DATA The Results of Operations Data for the years ended December 31, 1995, 1994, 1993, 1992, 1991 and 1990, as well as the Balance Sheet Data and Other Data at December 31, 1995, 1994, 1993, 1992 and 1991, are derived from the Consolidated Financial Statements of the Company at such dates and for such periods, which have been audited by Coopers & Lybrand L.L.P., independent accountants. The Results of Operations Data for the years ended December 31, 1989, 1988, 1987 and 1986, as well as the Balance Sheet Data and Other Data at December 31, 1990, 1989, 1988, 1987 and 1986, are derived from unaudited consolidated financial information. In management's opinion, the Company's unaudited consolidated financial statements at or for the years ended December 31, 1990, 1989, 1988, 1987 and 1986, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation. The selected financial data as presented under the "Financial Highlights" caption in the Company's Annual Report should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto. 19
For the years ended December 31, (Dollars in thousands, 1995 1994 1993 1992 1991 except per share amounts) ---- ---- ---- ---- ---- Results of Operations Data: Total revenue $1,577,035 $1,384,079 $1,359,589 $1,265,526 $1,160,150 Interest expense 411,040 271,812 236,335 252,545 275,650 Operating and administrative expenses 473,663 427,187 381,515 359,689 298,833 Provision for credit losses 86,214 80,888 123,678 111,715 108,635 Income before income taxes, extraordinary loss and cumulative effect on prior years of accounting change 208,239 173,614 138,040 114,875 82,559 Income before extra- ordinary loss, cumu- lative effect on prior years of accounting change and impact of tax rate change 127,555 100,336 83,911 73,572 54,199 Extraordinary loss - - - - - Cumulative effect on prior years of accounting change (1) - - (2,914) - - Impact of 1993 tax rate change (1) - - (12,401) - - Net income (1) 127,555 100,336 68,596 73,572 54,199 Earnings per share (1) 2.70 2.14 1.60 1.83 1.35 Earnings per share before tax charges (1), (2) 2.70 2.14 1.95 1.83 1.35 Dividends paid 19,231 17,338 4,216 49,632 55,512 Dividends per share (6) $ 0.41 $ 0.37 $ 0.09 $ - $ - Return on average equity 12.1% 10.5% 8.5% 11.4% 10.7% Return on average assets 1.5% 1.4% 1.1% 1.3% 1.1% Return on average equity before tax charges (2) 12.1% 10.5% 10.3% 11.4% 10.7% Return on average assets before tax charges (2) 1.5% 1.4% 1.4% 1.3% 1.1% - --------------------------------------------------------------------------- Balance Sheet Data, at December 31: Total assets $9,541,259 $8,021,923 $6,409,726 $5,895,429 $5,197,245 Total debt(3) 6,928,409 5,556,458 4,262,405 4,089,483 3,594,247 Total liabilities 8,425,134 7,013,705 5,485,283 5,158,808 4,647,979 Total shareowners' equity $1,116,125 $1,008,218 $ 924,443 $ 736,621 $ 549,266
20
For the years ended December 31, (Dollars in thousands, 1990 1989 1988 1987 1986 except per share amounts) ---- ---- ---- ---- ---- Results of Operations Data: Total revenue $ 881,183 $ 466,508 $ 319,029 $ 259,716 $ 191,284 Interest expense 262,646 177,474 130,913 93,275 67,145 Operating and administrative expenses 193,882 118,430 90,528 76,752 55,211 Provision for credit losses 75,508 32,222 19,135 39,227 28,049 Income before income taxes, extraordinary loss and cumulative effect on prior years of accounting change 70,891 59,346 47,306 40,269 38,816 Income before extra- ordinary loss, cumu- lative effect on prior years of accounting change and impact of tax rate change 47,755 44,416 30,756 26,147 22,659 Extraordinary loss - - - - (1,157) Cumulative effect on prior years of accounting change (1) - - - - - Impact of 1993 tax rate change (1) - - - - - Net income (1) 47,755 44,416 30,756 26,147 21,502 Earnings per share (1) 1.19 1.10 0.76 0.65 0.53 Earnings per share before tax charges (1), (2) 1.19 1.10 0.76 0.65 0.53 Dividends paid 34,423 17,746 28,192 24,674 15,195 Dividends per share (6) $ - $ - $ - $ - $ - Return on average equity 11.0% 12.7% 11.5% 11.8% 13.0% Return on average assets 1.1% 1.4% 1.2% 1.3% 1.7% Return on average equity before tax charges (2) 11.0% 12.7% 11.5% 11.8% 13.0% Return on average assets before tax charges (2) 1.1% 1.4% 1.2% 1.3% 1.7% - --------------------------------------------------------------------------- Balance Sheet Data, at December 31: Total assets $4,722,694 $3,836,799 $2,715,592 $2,324,695 $1,552,847 Total debt(3) 3,312,421 2,742,843 1,692,556 1,640,879 1,019,970 Total liabilities 4,257,186 3,435,792 2,417,280 2,074,198 1,360,870 Total shareowners' equity $ 465,508 $ 401,007 $ 298,312 $ 250,497 $ 191,977
21
At or for the years ended December 31, (Dollars in thousands, 1995 1994 1993 1992 1991 except per share amounts) ---- ---- ---- ---- ---- Other Data: Net portfolio assets of the Company $9,105,403 $7,484,798 $6,076,805 $5,600,741 $4,956,830 Allowance for credit losses 223,220 176,428 159,819 123,961 93,967 Assets of others managed by the Company 2,214,502 2,659,526 2,795,663 1,374,354 649,014 Volume of equipment financed (4) $4,567,000 $4,251,000 $3,467,000 $3,253,000 $2,453,000 Ratio of earnings to fixed charges (5) 1.50 1.62 1.57 1.44 1.29 Ratio of total debt to shareowners' equity 6.22 5.51 4.61 5.55 6.54 Ratio of allowance for credit losses to net charge-offs 4.77 3.18 2.71 1.58 1.15 Ratio of net charge- offs to portfolio assets 0.50% 0.73% 0.95% 1.37% 1.62% Ratio of allowance for credit losses to portfolio assets 2.39% 2.30% 2.56% 2.17% 1.86% At or for the years ended December 31, 1990 1989 1988 1987 1986 ------ ------ ------ ------ ------ Other Data: Net portfolio assets of the Company $4,513,280 $3,228,609 $2,529,834 $2,094,593 $1,440,626 Allowance for credit losses 75,369 37,868 42,733 52,695 29,015 Assets of others managed by the Company 313,981 102,003 18,529 - - Volume of equipment financed (4) $2,300,000 $1,729,000 $1,489,000 $1,409,000 $1,101,000 Ratio of earnings to fixed charges (5) 1.26 1.33 1.36 1.43 1.58 Ratio of total debt to shareowners' equity 7.12 6.84 5.67 6.55 5.31 Ratio of allowance for credit losses to net charge-offs 1.62 1.02 1.47 3.04 3.71 Ratio of net charge- offs to portfolio assets 1.01% 1.13% 1.13% 0.81% 0.53% Ratio of allowance for credit losses to portfolio assets 1.64% 1.16% 1.66% 2.45% 1.97%
22 (1) Net income and earnings per share for 1993 were adversely impacted by the federal tax rate increase to 35% ($12.4 million) and a cumulative effect on prior years of accounting change ($2.9 million). (See Note 10 to the Consolidated Financial Statements.) Net income and earnings per share without these charges for 1993 would have been $83.9 million and $1.95 per share, respectively. (2) The Company defines return on average equity before tax charges, return on average assets before tax charges and earnings per share before tax charges, as income before cumulative effect on prior years of accounting change and impact of tax rate change as a percentage of average equity, average assets and divided by average weighted shares outstanding, respectively. (3) Does not include certain interest free loans from AT&T to the Company under certain tax agreements, in aggregate outstanding principle amounts of $248.9 million, $214.1 million, $188.6 million, $193.1 million, $206.6 million, $239.6 million, $232.6 million, $244.5 million, $209.0 million and $134.1 million at December 31, 1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987 and 1986, respectively. (4) Total principal amount of loans and total cost of equipment associated with finance and lease transactions recorded by the Company and the increase, if any, in outstanding inventory financing loans. (5) Earnings before income taxes, extraordinary loss and cumulative effect on prior years of accounting change plus the sum of interest on indebtedness and the portion of rentals representative of the interest factor divided by the sum of interest on indebtedness and the portion of rentals representative of the interest factor. A portion of the Company's indebtedness to AT&T does not bear interest. (6) Prior to July 28, 1993, AT&T owned 100% of the Company's stock and therefore, dividends per share is not meaningful. 23 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On September 20, 1995, AT&T Corp. ("AT&T") announced a plan to pursue the public or private sale of its remaining 86% interest in AT&T Capital. As noted in AT&T's 1995 Annual Report on Form 10-K, AT&T has stated that it cannot predict the timing or terms of any such transaction. On such date, AT&T also announced a plan to separate (the "Separation") into three publicly-held stand-alone global businesses. The Separation is targeted by AT&T to be completed by the end of 1996, but remains subject to a number of conditions. For a more detailed discussion of AT&T's restructuring plans and their potential impacts on the Company, see Note 16 to the Consolidated Financial Statements. RESULTS OF OPERATIONS 1995 versus 1994 Net income for the year ended December 31, 1995, was $127.6 million, an increase of $27.2 million, or 27.1%, compared with 1994. Earnings per share were $2.70, a 26.2% increase over the $2.14 reported in 1994. The respective increases in net income and earnings per share were generated principally through increased portfolio revenues resulting from a higher level of average net portfolio assets, strong secondary market activity and a favorable credit environment. Higher interest expense and operating and administrative expenses, associated with administering a higher level of assets, partially offset the increased revenues. Finance revenue of $174.5 million increased $53.7 million, or 44.5%, for 1995 compared with 1994 while the average net finance receivable portfolio increased $396.2 million, or 32.0%, to $1,633.9 million for 1995. The increased level of average net finance receivables accounted for $38.7 million of the finance revenue increase. The increase in average yield to 10.68% in 1995 from 9.76% in 1994 contributed the remaining $15.0 million. The improved yield is primarily due to the increased level of higher yielding products in the Company's large-ticket specialty and structured finance portfolios and the Company's Small Business Administration ("SBA") portfolio. Capital lease revenue of $586.1 million increased $108.3 million, or 22.7%, for 1995, compared with 1994. This increase was due to a 22.8% increase in the average net capital lease portfolio to $5,690.1 million. The acquisition of the vendor leasing and finance companies of Banco Central Hispano and certain of its affiliates ("CFH Leasing International") was the largest contributor to the increase in the capital lease portfolio. The overall yield of 10.3% was unchanged from the prior year. Although certain of the Company's non-U.S. businesses achieved improved yields over the prior year, certain small-ticket leasing portfolios experienced decreased yields in 1995. 24 Rental revenue on operating leases of $561.0 million increased $85.6 million, or 18.0%, for 1995, compared with 1994. Depreciation on operating leases of $354.5 million increased $40.9 million, or 13.1% for 1995, compared with 1994. Rental revenue less associated depreciation ("operating lease margin") was $206.5 million, or 36.8% of rental revenue for 1995, compared with $161.8 million, or 34.0%, for 1994. The increased operating lease margin in 1995 relates primarily to a higher level of renewed leases in the Company's small-ticket telecommunications equipment portfolio, higher margins in the testing and diagnostic equipment portfolio and the automobile portfolio, as well as a reduced level of lower yielding mainframe computer assets. Net interest margin (finance revenue, capital lease revenue and rental revenue on operating leases, less depreciation on operating leases and interest expense) of $556.1 million was 6.69% of average net portfolio assets for the year ended December 31, 1995. This compares with a net interest margin of $488.7 million, or 7.29%, of average net portfolio assets for the year ended December 31, 1994. The decrease in net interest margin was due to an increase in the Company's average cost of debt, partially offset by higher yields on the Company's net portfolio assets, and an increase in the Company's debt to equity ratio. For 1995, the average cost of debt was 6.60%, compared to 5.65% in 1994 while the total portfolio yield increased to 11.64% in 1995 from 11.34% in 1994. As interest rates change, product pricing is generally adjusted to reflect the Company's higher or lower cost of borrowing. However, the pricing in connection with some small-ticket portfolios tends to lag and may not be commensurate with the change in the Company's borrowing costs. The Company's debt to equity ratio was 6.22 in 1995 versus 5.51 in 1994. Revenue from sales of equipment of $48.7 million in 1995 decreased substantially from $126.6 million in 1994. Similarly, cost of equipment sales of $43.4 million in 1995 decreased from $117.0 million in 1994. The Company is experiencing lower equipment sales generally due to a shift in customer behavior away from the purchase of mainframe computers. Equipment sales revenue less associated cost of equipment sales ("equipment sales margin") was $5.4 million, or 11.0% of equipment sales revenue for the year ended December 31, 1995. Equipment sales margin for the year ended December 31, 1994, was $9.6 million, or 7.6% of equipment sales revenue. The equipment sales margin for 1995 was favorably impacted by increased trading in the higher margin mid-range computer area, a relatively new market for the Company. 25 Other revenue of $206.7 million increased $23.2 million, or 12.7%, in 1995, compared with 1994. Other revenue consists mainly of sales of leased and off-lease equipment, gains on receivables securitized and SBA loan sales, portfolio servicing fees and other fee related revenue (see Note 6 to the Consolidated Financial Statements). The increase in other revenue was primarily generated from higher remarketing gains of $10.5 million from sales of leased and off-lease equipment, higher gains on the sale of SBA loans of $9.0 million and increased other fee related revenue of $5.2 million. These increases were somewhat offset by a decrease of $8.9 million in securitization gains, as well as lower portfolio servicing fees of $3.6 million due to a lower managed asset base. In the fourth quarter of 1995 and 1994, respectively, the Company securitized $74.8 million and $259.1 million of lease receivables resulting in gains of $5.9 million and $14.8 million. The gain on receivables securitized as a percent of the assets securitized (the "spread") was 7.8% in 1995 and 5.7% in 1994. The improvement in the securitization spread is due primarily to a lower discount rate used in the 1995 securitization as a result of a lower interest rate environment. Under the terms of this and previous years' securitizations, the Company is liable to the purchasers of such receivables for a limited amount of recourse granted by the Company to such purchasers. In the unlikely event that all such receivables became uncollectible, the Company's maximum exposure under limited recourse provisions granted to the purchasers of all securitized lease receivables would have been $254.8 million and $353.1 million at December 31, 1995 and 1994, respectively. In addition, the Company provides such purchasers with billing and collection and other services with respect to such securitized receivables. At December 31, 1995, total assets managed by the Company on behalf of others were $2.2 billion compared with $2.7 billion at December 31, 1994. The decrease in the level of assets managed is attributable to normal run-off coupled with lower securitization activity. The total assets managed on behalf of AT&T and its affiliates represented 68.0% and 55.9% of the total assets managed at December 31, 1995 and 1994, respectively. 26 The following table shows the respective percentages of the assets, revenues and net income (loss) related to United States and foreign operations attributable to (i) leasing and financing services provided by the Company to customers of AT&T , (ii) transactions involving AT&T as end-user and (iii) the Company's non-AT&T business, in each case at or for the years ended December 31, 1995, 1994 and 1993. The net income (loss) shown below was calculated based upon what the Company believes to be a reasonable allocation of interest, income taxes and certain corporate overhead expenses. - --------------------------------------------------------------------------------
At or for the year ended December 31, 1995 Assets Revenues Net Income (Loss) -------------------- --------------------- --------------------- U.S. Foreign Total U.S. Foreign Total U.S. Foreign Total % % % % % % % % % - --------------------------------------------------------------------------- Customers of AT&T 29.4 0.1 29.5 32.3 0.4 32.7 67.2 0.7 67.9 AT&T as End-User 5.3 - 5.3 8.3 - 8.3 8.2 - 8.2 Non-AT&T Business 47.8 17.4 65.2 46.3 12.7 59.0 27.0 (3.1) 23.9 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total 82.5 17.5 100.0 86.9 13.1 100.0 102.4 (2.4) 100.0 - --------------------------------------------------------------------------- At or for the year ended December 31, 1994 Assets Revenues Net Income (Loss) -------------------- --------------------- --------------------- U.S. Foreign Total U.S. Foreign Total U.S. Foreign Total % % % % % % % % % - --------------------------------------------------------------------------- Customers of AT&T 34.3 0.3 34.6 33.1 0.3 33.4 83.9 (1.4) 82.5 AT&T as End-User 6.8 - 6.8 9.5 - 9.5 8.5 - 8.5 Non-AT&T Business 48.0 10.6 58.6 47.8 9.3 57.1 11.8 (2.8) 9.0 ----- ----- ----- ----- ----- ----- ----- ----- ---- Total 89.1 10.9 100.0 90.4 9.6 100.0 104.2 (4.2) 100.0 - --------------------------------------------------------------------------
27
At or for the year ended December 31, 1993 Assets Revenues Net Income (Loss) -------------------- --------------------- --------------------- U.S. Foreign Total U.S. Foreign Total U.S. Foreign Total* % % % % % % % % % - --------------------------------------------------------------------------- Customers of AT&T 38.1 0.3 38.4 31.1 0.2 31.3 99.8 (1.7) 98.1 AT&T as End-User 9.5 - 9.5 14.9 - 14.9 20.8 - 20.8 Non-AT&T Business 46.1 6.0 52.1 47.8 6.0 53.8 (6.9) (12.0) (18.9) ----- ----- ----- ----- ----- ----- ------ ----- ------ Total 93.7 6.3 100.0 93.8 6.2 100.0 113.7 (13.7) 100.0 - --------------------------------------------------------------------------
*The customers of AT&T, AT&T as end-user and non-AT&T business net income (loss) before cumulative effect of the 1993 accounting change and impact of the tax rate change was 89.0%, 20.2% and (9.2%), respectively. For a description of the 1993 change and impact of the tax rate change, see Note 10 to the Consolidated Financial Statements. The Company intends to continue its strategy of expanding its non-AT&T businesses, while at the same time enhancing its relationship with AT&T and its affiliates. Because the growth in revenues generated by the Company's non-AT&T businesses can be expected to lag behind the incurrence of expenses necessary to expand and operate such businesses, the Company anticipates that the percentage of its total net income and revenues attributable to non-AT&T businesses may vary from year to year depending upon the stage of development of these non-AT&T businesses. The increases in the non-AT&T 1995 assets and revenues (as a % of total Company) were generated almost equally from U.S. and foreign operations. The significant increase realized from U.S. non-AT&T related net income was primarily generated from the Company's large-ticket specialty and structured finance activities, SBA loan sales and growth in the automobile portfolio. Net losses from foreign non-AT&T businesses somewhat offset the strong U.S. results. The securitization of certain non-AT&T portfolio assets positively affected the net income of the non-AT&T businesses in all years presented; however, the Company decreased the amount of securitizations each year from 1993 to 1995. Partly as a result of the reduction in securitized assets, the portion of the Company's non-AT&T net income attributable to securitization has decreased by 88.7% from 1993 to 1995 (see Note 6 to the Consolidated Financial Statements). 28 Growth in the Company's portfolio assets primarily caused the average borrowings outstanding to increase by 29.5%, or $1.4 billion, to $6.2 billion, while the Company's interest expense increased 51.2%, or $139.2 million, to $411.0 million for 1995, compared with the prior year. The Company's 1995 debt to equity ratio increased to 6.22 from 5.51. The increase in average borrowings caused interest expense to increase by approximately $80.1 million. A higher average cost of debt in 1995 (versus 1994) increased interest expense by $59.1 million. The Company's average 1995 interest rate on borrowings was 6.60% as compared to 5.65% in 1994. The increase in the Company's 1995 average cost of debt is a function of the Company issuing new debt at higher average rates than the debt that matured during 1995. During 1995, the Company issued approximately $2.9 billion of medium and long-term debt with an average interest rate of 7.2%. The Company had $1.8 billion of medium and long-term debt with an average interest rate of 5.9% mature in 1995. In addition, the Company's average interest rate on commercial paper increased to 5.3% in 1995, up from 4.3% in 1994. Operating and administrative expenses of $473.7 million increased $46.5 million, or 10.9%, in 1995, compared with 1994. This increase includes $27.0 million of expenses associated with the start-up of certain non-AT&T businesses, acquisitions and international expansion. In addition, higher expenses were incurred associated with managing a higher level of portfolio assets. For 1995, operating and administrative expenses to total year-end assets decreased to 4.96% compared with 5.33% for 1994. This decrease can be attributed to some of the Company's businesses (including recent start-up businesses) more fully utilizing their infrastructure, increased operating efficiencies and increases in assets financed. The Company's goal is to reach 4.5% or lower within the next few years. The effective income tax rate was 38.7% and 42.2% for 1995 and 1994, respectively. The decline in the effective tax rate for 1995, compared with 1994, resulted from several factors including a lower level of non-tax deductible goodwill and various other decreases. See "Credit Quality" below for a discussion of the provision for credit losses. 29 1994 versus 1993 Net income for the year ended December 31, 1994, was $100.3 million, an increase of $31.7 million, or 46.3%, compared with 1993. Earnings per share for the year ended December 31, 1994, were $2.14, a 33.8% increase over the $1.60 reported in 1993. The increase in net income and earnings per share for 1994 compared with 1993 was impacted by the 1993 adoption of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which resulted in a cumulative effect of accounting change of $2.9 million, and an $11.4 million charge to reflect the impact on deferred tax balances of the third quarter 1993 increase in the income tax rate to 35% from 34%. Absent the 1993 effect of adopting SFAS No. 109 and the impact of the increase in the income tax rate, net income increased $17.4 million, or 21.0%, and earnings per share increased $.21 per share. The increase principally reflected a higher average level of finance assets resulting from both origination volume and acquisitions of portfolios and businesses, and improved portfolio performance attributable to a stronger economy, which contributed to a lower provision for credit losses. Finance revenue of $120.8 million increased $13.4 million, or 12.4%, for 1994, compared with 1993, while the average earning finance receivable portfolio increased $165.3 million, or 15.8%, to $1,213.3 million for 1994. The increase in finance revenue due to the higher average earning finance receivables was offset by slightly lower average yield rates earned on the average 1994 portfolio compared with rates earned on the average 1993 portfolio. This was consistent with the Company's slightly lower average cost of debt (see interest expense discussion below). A higher interest rate environment generally does not impact the margin on assets that are already recorded by the Company, since the Company employs a well-defined strategy to match fund assets with borrowings in order to limit interest rate risk. The effects of higher borrowing costs would be reflected in the pricing of new assets leased or financed. As the lower yielding earning assets (as well as the corresponding lower cost borrowings) are replaced with higher yielding assets, reflective of the current interest rate environment, the Company's average rates associated with recorded assets and associated borrowings will increase. Capital lease revenue of $477.9 million increased $85.9 million, or 21.9%, for 1994, compared with 1993, while the average earning capital lease portfolio increased $1,007.4 million, or 27.6%, to $4,653.3 million for 1994. $40.7 million of the increase in capital lease revenue for 1994, compared with 1993, was due to international acquisitions and expansion. The growth in capital lease revenue resulted from a higher level of assets (including an AT&T mainframe computer lease extension which resulted in the reclassification of the lease from an operating lease to a capital lease) but was partially offset by a decline in yields due to lower average rates associated with recorded assets of the Company. As noted above, this was consistent with the Company's slightly lower cost of debt. However, the Company experienced some margin compression in certain equipment leasing portfolios as pricing in connection with some portfolios is less reactive to interest rate movements. 30 Rental revenue on operating leases of $475.4 million decreased $26.8 million, or 5.3%, for 1994, compared with 1993. Depreciation on operating leases of $313.6 million decreased $20.6 million, or 6.2%, for 1994, compared with 1993. These decreases were primarily due to the AT&T mainframe computer lease extension during the first quarter of 1994. The terms of the extension, which reduced the Company's mainframe residual exposure, resulted in the reclassification of the lease from an operating lease to a capital lease. The impact of this lease extension reduced rental revenue and depreciation on operating leases by $75.3 million and $51.2 million, respectively. While U.S. rental revenue and depreciation decreased, rental revenue and depreciation related to the Company's international operations increased $13.0 million and $10.8 million, respectively, for 1994 compared with 1993. Operating lease margin was $161.8 million, or 34.0%, of rental revenue for 1994, compared with $167.9 million, or 33.4%, for 1993. Market forces, economic uncertainty and the transition to a new generation of mainframes and technological alternatives, adversely impacted the market for mainframe computers. At December 31, 1994, $527.1 million, or 7.0%, of portfolio assets (with related residual values of $79.1 million) related to mainframe computers. This compares with $687.0 million, or 11.3%, (with related residual values of $232.2 million) at December 31, 1993. For the year ended December 31, 1994, revenue from sales of equipment purchased for resale of $126.6 million decreased $35.0 million, or 21.6%, compared with 1993. Cost of equipment sales of $117.0 million decreased $28.8 million, or 19.8%, for 1994, compared with 1993. Equipment sales margin was $9.6 million, or 7.6%, of equipment sales revenue for the year ended December 31, 1994. Equipment sales margin for the year ended December 31, 1993, was $15.7 million, or 9.7%, of equipment sales revenue. The decrease in the equipment sales margin as a percentage of related revenue reflected the continued softness in the mainframe computer market, as well as increased competition. In 1993, the Company, was able to seize an opportunity to expand this activity to Europe. However, the European market experienced increased competition in 1994. Other revenue of $183.5 million decreased $13.0 million, or 6.6%, in 1994, compared with 1993. The decrease in other revenue was primarily due to lower securitization gains of $36.7 million and lower service fee revenue of $10.2 million. The decreases were partially offset by increased gains on sales of leased and off-lease equipment of $26.8 million. 31 In the fourth quarter of 1994, the Company securitized $259.1 million of lease receivables resulting in a gain of $14.8 million. Similar securitizations in the first and fourth quarters of 1993 of $561.9 million in lease receivables resulted in $51.5 million in gains. While the assets securitized in 1994 were down by 53.9%, the related gain decreased by 71.3%. The difference was primarily attributable to a higher discount rate used in the 1994 securitization due to the higher interest rate environment. At December 31, 1994, total assets managed by the Company on behalf of others were $2.7 billion compared with $2.8 billion at December 31, 1993. Of the total assets managed by the Company on behalf of others, 55.9% in 1994 and 59.2% in 1993, were assets managed on behalf of AT&T and its affiliates. Growth in the Company's portfolio assets caused the average borrowings outstanding to increase by 15.6%, or $650.2 million, to $4.8 billion, while the Company's interest expense increased 15.0%, or $35.5 million, to $271.8 million for 1994, compared with 1993. The increase in average borrowings caused interest expense to increase by approximately $37.0 million. This increase was partially offset by $1.5 million in lower interest expense due to lower average interest rates. The Company's average interest rate on borrowings was 5.65% for 1994, compared with 5.68% for 1993. The increase in borrowing costs was reflected in new borrowings made by the Company. Operating and administrative expenses of $427.2 million increased $45.7 million, or 12.0%, in 1994, compared with 1993. The increase was primarily attributable to expenses of approximately $30.0 million associated with the start-up of certain non-AT&T businesses, acquisitions and international expansion as well as expenses of $10.9 million associated with the Company's new benefit and incentive plans. Also contributing to the increase were higher expenses associated with managing a higher level of portfolio assets. For 1994, operating and administrative expenses to total year-end assets decreased to 5.33% compared with 5.95% for 1993. This decrease was attributed to some of the Company's start-up businesses more fully utilizing their infrastructure, increased operating efficiencies and timing of assets financed. 32 Effective January 1, 1993, the Company adopted SFAS No. 109. The change in accounting for income taxes resulted in a charge to earnings of $2.9 million in the first quarter of 1993 as the cumulative effect on prior years of this change, but had no effect on cash flows. The majority of this charge related to establishing a valuation allowance against certain deferred tax assets relating to state and local income taxes. The effective income tax rate was 42.2% and 48.2% for 1994 and 1993, respectively. The decrease was primarily due to the effect of the retroactive tax rate increase recorded in the third quarter of 1993. Due to the increase in the federal statutory corporate income tax rate from 34% to 35% signed into law in August 1993, the Company recorded an additional charge to the provision for income taxes of $12.4 million in 1993. The $12.4 million charge includes the impact of increasing previously recorded deferred tax liabilities by $11.4 million. (See Note 10 to the Consolidated Financial Statements.) Excluding the $11.4 million impact of increasing previously recorded deferred tax liabilities to reflect the increase in the federal statutory corporate income tax rate for 1993, the effective tax rate would have been 39.9%. The increase in the effective tax rate for 1994, compared with the adjusted effective tax rate for 1993, was due to increased non-deductible goodwill amortization expense related to goodwill associated with assets that were sold during the second quarter of 1994 as well as various other increases. See "Credit Quality" below for a discussion of the provision for credit losses. CREDIT QUALITY The active management of credit losses is an important element of the Company's business. The Company seeks to minimize its credit risk through diversification of its portfolio assets by customer, industry segment, geographic location and maturity. The Company's financing activities have been spread across a wide range of equipment types (e.g., telecommunications, general equipment (consists of general office, manufacturing and medical equipment), information technology and transportation) and real estate and a large number of customers located throughout the United States and, to a lesser extent, abroad. 33 As reflected below, the Company's portfolio credit performance indicators have continued to be favorable in 1995.
At or for the year ended December 31: (dollars in millions) 1995 1994 1993 - --------------------------------------------------------------------------- Allowance for credit losses $223.2 $176.4 $159.8 Nonaccrual assets $118.5 $120.5 $160.6 Net charge-offs/Portfolio assets .50% .73% .95% Allowance for credit losses/Portfolio assets 2.39% 2.30% 2.56% Nonaccrual assets/Portfolio assets 1.27% 1.57% 2.58% Delinquency (two months or greater) 1.46% 1.49% 2.41%
The Company maintains an allowance for credit losses at a level management believes is adequate to cover estimated losses in the portfolio based on a review of historical loss experience, a detailed analysis of delinquencies and problem portfolio assets, and an assessment of probable losses in the portfolio as a whole given its diversification. Management also takes into consideration the potential impact of existing and anticipated economic conditions. FINANCIAL CONDITION Net portfolio assets (investment in finance receivables, capital leases and operating leases, net of reserves) increased by $1.6 billion, or 21.7%, at December 31, 1995, to $9.1 billion compared with December 31, 1994, principally due to growth in the capital lease portfolio. In January 1995, the Company acquired CFH Leasing International which has locations in the United Kingdom, Germany, France, Italy, Belgium and the Netherlands. CFH Leasing International provides financial services to equipment manufacturers and vendors. With offices throughout western Europe, it serves approximately 4,600 customers and had approximately $540 million in assets at the time of acquisition. The Company also acquired two relatively small businesses in the second quarter of 1995, a United States mid-range computer asset business with approximately $180 million in assets and an Australian equipment finance company with approximately $40 million in assets. As a result of the above mentioned international acquisitions, the Company's international assets (excluding cross border transactions) at December 31, 1995, grew to 17.5% of total assets, up from 10.9% at December 31, 1994. The net investment in finance receivables increased by $.3 billion, or 23.9% to $1.8 billion at December 31, 1995 compared with December 31, 1994 primarily due to increased loans related to transportation equipment, the acquisition of CFH Leasing International and growth in the SBA lending portfolio. 34 The net investment in capital leases increased by $1.1 billion, or 20.6% at December 31, 1995, to $6.2 billion compared with December 31, 1994. This increase was primarily due to the acquisition of CFH Leasing International and growth in the Company's small-ticket equipment portfolios. The net investment in operating leases increased by $.2 billion, or 23.8%, at December 31, 1995, to $1.1 billion compared with the prior year. The increase was primarily due to growth in the automobile portfolio, small-ticket equipment portfolios and international businesses including the acquisition of CFH Leasing International. The Company regularly monitors its estimates of residual values for all leased equipment, including mainframe computers, and believes that its residual values are conservatively stated. 35 LIQUIDITY AND CAPITAL RESOURCES The Company generates a substantial portion of its funds to support the Company's operations from lease and rental receipts, but is also highly dependent upon external financing, including the issuance of commercial paper and medium and long-term debt in public markets and, to a lesser extent, privately placed asset-backed financings (or securitizations) and foreign bank lines of credit. Standard & Poor's, Moody's Investors Service, and Duff & Phelps Credit Rating Co. have rated the Company's senior medium and long-term debt A, A3 and A, respectively, and have rated the Company's commercial paper A-1, P-1 and D-1, respectively. In connection with the previously mentioned September 20, 1995 restructuring announcement by AT&T, the Company's senior medium and long-term debt and commercial paper ratings were placed on Credit Watch by Standard & Poor's and under Review by Moody's Investors Service. Duff & Phelps Credit Rating Co. affirmed the Company's senior medium and long-term debt and commercial paper ratings. Funds required to support the Company's operations during 1995, were derived internally primarily from principal and interest collections from customers (which include realization of cash from residual values through remarketing activities), and externally from issuances of commercial paper, and issuances of medium and long-term debt. The Company estimates that, under existing lease and loan terms, gross cash receipts of approximately $9.7 billion may be generated in the future. In 1995, the Company issued commercial paper of $28.0 billion, issued medium and long-term notes of $2.9 billion and made commercial paper repayments of $28.2 billion and repaid medium and long-term debt of $1.8 billion. In 1994, the Company issued commercial paper of $29.0 billion and made commercial paper repayments of $28.4 billion, and issued medium and long-term debt of $2.1 billion and repaid medium and long-term debt of $1.4 billion. During 1995 and 1994, principal collections from customers and proceeds from securitized receivables and SBA loan sales of approximately $4.1 billion and $3.9 billion, respectively, were received. These receipts were primarily used for financing portfolio assets (including purchases of finance asset portfolios and businesses) of approximately $5.8 billion in 1995, and $5.5 billion in 1994. In conjunction with acquisitions, in 1995 and 1994 the Company assumed $473.0 million and $106.9 million of debt respectively, of which $53.6 million was outstanding at December 31, 1995. 36 During 1995 and 1994, the Securities and Exchange Commission ("SEC") declared effective debt registration statements (which allow the Company to issue debt to the public) of $3.0 billion and $2.5 billion, respectively. As of December 31, 1995, all of the debt associated with the 1994 registration statement was issued and $2.0 billion was available for issuance under the Company's 1995 debt registration. In the second quarter of 1995, the Company re-established credit facilities of $2.0 billion. These facilities, negotiated with a consortium of 35 lending institutions, support the commercial paper issued by the Company. At December 31, 1995, these facilities were unused. In addition, the Company's foreign operations have short-term bank lines of credit of approximately $1.0 billion, of which $.6 billion was unused at December 31, 1995. The Company has, from time to time, borrowed funds on an interest free basis directly from AT&T pursuant to a Gross Profit Tax Deferral Interest Free Loan Agreement. The aggregate outstanding principal balance of such interest free loans was $248.9 million at December 31, 1995. As discussed in more detail in Note 16 to the Consolidated Financial Statements, the Company is obligated to repay such loans if the Company were to cease being a member of AT&T's consolidated group for federal income tax purposes. Future financing is contemplated to be arranged as necessary to meet the Company's capital and other requirements with the timing of issue, principal amount and form depending on the Company's needs and prevailing market and general economic conditions. The Company anticipates obtaining necessary external financing through issuances of commercial paper and medium and long-term debt and available lines of credit for certain foreign operations, and to a lesser extent asset-backed financings (or securitizations). The Company considers its current financial resources, together with the debt facilities referred to above and estimated future cash flows, to be adequate to fund the Company's future growth and operating requirements. The Company has paid quarterly dividends every quarter since the fourth quarter of 1993, its first full quarter of operations after its initial public offering. On January 19, 1996, the Company's Board of Directors declared a quarterly dividend of eleven cents per share. The dividend is payable on February 29, 1996, to shareowners of record as of February 9, 1996. 37 ASSET AND LIABILITY MANAGEMENT AT&T Capital's asset and liability management process takes a coordinated approach to the management of interest rate and foreign currency risks. The Company's overall strategy is to match the average maturities of its borrowings with the average cash flows of its portfolio assets, as well as the currency denominations of its borrowings with those of its portfolio assets, in a manner intended to reduce the Company's interest rate and foreign currency exposure. The following discussion describes certain key elements of this process, including AT&T Capital's use of derivatives to manage risk. Match Funding The Company generally matches the duration and maturity structure of its liabilities to that of its portfolio assets. The Company routinely projects the expected future cash flows related to its current portfolio assets. Based on these projections, the Company is able to match the maturity and duration of its debt with that of its assets. The cash flow projections incorporate assumptions about customer behavior such as prepayments, refinancings and charge-offs. The assumptions are based on historical experience with the Company's individual markets and customers and are continually monitored and updated as markets and customer behaviors change, to reflect current customer preferences, competitive market conditions, portfolio growth rates and portfolio mix. Interest Rate Risk and Currency Exchange Risk The Company actively manages interest rate risk to protect the Company's margins on existing transactions. Interest rate risk is the risk of earnings volatility attributable to changes in interest rates. The Company routinely analyzes its portfolio assets and strives to match floating rate assets with floating rate debt and fixed rate assets with fixed rate debt. The Company generally achieves a matched position through issuances of commercial paper and medium and long-term debt, as well as through the use of interest rate swaps. The Company does not speculate on interest rates, but rather seeks to mitigate the possible impact of interest rate fluctuations encountered through the normal course of business. This is a continual process due to prepayments, refinancings, nonaccrual leases and loans, as well as other portfolio dynamics, and therefore, interest rate risk can be significantly limited but never fully eliminated. Additionally, the Company enters into foreign exchange contracts and participates in the currency swap market to mitigate its exposure to assets and liabilities denominated in foreign currencies and to meet local funding requirements. The Company has and expects to continue to enter into foreign exchange contracts and currency swaps in 1996 as a result of its international operations. 38 Using Derivatives to Manage Interest Rate and Currency Risk AT&T Capital uses derivatives to match fund its portfolio and thereby manage interest rate and currency risk. Derivatives can be customized in terms of duration and interest rate basis (i.e., fixed or floating). Derivatives used by the Company are operationally efficient to arrange and maintain. Whether AT&T Capital issues medium and long-term debt, on which it pays a fixed rate, or issues floating rate debt and utilizes interest rate swaps, on which it generally pays a fixed rate and receives a floating rate, the Company's interest rate risk position can be equally well managed. However, it is the interplay between liquidity, capital, portfolio characteristics, and economic and market conditions which will determine the final mix of medium and long-term debt, commercial paper and swaps (or other derivatives) used to manage interest rate risk. Notes 7 and 13 to the Consolidated Financial Statements provide more details regarding the Company's debt portfolio and interest rate and currency swap and foreign exchange contract positions. As of December 31, 1995 the total notional amount of the Company's interest rate and currency swaps was $2.2 billion and $.3 billion, respectively, as compared to $2.7 billion and $.2 billion, respectively, as of December 31, 1994. The U.S. dollar equivalent of the Company's foreign currency forward exchange contracts was $658.8 million and $318.1 million at the end of 1995 and 1994, respectively. Derivative Credit Risk The notional amount of derivative contracts does not represent direct credit exposure. Rather, credit exposure may be defined as the market value of the derivative contract and the ability of the counterparty to perform its payment obligation under the agreement. The majority of the Company's interest rate swaps require AT&T Capital to pay a fixed rate and receive a floating rate. Therefore, this risk is reduced in a declining interest rate environment as the Company is generally in a payable position, and is increased in a rising interest rate environment as the Company is generally in a receivable position. The Company seeks to control the credit risk of its interest rate swap agreements through credit approvals, exposure limits and monitoring procedures. All swap agreements are with major money center banks and intermediaries rated investment grade by national rating agencies, with the majority of the Company's counterparties being rated "AA" or better. There were no past due amounts or reserves for credit losses at December 31, 1995, related to derivative transactions. The Company has never experienced a credit related charge-off associated with derivative transactions. Debt to Equity The Company's ratio of total debt to equity at December 31, 1995 was 6.22 compared to 5.51 at December 31, 1994. This increase is consistent with the Company's trend toward its current target leverage of approximately 6.25. 39 RECENT PRONOUNCEMENTS Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", and No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". These standards require that impaired loans be measured based on the present value of expected cash flows, discounted at the loan's effective interest rate, or the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent, as well as requiring certain related disclosures. The adoption of these statements did not have a material effect on the Company's consolidated financial statements. Effective October 1, 1995, the Company adopted SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". This standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of the standard did not have a material impact on the Company's consolidated financial statements. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. This standard is effective for fiscal years beginning after December 15, 1995 and will allow companies to choose either 1) a fair value method of valuing stock-based compensation plans which will affect reported net income, or 2) to continue following the existing accounting rules for stock option accounting but disclose what the impacts would have been had the new standard been adopted. The Company will choose the disclosure option of this standard which would require disclosing the pro forma net income and earnings per share amounts assuming the fair value method was adopted on January 1, 1995. As a result, the adoption of this standard will not impact the Company's results of operations, financial position or cash flows. 40 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AT&T CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------- At December 31, 1995 1994 (Dollars in Thousands) - ------------------------------------------------------------------------------- ASSETS: Cash and cash equivalents $ 3,961 $ 54,464 Net investment in finance receivables 1,800,636 1,452,947 Net investment in capital leases 6,187,131 5,129,326 Net investment in operating leases, net of accumulated depreciation of $642,728 in 1995 and $567,398 in 1994 1,117,636 902,525 Deferred charges and other assets 431,895 482,661 - --------------------------------------------------------------------------- Total Assets 9,541,259 8,021,923 - --------------------------------------------------------------------------- LIABILITIES AND SHAREOWNERS' EQUITY: LIABILITIES: Short-term notes, less unamortized discounts of $9,698 in 1995 and $4,619 in 1994 2,212,351 2,176,877 Deferred income taxes 555,296 555,287 Income taxes and other payables 581,000 545,270 Payables to AT&T and affiliates 360,429 356,690 Medium and long-term debt 4,716,058 3,379,581 Commitments and contingencies - --------------------------------------------------------------------------- Total Liabilities $8,425,134 $7,013,705 - ---------------------------------------------------------------------------
(Continued on next page) 41 AT&T CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)
- ------------------------------------------------------------------------------- At December 31, 1995 1994 (Dollars in Thousands) - ------------------------------------------------------------------------------- SHAREOWNERS' EQUITY: Common stock, one cent par value: Authorized 100,000,000 shares, issued and outstanding, 46,968,810 shares in 1995 and 46,962,439 in 1994 $ 470 $ 470 Additional paid-in capital 783,244 782,785 Recourse loans to senior executives (20,512) (19,651) Foreign currency translation adjustments (2,173) (2,158) Retained earnings 355,096 246,772 - ------------------------------------------------------------------------------- Total Shareowners' Equity 1,116,125 1,008,218 - ------------------------------------------------------------------------------- Total Liabilities and Shareowners' Equity $9,541,259 $8,021,923 - -------------------------------------------------------------------------------
The accompanying notes are an integral part of these Consolidated Financial Statements. 42 AT&T CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------- For the Years Ended December 31, 1995 1994 1993 (Dollars in Thousands, except per share amounts) - --------------------------------------------------------------------------- REVENUES: Finance revenue $ 174,523 $ 120,800 $ 107,436 Capital lease revenue 586,141 477,875 391,985 Rental revenue on operating leases (includes $86,651 in 1995, $79,573 in 1994 and $158,592 in 1993 from AT&T and affiliates) 560,964 475,375 502,132 Equipment sales 48,724 126,567 161,529 Other revenue, net 206,683 183,462 196,507 - --------------------------------------------------------------------------- Total Revenues 1,577,035 1,384,079 1,359,589 - --------------------------------------------------------------------------- EXPENSES: Interest (includes $21,602 in 1993 to AT&T and affiliates) 411,040 271,812 236,335 Operating and administrative (includes $25,532 in 1995, $24,729 in 1994 and $44,775 in 1993 to AT&T and affiliates) 473,663 427,187 381,515 Depreciation on operating leases 354,509 313,583 334,191 Cost of equipment sales 43,370 116,995 145,830 Provision for credit losses 86,214 80,888 123,678 - --------------------------------------------------------------------------- Total Expenses 1,368,796 1,210,465 1,221,549 - --------------------------------------------------------------------------- Income before income taxes and cumulative effect on prior years of accounting change 208,239 173,614 138,040 Provision for income taxes 80,684 73,278 66,530 - --------------------------------------------------------------------------- Income before cumulative effect on prior years of accounting change 127,555 100,336 71,510 Cumulative effect on prior years of accounting change - - (2,914) - --------------------------------------------------------------------------- NET INCOME $ 127,555 $ 100,336 $ 68,596 - ---------------------------------------------------------------------------
(Continued on next page) 43 AT&T CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Continued)
- --------------------------------------------------------------------------- For the Years Ended December 31, 1995 1994 1993 (Dollars in Thousands, except per share amounts) - --------------------------------------------------------------------------- Earnings per common share and common share equivalent: Income before cumulative effect on prior years of accounting change $ 2.70 $ 2.14 $ 1.67 Cumulative effect on prior years of accounting change - - (.07) - --------------------------------------------------------------------------- Net Income Per Share $ 2.70 $ 2.14 $ 1.60 - --------------------------------------------------------------------------- Weighted average shares outstanding (thousands): 47,182 46,906 43,002 - ---------------------------------------------------------------------------
The accompanying notes are an integral part of these Consolidated Financial Statements. 44 AT&T CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
- -------------------------------------------------------------------------- For the Years Ended December 31, 1995 1994 1993 (Dollars in Thousands) - -------------------------------------------------------------------------- Common stock Balance at beginning of year $ 470 $ 469 $ 403 Stock issuances: Public offering - - 58 Pension and benefit plans - 1 8 - -------------------------------------------------------------------------- Balance at end of year 470 470 469 - -------------------------------------------------------------------------- Additional paid-in capital Balance at beginning of year 782,785 780,591 638,371 Capital contributions - - 9,106 Stock issuances, net: Public offering - - 114,482 Pension and benefit plans 459 2,194 18,632 - -------------------------------------------------------------------------- Balance at end of year 783,244 782,785 780,591 - -------------------------------------------------------------------------- Recourse loans to senior executives Balance at beginning of year (19,651) (17,788) - Loans made (2,613) (2,760) (17,788) Loans repaid 1,752 897 - - -------------------------------------------------------------------------- Balance at end of year (20,512) (19,651) (17,788) - -------------------------------------------------------------------------- Foreign currency translation adjustments Balance at beginning of year (2,158) (2,603) (1,547) Unrealized translation gain (loss) (15) 445 (1,056) - -------------------------------------------------------------------------- Balance at end of year (2,173) (2,158) (2,603) - -------------------------------------------------------------------------- Retained earnings Balance at beginning of year 246,772 163,774 99,394 Net income 127,555 100,336 68,596 Cash dividends paid (19,231) (17,338) (4,216) - -------------------------------------------------------------------------- Balance at end of year 355,096 246,772 163,774 - -------------------------------------------------------------------------- Total Shareowners' Equity $1,116,125 $1,008,218 $924,443 - --------------------------------------------------------------------------
The accompanying notes are an integral part of these Consolidated Financial Statements. 45 AT&T CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------- For the Years Ended December 31, 1995 1994* 1993* (Dollars in Thousands) - --------------------------------------------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 127,555 $ 100,336 $ 68,596 Noncash items included in income: Depreciation and amortization 412,044 353,954 384,933 Deferred taxes (2,772) 106,384 43,419 Provision for credit losses 86,214 80,888 123,678 Gain on receivables securitizations (5,866) (14,799) (51,496) Gain on SBA loan sales (10,508) (1,512) (1,192) Cumulative effect on prior years of accounting change - - 2,914 Decrease (increase) in deferred charges and other assets 34,614 (124,305) 12,640 Increase in income taxes and other payables 50,362 3,068 72,451 Decrease in payables to AT&T and affiliates (3,509) (10,257) (1,340) - --------------------------------------------------------------------------- Net Cash Provided by Operating Activities 688,134 493,757 654,603 - --------------------------------------------------------------------------- CASH FLOW FROM INVESTING ACTIVITIES: Acquisitions of fixed assets, net (8,018) (6,622) (6,555) Purchase of businesses, net of cash acquired (294,472) (234,375) - Purchase of finance asset portfolios (19,769) (217,939) (100,589) Financings and lease equipment purchases (5,467,773) (5,031,041) (5,027,031) Principal collections from customers, net of amounts included in income 3,855,592 3,553,620 3,612,043 Cash proceeds from receivables securitizations 134,316 286,821 572,348 Cash proceeds from SBA loan sales 157,160 19,585 10,684 - -------------------------------------------------------------------------- Net Cash Used for Investing Activities $(1,642,964) $(1,629,951) $ (939,100) - ---------------------------------------------------------------------------
(Continued on next page) 46 AT&T CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- --------------------------------------------------------------------------- For the Years Ended December 31, 1995 1994* 1993* (Dollars in Thousands) - --------------------------------------------------------------------------- CASH FLOW FROM FINANCING ACTIVITIES: (Decrease) increase in short-term notes, net $ (207,045) $ 523,370 $ (355,463) Additions to medium and long-term debt 2,905,920 2,142,993 1,161,638 Repayments of medium and long-term debt (1,828,426) (1,448,470) (632,563) Increase (decrease) in payables to AT&T and affiliates 53,109 (9,897) 9 Dividends paid (19,231) (17,338) (4,216) Proceeds from sale of common stock, net - - 115,092 - --------------------------------------------------------------------------- Net Cash Provided by Financing Activities 904,327 1,190,658 284,497 - --------------------------------------------------------------------------- Net (Decrease) Increase in Cash and Cash Equivalents (50,503) 54,464 - Cash and Cash Equivalents at Beginning of Period 54,464 - - - --------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 3,961 $ 54,464 $ - - ---------------------------------------------------------------------------
Interest paid, including discount on commercial paper, was $365,473, $253,960 and $247,565 during 1995, 1994 and 1993, respectively. Net income taxes paid (received) were $27,781, $55,712 and $(22,972) during 1995, 1994 and 1993, respectively. Noncash Investing and Financing Activities: In 1995, 1994 and 1993, the Company entered into capital lease obligations of $105,215, $41,442 and $25,259, respectively, for equipment that was subleased. In 1995 and 1994, the Company assumed debt in conjunction with acquisitions of $472,952 and $106,945, respectively. In 1993, Old Capital (as defined in Note 1) made capital contributions to the Company of $9,106 primarily relating to deferred tax assets arising as a result of the Restructuring. * Certain amounts have been reclassified to conform to the 1995 presentation. The accompanying notes are an integral part of these Consolidated Financial Statements. 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, except per share amounts) 1. THE COMPANY For a discussion regarding the potential impacts of AT&T Corp.'s ("AT&T") announcement to sell its 86% interest in AT&T Capital Corporation ("AT&T Capital" or the "Company"), see Note 16. Background The Company was incorporated on December 21, 1992, as AT&T Leasing, Inc., and was renamed AT&T Capital Corporation on March 31, 1993. The Company is the successor entity to certain businesses of AT&T Capital Holdings, Inc. (formerly known as AT&T Capital Corporation) ("Old Capital"), a wholly owned subsidiary of AT&T, and its subsidiaries, including AT&T Credit Holdings, Inc. (formerly known as AT&T Credit Corporation) ("Old Credit"), a wholly owned subsidiary of Old Capital that commenced operations in 1985. In a restructuring that occurred on March 31, 1993 (the "Restructuring"), Old Capital and Old Credit transferred substantially all of their assets, except for certain assets consisting principally of equity interests in project finance transactions and leveraged leases of commercial aircraft ("Lease Finance Assets"), in exchange for shares of the Company's common stock and the assumption by the Company of certain related liabilities. In connection with the Restructuring, AT&T issued direct, full and unconditional guarantees of all existing indebtedness outstanding as of March 31, 1993, for borrowed money incurred, assumed or guaranteed by Old Capital entitled to the benefit of a Support Agreement between AT&T and Old Capital, including the debt of Old Capital assumed by the Company in the Restructuring. Debt issued by the Company subsequent to March 31, 1993, however, is not guaranteed or supported by AT&T (see Note 7). An initial public stock offering combined with a management stock offering totaling approximately 14% of the Company's stock occurred on August 4, 1993 (see Note 8). As a result of the stock offerings, approximately 86% of the outstanding common stock of the Company is owned by AT&T through Old Credit and Old Capital. Basis of Presentation The consolidated financial statements reflect the financial position, results of operations and cash flows of the businesses transferred to the Company on March 31, 1993, by Old Capital and Old Credit as a result of the Restructuring. The Restructuring was accounted for in a manner similar to a pooling of interests. The common stock issued in connection with the incorporation of the Company has been reflected as outstanding for all periods presented. The consolidated financial statements include allocations of certain liabilities and expenses relating to the businesses transferred to the Company by Old Capital and Old Credit. 48 DESCRIPTION OF THE BUSINESS The Company is a full-service, diversified equipment leasing and finance company that operates predominantly in the United States; however, it also has operations in Europe, Canada, the Asia/Pacific Region, Mexico and South America. The Company operates primarily in one business segment - equipment leasing and financing. This segment represents more than 90% of consolidated revenues, net income and total assets. The Company leases and finances equipment manufactured and distributed by AT&T and its affiliates and numerous other companies. The Company also provides inventory financing for equipment dealers and distributors, Small Business Administration ("SBA")lending, and equipment management and remarketing services. In addition, the Company offers its customers high-technology equipment rental and certain other equipment administration services. At December 31, 1995, AT&T Capital's portfolio assets were comprised of telecommunications equipment totaling 23%, general equipment (consists of general office, manufacturing and medical equipment) aggregating 28%, information technology equipment of 23%, transportation equipment of 19% and real estate of 7%. AT&T Capital's portfolio assets are diversified among a large customer base, as well as numerous industries and geographic regions. The Company's customers are diversified across many industries including manufacturing, services, communications and retail, as well as many small and mid-size business customers and federal, state and local governments and their agencies. At December 31, 1995, the Company's 99 largest customers (after AT&T and its affiliates - see Note 12) accounted for approximately 21% of the Company's net portfolio assets, and no customer (with the exception of AT&T and its affiliates) accounted for more than 1% of such net portfolio assets. Other than AT&T and its affiliates (including Lucent Technologies Inc. ("Lucent") and NCR Corporation ("NCR")), as of December 31, 1995, management is not aware of any significant concentration of business transacted with a particular customer, supplier or lender that could severely impact the Company's operations. Also, the Company does not have a concentration regarding the types of financing products or available sources of debt, labor or services, or licenses or other rights that could severely impact its operations. 49 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The accompanying consolidated financial statements include all majority-owned subsidiaries. The accounts of operations located outside of the United States are included on the basis of their fiscal years, ended either November 30, or December 31. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. Significant areas in which estimates are used include residual values, allowance for credit losses and contingencies. Revenue Recognition for Finance Receivables and Capital Leases For loans and other financing contracts ("Finance Receivables"), revenue is recognized over the life of the contract using the interest method. For leases classified as Capital Leases, the difference between (i) the sum of the minimum lease payments due and the estimated unguaranteed residual values and (ii) the asset purchase price paid by the Company is initially recorded as unearned income. The difference is subsequently amortized over the life of the lease contract and recognized as revenue, using the interest method. Accrual of income on portfolio assets is generally suspended when a loan or a lease becomes contractually delinquent for 90 days or more (or earlier if deemed necessary). Accrual is resumed when the receivable becomes contractually current and management believes there is no longer any significant probability of loss. 50 Investment in Operating Leases Equipment under Operating Leases is generally depreciated over the estimated useful life of the asset. During the term of the related lease, annual depreciation is generally calculated on a straight-line basis based on the estimated residual values at the end of the respective lease terms. Rental revenue is recognized on a straight-line basis over the related lease terms. Estimated Unguaranteed Residual Values Estimated unguaranteed residual values are established upon acquisition and leasing of the equipment based upon the estimated value of the equipment at the end of the lease term. They are determined on the basis of studies prepared by the Company, professional appraisals, historical experience and industry data. Although it is reasonably possible that a change in the unguaranteed residual values could occur in the near term, the Company actively manages its residual values by working with lessees and vendors during the lease term to encourage lessees to extend their leases or upgrade and enhance their leased equipment. Residual values are reviewed by the Company at least annually. Declines in residual values for capital leases are recognized as an immediate charge to income. Declines in residual values for operating leases are recognized as adjustments to depreciation expense over the shorter of the useful life of the asset or the remaining term of the lease. Allowance for Credit Losses In connection with the financing of leases and other receivables, the Company records an allowance for credit losses to provide for estimated losses in the portfolio. The allowance for credit losses is estimated by management considering delinquencies and problem assets, an assessment of overall risks and evaluation of probable losses in the portfolio given its diversification, and a review of historical loss experience. Although currently deemed adequate by management, it is reasonably possible that a change in the estimate could occur in the near term as a result of changes in the above mentioned factors. The Company's reserve policy is based on an analysis of the aging of the Company's portfolio, a review of all non-accrual receivables and leases, and prior collection experience. An account is charged off when analysis indicates that the account is uncollectible. Additionally, Company policy generally requires the "at risk" portion (the amount of the receivable not covered by estimated equipment or other collateral value) of accounts 180 days past due to be reserved for or charged off. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. 51 Other Assets The cost of property and equipment is depreciated on a straight-line basis over their estimated useful lives, which generally range from three to twenty-five years. Leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful lives of the related assets on a straight-line basis. Goodwill represents the excess of the cost of companies acquired over the fair value of their net assets on the date of acquisition, and is amortized as a charge against income on a straight-line basis generally over three to twenty year periods. Goodwill in excess of associated expected operating cash flows is considered to be impaired and is written down to fair value. Derivative Financial Instruments The Company enters into derivative financial instruments, mainly interest rate swaps and currency swaps, to hedge interest rate and foreign currency exchange risk and to match fund assets and liabilities. Interest rate swaps generally involve the exchange of interest payments without the exchange of underlying notional principal amounts. Currency swaps generally involve both the exchange of principal and interest payments in distinct currencies. The criteria which must be satisfied for hedges are as follows: (1) the asset or liability to be hedged exposes AT&T Capital, as a whole, to interest rate or currency exchange risk, (2) the derivative acts to reduce the interest rate or currency exchange risk by reducing the sensitivity to interest rate or currency exchange movements, and (3) the derivative is designated and effective as a hedge. For interest rate swaps, the Company records the net interest to be received or paid as an adjustment to interest expense. In the event of an early termination of a swap contract, the gain or loss on a swap accounted for as a hedge is amortized over the remaining life of the related transaction. The Company does not enter into speculative swaps; however, if the underlying transaction associated with a swap accounted for as a hedge is terminated early, the swap is then considered speculative. The gain or loss on a speculative swap is recognized immediately. The Company enters into foreign exchange contracts as a hedge against assets and liabilities denominated in foreign currencies. Gains and losses are recognized on the contracts and offset foreign exchange gains or losses on the related assets and liabilities. Foreign Currency Translation The financial statements of the Company's foreign operations are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation", the resulting translation adjustments are recorded as a separate component of shareowners' equity. A transaction gain or loss realized upon settlement of a foreign currency transaction generally is included in determining net income for the period in which the transaction is settled. 52 Earnings Per Common Share and Common Share Equivalent Earnings per common share and common share equivalent are calculated using the weighted average number of common shares outstanding during the period giving effect to dilutive common stock equivalents in the form of stock options using the treasury stock method. Fully diluted earnings per share is not materially different from primary earnings per share. Impairment of Long-Lived Assets Effective October 1, 1995, the Company adopted SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". This standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of the standard did not have a material impact on the Company's consolidated financial statements. 3. ACQUISITIONS On January 4, 1995, the Company acquired the vendor leasing and finance companies of Banco Central Hispano and certain of its affiliates ("CFH Leasing International") located in the United Kingdom, Germany, France, Italy, Belgium and the Netherlands. CFH Leasing International provides financial services to equipment manufacturers and vendors and had approximately $540 million in assets at the time of acquisition. In addition, on June 30, 1995, the Company acquired two relatively small businesses, a United States mid-range computer asset business with approximately $180 million in assets and an Australian equipment finance company with approximately $40 million in assets. The above acquisitions were accounted for under the purchase method and the total cash paid, net of cash acquired, for all of the above was $294.5 million. In addition, the Company assumed certain existing debt associated with these acquisitions. The results of operations are included in the income statement of the Company from the respective acquisition dates. Unaudited pro forma revenues, net income and earnings per share would have been approximately $1,457.4 million, $111.4 million and $2.37, respectively, for the year ended December 31, 1994 had the acquisitions occurred on January 1, 1994. The pro forma amounts for the year ended December 31, 1995 would not differ materially from the actual amounts reported if the acquisitions had occurred on January 1, 1995. The pro forma information is based on various assumptions and is not necessarily indicative of results of operations that would have been reported had the acquisitions been completed at the date mentioned above. The associated goodwill is amortized over periods not to exceed 15 years. 53 4. NET INVESTMENT IN FINANCE RECEIVABLES AND CAPITAL LEASES Finance receivables and capital leases consisted of the following:
Finance Receivables Capital Leases At December 31, 1995 1994 1995 1994 - --------------------------------------------------------------------------- Receivables $1,959,004 $1,634,454 $6,846,834 $5,712,848 Estimated unguaranteed residual values - - 734,140 606,207 Unearned income (104,170) (133,620) (1,230,418) (1,066,457) Allowance for credit losses (54,198) (47,887) (163,425) (123,272) - --------------------------------------------------------------------------- Net investment $1,800,636 $1,452,947 $6,187,131 $5,129,326 - ---------------------------------------------------------------------------
The schedule of maturities at December 31, 1995 for the finance receivables and capital leases is as follows:
Finance Capital Receivables Leases - --------------------------------------------------------------------------- 1996 $ 553,021 $2,618,921 1997 314,683 1,929,454 1998 229,225 1,195,209 1999 198,687 638,032 2000 209,451 253,268 2001 and thereafter 453,937 211,950 - --------------------------------------------------------------------------- Total $1,959,004 $6,846,834 - ---------------------------------------------------------------------------
AT&T has agreed to repurchase or guarantee certain finance receivables and capital leases that go into default. At December 31, 1995 and 1994, $123,600 and $155,312, respectively, of the Company's net investment in finance receivables contained such recourse provisions. At December 31, 1995 and 1994, $115,233 and $87,716, respectively, of the Company's net investment in capital leases contained such provisions. 54 Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", and No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". These standards require that impaired loans be measured based on the present value of expected cash flows, discounted at the loan's effective interest rate or, the loan's observable market price or, the fair value of the collateral if the loan is collateral dependent, as well as requiring certain related disclosures. The adoption of these statements did not have a material effect on the Company's consolidated financial statements. The amount of impaired loans at December 31, 1995 is not material. 5. NET INVESTMENT IN OPERATING LEASES The following is a summary of equipment under operating leases at December 31, 1995 and 1994, including equipment on lease to AT&T affiliates (see Note 12):
At December 31, 1995 1994 - --------------------------------------------------------------------------- Original equipment cost: Information technology $ 628,857 $ 571,504 Telecommunications 378,426 366,259 Transportation 456,575 304,936 General equipment and other 254,984 204,153 - --------------------------------------------------------------------------- 1,718,842 1,446,852 Less: Accumulated depreciation (642,728) (567,398) Rentals receivable, net 41,522 23,071 - --------------------------------------------------------------------------- Net investment in operating leases $1,117,636 $ 902,525 - ---------------------------------------------------------------------------
Minimum future rentals to be received on noncancelable operating leases as of December 31, 1995, are as follows: 1996 $428,862 1997 248,915 1998 116,810 1999 46,974 2000 23,541 2001 and thereafter 8,857 - -------------------------------------------------------------------------- Total minimum future rentals $873,959 - ---------------------------------------------------------------------------
55 6. OTHER REVENUE For a discussion regarding the potential impacts of AT&T's announcement to sell its 86% interest in the Company, see Note 16. Other revenue consisted of the following:
For the Years Ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Net gain on sale of leased and off-lease equipment $ 86,987 $ 76,453 $ 49,653 Gain on receivables securitizations 5,866* 14,799* 51,496* Portfolio servicing fees 23,584 27,203 37,363 Other fee related revenue 44,105 38,871 40,290 Gain on SBA loan sales 10,508 1,512 1,192 Other portfolio related revenue 35,633 24,624 16,513 - --------------------------------------------------------------------------- Total other revenue $206,683 $183,462 $196,507 - ---------------------------------------------------------------------------
* $5,866, $14,799 and $39,106 relates to securitizations in the fourth quarter of 1995, 1994 and 1993, respectively; and $12,390 relates to a securitization in the first quarter of 1993. For the years ended December 31, 1995, 1994 and 1993, the Company securitized portions of its capital lease portfolio amounting to $74,795, $259,061 and $561,943, with proceeds received of $86,762, $287,550 and $648,887, respectively. Included in other assets at December 31, 1995, is $61,490 of sales proceeds withheld by the purchasers on the 1995 and prior years' securitizations. This holdback, which acts as a credit enhancement for the purchasers, is repaid to the Company over the life of the securitized receivables. The securitization agreements provide for limited recourse to the Company for any uncollectible amounts. Under the agreements, the Company will service these accounts for the purchasers. A portion of the gains have been deferred representing service fees to be earned over the terms of the agreements plus an estimate of the losses under recourse provisions for the lease receivables securitized. At December 31, 1995 and 1994, $559,010 and $853,003, respectively, of receivables previously securitized remained outstanding. The Company's maximum exposure under these recourse provisions, in the unlikely event that all such receivables became uncollectible, amounted to $254,787 at December 31, 1995 and $353,143 at December 31, 1994. The Company has recorded a liability for the amount that it expects to reimburse the purchasers. On a periodic basis, the Company sells the guaranteed portion of SBA loans in the secondary market. The gain on these sales is 1) decreased by an adjustment to reduce the carrying value of the retained unguaranteed portion of the loan to its fair value and 2) adjusted for any excess servicing fees to be received. 56 7. DEBT For a discussion regarding the potential impacts of AT&T's announcement to sell its 86% interest in the Company, see Note 16. Commercial Paper Commercial paper is generally issued at a discount. The maturities of commercial paper ranged up to eight months (with the majority maturing within 90 days) at December 31, 1995 and 1994. Interest rates ranged from 5.48% to 5.83% and 5.0% to 6.0% at December 31, 1995 and 1994, respectively. The discount amortized on commercial paper, which reflects the cost of such debt, amounted to $94,029, $69,341 and $64,790 in 1995, 1994 and 1993, respectively. To support the commercial paper issued, the Company has revolving credit facilities totaling $2.0 billion, all of which were available at December 31, 1995 and 1994. The majority of these facilities are renewed annually and contain certain restrictive financial covenants. The Company is in compliance with all covenants of these facilities. In addition, certain of the Company's foreign operations have short-term bank lines of credit of approximately $1.0 billion, of which approximately $638.0 million was unused at December 31, 1995. These facilities are generally renewed annually. Facility fees paid for the revolving and foreign credit arrangements were not material in 1995 or 1994. 57 Data with respect to short-term notes (principally commercial paper) are as follows:
1995 1994 1993 - --------------------------------------------------------------------------- End of year balance, net $2,212,351 $2,176,877 $1,546,562 Weighted average interest rate at December 31, 5.9% 5.8% 3.3% Highest month-end balance $2,212,351 $2,176,877 $2,067,592 Average month-end balance (a) $1,921,298 $1,741,872 $1,313,312 Weighted average interest rate (b) 5.3% 4.3% 3.3% - ---------------------------------------------------------------------------
(a) The average month-end balance was computed by dividing the total of the outstanding month-end balances by the number of months. (b) The weighted average interest rate during the year is calculated by dividing the interest charged for the year by the average month-end balance. Medium and Long-term Debt Medium and long-term debt outstanding at December 31, 1995 and 1994, consisted of the following:
Maturities 1995 1994 - --------------------------------------------------------------------------- 4.12% - 5.99% Medium-term notes 1995 - 1999 $ 716,900 $ 938,625 6.00% - 6.99% Medium-term notes 1995 - 2000 1,466,025 970,900 7.00% - 9.15% Medium-term notes 1995 - 2005 1,043,825 326,795 Floating rate Medium-term notes Interest periodically reprices based on various indices. As of December 31, 1995 and 1994, the average interest rate ranged from 4.93%-5.74% and 5.79%-6.20%, respectively. 1995 - 1997 1,129,500 980,000 Other long-term debt 1995 - 2001 359,808 163,261 - --------------------------------------------------------------------------- Total medium and long-term debt $4,716,058 $3,379,581 - ---------------------------------------------------------------------------
58 The Company's medium and long-term debt matures as follows: 1996 $2,168,515 1997 1,401,476 1998 794,821 1999 163,169 2000 69,003 2001 and thereafter 119,074 - --------------------------------------------------------------------------- Total $4,716,058 - ---------------------------------------------------------------------------
To reduce exposure to interest rate movements, the Company enters into interest rate swap agreements (see Note 13). The weighted average interest rate on average total debt outstanding, including the effect of these swaps, was 6.60% and 5.65% for the years ended December 31, 1995 and 1994, respectively. During 1995 and 1994, the Securities and Exchange Commission ("SEC") declared effective debt registration statements (which allow the Company to issue debt to the public) of $3.0 billion and $2.5 billion, respectively. As of December 31, 1995, all of the debt associated with the 1994 registration statement was issued and $2.0 billion was available for issuance under the Company's 1995 debt registration. As a result of the Restructuring (see Note 1), medium and long-term notes outstanding at March 31, 1993, entitled to the benefit of a Support Agreement between AT&T and Old Capital (which agreement was terminated in the Restructuring) became directly guaranteed by AT&T. At December 31, 1995 and 1994, the amount of such guaranteed debt was $319,200 and $747,895, respectively. In addition, as a result of the Restructuring, AT&T guaranteed the Company's recourse exposure of securitizations at March 31, 1993 (see Note 6) which amounted to $88,302 and $212,199 at December 31, 1995 and 1994, respectively. 8. SHAREOWNERS' EQUITY AND EARNINGS PER SHARE For a discussion regarding the potential impacts of AT&T's announcement to sell its 86% interest in the Company, see Note 16. During 1995, the Company's Board of Directors declared dividends totaling $.41 per share. In addition, on January 19, 1996, the Company's Board of Directors declared a quarterly dividend of $.11 per share to shareowners of record on February 9, 1996. The dividend is payable on February 29, 1996. On June 28, 1993, the Company affected a 402,500 for one stock reclassification. The par value of the stock remained at $.01 per share. Accordingly, common stock and additional paid-in capital have been restated to reflect the reclassification. 59 On August 4, 1993, the Company sold common shares in an initial public stock offering and in a management stock offering. The shares issued represent approximately 14% of the total shares outstanding after the offerings. AT&T, through Old Credit and Old Capital, remains the owner of 40,250,000 shares. The net proceeds received by the Company from the sale of the common stock in the stock offerings were $115,092. Certain costs of the offerings not offset by the proceeds were borne by AT&T. Such proceeds did not include $17,788 of future proceeds attributable to the purchases of common stock in the management stock offering that were funded by recourse loans from the Company to certain senior executives of the Company. 9. FAIR VALUE DISCLOSURES Fair value is a subjective and imprecise measurement that is based on assumptions and market data which require significant judgment and may only be valid at a particular point in time. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Accordingly, management cannot provide assurance that the fair values presented are indicative of the amounts that the Company could realize in a current market exchange. The following methods and assumptions were used to estimate the fair value of each class of financial instruments at December 31, 1995 and 1994: Cash and Cash Equivalents The carrying amount is a reasonable estimate of fair value. Net Investment in Finance Receivables The fair value of the finance receivable portfolio is estimated by discounting the expected future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Short-term Notes (Commercial Paper and Other Short-term Notes) The carrying amount is a reasonable estimate of fair value for commercial paper. Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of other short-term notes. Gross Profit Tax Deferral Payable to AT&T The fair value of the gross profit tax deferral is estimated by discounting the expected future cash flows using the Company's current cost of debt. Based on the AT&T announcement (see Note 16), this amount for 1995 has been calculated based on the assumption that the amount will be repaid by December 31, 1996. 60 Medium and Long-term Debt Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. Interest Rate and Currency Swap Agreements The fair value of interest rate and currency swaps is estimated by discounting the expected future cash flows using the rate at which the Company could terminate the swaps in the market today. Foreign Exchange Contracts The fair value of foreign exchange contracts is estimated based on current market quotes obtained from dealers for foreign exchange contracts with the same remaining terms. Credit Facilities The fair value of the credit facilities are based on fees currently paid for similar arrangements. The following table summarizes the carrying and fair values of on-balance sheet instruments (as determined using the methods described above):
December 31, 1995 December 31, 1994 - --------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - --------------------------------------------------------------------------- Assets: Cash and cash equivalents $ 3,961 $ 3,961 $ 54,464 $ 54,464 Net investment in finance receivables (Note 4) 1,800,636 1,844,617 1,452,947 1,432,070 Liabilities: Short-term notes (Note 7) 2,212,351 2,212,403 2,176,877 2,176,877 Gross profit tax deferral payable to AT&T (Note 10) 248,902 237,845 214,066 184,238 Medium and long-term debt (Note 7) $4,716,058 $4,844,594 $3,379,581 $3,319,101 - ---------------------------------------------------------------------------
61 The following tables summarize the carrying and fair values of off-balance sheet financial instruments (as determined using methods described above):
- -------------------------------------------------------------------------- December 31, 1995 - --------------------------------------------------------------------------- Carrying Amount Fair Value Receivable Payable Receivable Payable - --------------------------------------------------------------------------- Interest rate swap agreements $ 3,681 $(1,477) $ 2,234 $(53,359) Currency swap agreements 278 (1,185) 7,066 (8,235) Foreign currency forward exchange contracts $13,104 $ (814) $(3,036) $ (2,227) - --------------------------------------------------------------------------- December 31, 1994 - --------------------------------------------------------------------------- Carrying Amount Fair Value Receivable Payable Receivable Payable - --------------------------------------------------------------------------- Interest rate swap agreements $ 2,048 $(1,541) $57,033 $ (4,726) Currency swap agreements 290 (444) 11,200 (2,338) Foreign currency forward exchange contracts $ 6,036 $(2,710) $2,852 $ (6,088) - ---------------------------------------------------------------------------
Matching maturities of its portfolio assets and debt is a key component of the financial strategy used by the Company to manage interest rate risk. Based on unaudited calculations performed by the Company, the increased fair value of the Company's debt has been offset by the increased fair value of the Company's portfolio assets at December 31, 1995. Likewise, at December 31, 1994, the decreased fair value of the Company's debt was offset by the decreased fair value of the Company's portfolio assets. The fair value of the Company's lease portfolio is not a required disclosure under SFAS No. 107, "Disclosure About Fair Value of Financial Instruments" and, therefore, only the fair value of the finance receivable portfolio has been disclosed. Hedging the net cash inflows from foreign denominated assets is a key component of the financial strategy used by the Company to manage its exposure to foreign currency fluctuations. Based on unaudited calculations performed by the Company, the decreased fair value of the Company's forward exchange contracts is generally offset by an increase in the fair value of the Company's foreign denominated assets. The Company has unused revolving credit facilities totaling $2.0 billion and approximately $638 million of unused foreign credit facilities. The fair value of the credit facilities is based upon fees currently paid for similar arrangements which are not material (see Note 7). 62 At December 31, 1995 and 1994, the Company had a maximum exposure under limited recourse provisions related to asset securitizations, in the unlikely event that all such receivables became uncollectible, of $254,787 and $353,143, respectively. The Company has recorded a liability for the amount that it expects to reimburse the purchasers (see Note 6). 10. INCOME TAXES For a discussion regarding the potential impacts of AT&T's announcement to sell its 86% interest in the Company, see Note 16. The Company is included in the consolidated federal income tax return, and for certain states, combined state returns, of AT&T. AT&T does not expect to be subject to the alternative minimum tax ("AMT") provisions of the 1986 Tax Reform Act for 1995. Also, in 1993, the Company utilized all AMT credits arising from 1990 and 1992 AMT payments made. The Company's income tax expense would not have differed materially from that reported had the Company filed tax returns on a stand-alone basis. As part of an Intercompany Agreement, the Company has received interest free loans to the extent of the tax deferrals generated by transactions between AT&T and the Company. These interest free loans amounted to $248,902 and $214,066 at December 31, 1995 and 1994, respectively. The average balance outstanding for such loans was $245,869, $213,172 and $200,835 for the years ending December 31, 1995, 1994 and 1993, respectively. These amounts are repaid to AT&T as the temporary differences that generated the deferrals reverse. As discussed in Note 16, the Company is obligated to repay such loans if the Company were to cease being a member of AT&T's consolidated group for federal income tax purposes. Management is of the opinion that the Company has sufficient cash and credit resources to repay such loans if the Company were to cease being a member of AT&T's consolidated group for federal income tax purposes. At December 31, 1995 and 1994, taxes currently payable to AT&T and third parties were $30,589, and taxes currently receivable from AT&T and third parties were $23,286, respectively. Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes", which changed the method of accounting for income taxes from the deferred method to the liability method and requires deferred tax balances to be determined using the enacted income tax rates for the years in which these taxes will actually be paid or refunds received. In connection with such adoption, the Company recognized a charge to net income of $2.9 million as the cumulative prior years' effect of this accounting change. This change in accounting for income taxes had no effect on cash flows. Unless the U.S. Congress changes tax rates, the Company does not expect SFAS No. 109 to affect net income materially in future periods. Also during 1993, the Company recorded an additional $12.4 million to the provision for income taxes due to the increase in the highest federal corporate income tax rate from 34% to 35% of which $11.4 million relates to adjusting prior years deferred tax balances. 63 The provision (benefit) for income taxes consisted of the following:
For the Years Ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Current: Federal $59,252 $(13,494) $(8,948) State and local 13,415 (23,150) 31,448 Foreign 10,789 3,538 611 - -------------------------------------------------------------------------- Total current portion 83,456 (33,106) 23,111 - --------------------------------------------------------------------------- Deferred: Federal (5,460) 72,729 67,101 State and local 205 33,655 (23,682) Foreign 2,483 - - - --------------------------------------------------------------------------- Total deferred portion (2,772) 106,384 43,419 - --------------------------------------------------------------------------- Total provision for income taxes $80,684 $ 73,278 $66,530 - ---------------------------------------------------------------------------
The Company recorded tax credits of $10,850 and $3,446 in 1995 and 1994, respectively. No tax credits were recorded in 1993. 64 Deferred income tax (liabilities) assets are composed of the following:
At December 31, 1995 1994 - -------------------------------------------------------------------------- Gross deferred income tax liabilities: Lease related differences $(692,442) $(607,085) Other (51,618) (89,463) - -------------------------------------------------------------------------- Gross deferred income tax liabilities (744,060) (696,548) - -------------------------------------------------------------------------- Gross deferred income tax assets: Allowance for credit losses 124,186 101,591 Pensions 11,718 8,052 State and foreign net operating losses 17,926 18,802 Other 39,982 17,293 - -------------------------------------------------------------------------- Gross deferred income tax assets 193,812 145,738 - -------------------------------------------------------------------------- Valuation allowance (5,048) (4,477) - -------------------------------------------------------------------------- Net deferred income tax liabilities $(555,296) $(555,287) - --------------------------------------------------------------------------
A valuation allowance has been recorded to offset related deferred tax assets due to the uncertainty of realizing the benefit of separate state net operating loss carryforwards and net operating loss carryforwards of foreign subsidiaries. State tax loss carryforwards of $290,098 related to various state jurisdictions expire in the following years: 1996 $ 16,054 1997 20,593 1998 25,026 1999 51,130 2000 61,289 2001 and thereafter 116,006 - --------------------------------------------------------------------------- Total $290,098 - ---------------------------------------------------------------------------
65 A reconciliation between the federal statutory tax rate and the Company's effective tax rate is shown below:
For the Years Ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Federal statutory income tax rate 35.0% 35.0% 35.0% State and local income taxes, net of federal income tax effect 4.2 3.9 3.7 Impact of federal tax rate increase on prior years deferred taxes - - 8.4 Tax exempt income (1.6) (1.7) (0.8) Goodwill 0.5 1.2 0.8 Other 0.6 3.8 1.1 - --------------------------------------------------------------------------- Effective tax rate 38.7% 42.2% 48.2% - ---------------------------------------------------------------------------
The Company has no available AMT credit carryforwards at December 31, 1995 to reduce future federal income taxes payable. For the years ended December 31, 1995, 1994 and 1993, the consolidated income (loss) before income taxes and cumulative effect of accounting change by domestic and foreign source was $210,296 and $(2,057), $177,662 and $(4,048), and $153,010 and $(14,970), respectively. 11. PENSION AND BENEFIT PLANS For a discussion regarding the potential impacts of AT&T's announcement to sell its 86% interest in the Company, see Note 16. Pension Effective January 1, 1994, all employees of the Company and its domestic subsidiaries were covered by the AT&T Capital Corporation Retirement and Savings Plan ("RSP"), a qualified defined contribution plan. 66 Under a defined contribution plan, the amount of future pension benefits is based solely on the amount contributed and the returns earned on those amounts. The RSP has a profit sharing component (including a cash or deferred arrangement) under Section 401(k) of the Internal Revenue Code and a money purchase component. The Company's annual contribution under the profit sharing component, which is discretionary above 5%, is expected to equal approximately 9% of employee pay (i.e., aggregate base salaries and annual incentives of participants in the RSP). In addition, the Company matches an amount equal to 66-2/3% of the first 6% of compensation that each employee contributes to the RSP under Section 401(k). RSP participants can select from a variety of funds within the RSP to invest their allotments. The Company recorded $14,367 and $13,525 of pension expense in 1995 and 1994, respectively, related to the RSP. In addition, in 1995 and 1994 the Company recorded pension expense of $2,431 and $1,366, respectively, in connection with RSP-related nonqualified defined contribution plans. The Company also sponsors various international plans which are available to certain employees of its international subsidiaries. The plans are similar to the RSP, in that they enable employees of the Company to contribute a percentage of their salary to provide for postretirement income. The Company recorded $1,412 and $1,034 of pension expense in 1995 and 1994, respectively, related to the various international plans. Prior to 1994, many of the Company's employees were covered by AT&T's noncontributory defined benefit pension plans. Also, through December 31, 1993, other eligible employees of several wholly owned subsidiaries of the Company were covered by an AT&T qualified defined contribution retirement plan, with provisions similar to the RSP. The Company recorded pension expense related to the AT&T noncontributory defined benefit plans of $4,457 in 1993. In addition, the Company recorded expenses of $6,312 in 1993 related to the AT&T qualified defined contribution retirement plan. On December 8, 1993, the Company sponsored three unfunded supplemental nonqualified defined benefit retirement plans, which became effective on January 1, 1994, that provide certain employees with additional benefits after retirement. Components of net periodic pension cost for the years ended December 31, were:
1995 1994 - ------------------------------------------------------------------------ Service cost - benefits earned $ 456 $ 575 Interest cost on projected benefit obligation 450 427 Amortization 365 374 - ------------------------------------------------------------------------ Net periodic pension cost $1,271 $1,376 - ------------------------------------------------------------------------
67 The funded status of the plans at December 31 was:
1995 1994 - ------------------------------------------------------------------------ Accumulated benefit obligations: Vested benefit obligation $1,495 $1,119 Non-vested benefit obligation 5,471 2,578 Total 6,966 3,697 Additional benefits on estimated future salary 1,434 1,176 Total projected benefit obligation 8,400 4,873 Plan assets at fair value - - Unfunded projected benefit obligation 8,400 4,873 Unrecognized prior service cost 4,845 4,391 Unrecognized net loss (gain) 945 (894) Unrecognized transition obligation - - Additional liability 4,458 2,387 Accrued pension liability recorded $7,068 $3,763 - ------------------------------------------------------------------------
At December 31, 1995 and 1994, respectively, the projected benefit obligation was determined using assumed discount rates of 7.0% and 8.75% and assumed long-term rates of increase in future compensation levels of 4.5% or 5.5%, depending on the plan. The decrease in the discount rate caused the obligation to increase. To illustrate, had the 1995 rate been 8.0% (1.0% higher), the 1995 total projected benefit obligation would have been lower by $1.2 million. Share Performance Incentive Plan The Company's Share Performance Incentive Plan, as amended ("SPIP"), is designed to provide the opportunity for cash incentive awards to key employees at the end of five three-year performance periods. The first such period terminates on June 30, 1996, with each of the other performance periods ending on the annual anniversary of such date through and including June 30, 2000. These incentive awards are generally based on the performance of the Company's stock price and dividend yield relative to (1) the share performance of a select benchmark group of financial services companies, and (2) the interest rate on three-year treasury notes at the beginning of such performance period. The estimated compensation expense relating to the SPIP is charged against income over the respective performance periods. 68 Leveraged Stock Purchase Plan In 1993, the Company adopted the Leveraged Stock Purchase Plan ("LSPP") under which 2,000,000 shares of common stock and options to purchase common stock were reserved for purchase or grant. The terms and provisions of the LSPP required certain senior management employees to purchase an aggregate of 851,716 shares of common stock in conjunction with the Company's initial public offering at the offering price of $21.50 per share ("offering price"). The eligible employees had the option of borrowing from the Company, on a recourse basis, 88.5% to 97.7% of the purchase price of the shares. The recourse loans mature on August 4, 2000, and have a stated interest rate of 6.0% compounded on an annual basis. The purchased shares are pledged as collateral for the recourse loans. Sale of these shares is restricted prior to August 4, 1996, and is contingent upon repayment of the loan and certain other requirements. The recourse loans are shown on the balance sheet as a reduction of equity. In addition, under the LSPP, the same senior management employees were granted premium priced stock options which will provide participants with an opportunity to purchase up to 1,095,040 shares of Company stock at an exercise price equal to 125% of the offering price ($26.875 per share). The options are exercisable during the period from August 4, 1996, through August 4, 2003. Options canceled during 1995 and 1994 were 102,852 and 54,895, respectively. No options were canceled in 1993. Pursuant to the terms of the LSPP, no further purchases of stock, Company loans or option grants will be made under the LSPP subsequent to December 31, 1993. 69 Long Term Incentive Plan In 1993, the Company adopted a Long Term Incentive Plan ("LTIP") under which the Company may grant various stock-based and other awards to employees of the Company. The number of shares available for grant or purchase under the LTIP is 2,000,000. Similar to the LSPP, eligible employees purchasing stock under the LTIP have the option of borrowing from the Company, on a recourse basis, 88.5% to 97.7% of the purchase price of the shares. The recourse loans, which are due seven years from the loan date, have stated interest rates ranging from 6.0% to 7.92% compounded on an annual basis. The purchased shares are pledged as collateral for the recourse loans. Sale of these shares is prohibited for a three-year period and is contingent upon repayment of the loan and certain other requirements. The recourse loans are shown on the balance sheet as a reduction of equity. Awards under the LTIP will be made to executives and employees of the Company at the Company's discretion. The following table summarizes the option activity relating to the LTIP:
Shares Under Option Number Price Per Share - --------------------------------------------------------------------------- Options granted in connection with initial public offering 697,908 $21.50 Changes in 1993: Options canceled (11,605) $21.50 - --------------------------------------------------------------------------- Options outstanding at December 31, 1993 686,303 $21.50 Changes in 1994: Options exercised (274) $21.50 Options canceled (85,367) $21.50-$26.15 Options granted 502,707 $21.81-$30.63 - --------------------------------------------------------------------------- Options outstanding at December 31, 1994 1,103,369 $21.50-$30.63 Changes in 1995: Options exercised (16,978) $21.50-$26.15 Options canceled (79,605) $21.50-$26.15 Options granted 345,036 $21.50-$47.03 - --------------------------------------------------------------------------- Options outstanding at December 31, 1995 1,351,822 $21.50-$47.03 - --------------------------------------------------------------------------- Options exercisable at December 31, 1995 59,157 $21.50-$26.56 Options exercisable at December 31, 1994 7,264 $21.50-$26.13 - ---------------------------------------------------------------------------
70 In addition, the Company has awarded restricted stock under the LTIP to certain employees in consideration of services rendered. During 1995, 1994 and 1993, respectively, restricted stock awards of 19,967, 17,801 and 15,306 were made to employees under the LTIP. As of December 31, 1995 and 1994, respectively, 405,106 and 735,936 shares were available for issuance under the LTIP. The shares are not subject to stock appreciation right features. Employee Stock Purchase Plan In April 1994, the Company's shareowners approved an employee stock purchase plan effective August 1, 1994. The AT&T Capital Corporation 1994 Employee Stock Purchase Plan ("ESPP") enables employees to purchase shares of AT&T Capital common stock at a discount. The price per share is 90% of the fair market value of the common stock at the time of its purchase. No compensation expense is recorded in connection with the ESPP. The maximum aggregate number of shares of common stock that may be purchased under the ESPP is 500,000. During 1995 and 1994, 27,965 and 13,484 shares were purchased by employees at prices ranging from $22.05 to $36.00 and $19.02 to $21.83 per share, respectively. At December 31, 1995, there were 458,551 shares available for offering under the ESPP. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. This standard is effective for fiscal years beginning after December 15, 1995 and will allow companies to choose either 1) a fair value method of valuing stock-based compensation plans which will affect reported net income, or 2) to continue following the existing accounting rules for stock option accounting but disclose what the impacts would have been had the new standard been adopted. The Company will choose the disclosure option of this standard which would require disclosing the pro forma net income and earnings per share amounts assuming the fair value method was adopted on January 1, 1995. As a result, the adoption of this standard will not impact the Company's results of operations, financial position or cash flows. Severance Plans In 1995, the Company's Compensation Committee and Board of Directors approved broad-based plans that provide for benefits to members upon certain terminations of employment. Such benefits are calculated using annual base pay and annual incentive awards as well as other factors. No accrual for these benefits have been reflected in the consolidated financial statement because the amount cannot be reasonably estimated. In addition, no estimate can be made of the impact of such benefits to the Company's financial position or operating results resulting from a plan of force reduction, if any, associated with the sale of the Company (see Note 16). 71 12. RELATED-PARTY TRANSACTIONS For a discussion regarding the potential impacts of AT&T's announcement to sell its 86% interest in the Company, see Note 16. The Company leases certain office facilities from AT&T and affiliates. Future minimum rental payments under noncancelable, long-term leases with AT&T and affiliates are as follows: 1996 $ 5,465 1997 3,293 1998 96 1999 11 2000 11 2001 and thereafter 4 - -------------------------------------------------------------------------- Total $ 8,880 - --------------------------------------------------------------------------
Rental expense under existing leases with AT&T and affiliates amounted to $5,494, $4,101 and $7,998, in 1995, 1994 and 1993, respectively. The Company purchases services from AT&T and affiliates, including data processing, billing and collection, administration and other services. The Company's expenses for such services were $20,038 in 1995, $20,628 in 1994 and $32,320 in 1993. At December 31, 1995, 1994 and 1993, the Company was the lessor to AT&T of equipment comprising $176,369, $268,616 and $145,812 of capital leases and $220,507, $204,647 and $376,970 of equipment under operating leases, respectively. Revenue related to these leases was $105,787, $108,808 and $170,788 in 1995, 1994 and 1993, respectively. The Company also had an interest bearing intercompany debt payable to AT&T and affiliates of $18,265 at December 31, 1995 and an interest bearing intercompany note receivable from AT&T and affiliates of $40,105 at December 31, 1994 (see Note 7). The net interest income and expense associated with intercompany borrowing were not material in 1995, 1994 or 1993. Additionally, the Company had interest free loans related to tax agreements from AT&T at December 31, 1995 and 1994, respectively, of $248,902 and $214,066 (see Note 10). In 1993, AT&T and the Company entered into an Operating Agreement, pursuant to which AT&T provides the Company with the right to be the preferred provider of leasing and financing services for AT&T's products on a basis consistent with past practice. The Company and AT&T have also entered into an Intercompany Agreement whereunder, among other things, the Company manages and administers, for a fee, certain lease portfolios, including the Lease Finance Assets of Old Capital and Old Credit which were not transferred to the Company (see Note 1). During 1995, 1994 and 1993, the Company recognized service fee revenue of $7,608, $8,551 and $18,361, respectively, for such services. 72 The Company is also party to Operating and License Agreements with AT&T. See Note 16 for a discussion of these agreements and the related potential impacts of AT&T's announcement to sell its 86% interest in the Company. 13. COMMITMENTS AND CONTINGENCIES Derivative Financial Instruments In the normal course of business, the Company is routinely party to various derivative financial instruments. These financial instruments are used by the Company to reduce interest rate and foreign currency exposure, as well as to meet the financing needs of its customers. At both December 31, 1995 and 1994, in management's opinion, there was no significant risk of loss in the event of nonperformance of the counterparties to derivative contracts. There were no past due amounts, nor were there any reserves for credit losses on derivatives as of December 31, 1995, 1994 and 1993. Generally, the Company does not require collateral or other security to support financial instruments with credit risk. The Company has never experienced a credit related charge-off associated with derivative transactions. Information is provided below for each significant derivative product type. The derivatives, with which the Company is involved, are primarily interest rate swaps, currency swaps, and foreign currency forward exchange contracts. Interest Rate and Currency Swaps The Company enters into interest rate and foreign currency swap agreements with major money center banks and intermediaries located in major financial centers to reduce interest rate exposure, to more closely match the maturity of its debt portfolio to that of its asset portfolio and to reduce its exposure to currency fluctuations. Interest rate swaps also allow the Company to raise funds at floating rates and effectively swap them into fixed rates that are lower than those available to the Company if fixed-rate borrowings were made directly. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. Generic swaps' notional amounts generally do not change for the life of the contract. Amortizing and accreting swaps' notional amounts generally change based upon a predetermined amortization or accretion schedule. Currency swaps generally involve the exchange of both principal and interest payments in distinct currencies. 73 The notional amounts shown below for interest rate swaps represent an agreed upon amount on which calculations of amounts to be exchanged are based and for currency swaps also represent the U.S. equivalent of an amount exchanged. Notional amounts do not represent the Company's exposure. Rather, the Company's exposure is limited to the current fair value of the contracts with a positive fair value at the reporting date (see Note 9). A key assumption in the information below is that rates remain constant at the reporting date levels. To the extent that rates change, the variable interest rate information will change. Activity in interest rate and currency swaps which are all held for purposes other than trading for 1995 and 1994, is summarized as follows:
Generic Amortizing Generic Pay Pay Pay Currency Notional Amounts Fixed Fixed Floating Swaps Total - --------------------------------------------------------------------------- December 31, 1993 $1,139,000 $1,124,569 $450,000 $149,210 $2,862,779 Additions 607,800 285,972 175,000 129,860 1,198,632 Maturities/ amortization (175,000) (445,568) (450,000) (57,253) (1,127,821) Terminations - - - - - - -------------------------------------------------------------------------- December 31, 1994 1,571,800 964,973 175,000 221,817 2,933,590 Additions 124,339 373,435 240,000 151,631 889,405 Maturities/ amortization (350,000) (406,365) (175,000) (108,455) (1,039,820) Terminations (225,000) (59,400) - - (284,400) - -------------------------------------------------------------------------- December 31, 1995 $1,121,139 $ 872,643 $240,000 $264,993 $2,498,775 - --------------------------------------------------------------------------
The schedule of maturities at December 31, 1995 for interest rate and currency swaps which are all held for purposes other than trading is as follows:
Generic Amortizing Generic Pay Pay Pay Currency Fixed Fixed Floating Swaps Total - --------------------------------------------------------------------------- Total notional amounts $1,121,139 $872,643 $240,000 $264,993 $2,498,775 Weighted average pay rate 6.34% 6.21% 5.73% 7.06% 6.31% Weighted average receive rate 5.83% 5.96% 5.80% 5.87% 5.88% - ---------------------------------------------------------------------------
74
Generic Amortizing Generic Pay Pay Pay Currency Fixed Fixed Floating Swaps Total - --------------------------------------------------------------------------- 1996 Maturities $534,321 $447,136 $240,000 $ 93,655 $1,315,112 Weighted average pay rate 5.54% 5.86% 5.73% 6.31% 5.74% Weighted average receive rate 5.80% 5.95% 5.80% 5.87% 5.86% 1997 Maturities $ 94,329 $242,069 - $ 85,549 $ 421,947 Weighted average pay rate 5.85% 6.37% - 7.41% 6.46% Weighted average receive rate 5.75% 5.96% - 5.87% 5.90% 1998 Maturities $255,818 $ 91,841 - $ 61,615 $ 409,274 Weighted average pay rate 6.80% 6.79% - 7.57% 6.91% Weighted average receive rate 5.87% 6.06% - 5.87% 5.91% 1999 Maturities $201,680 $ 44,538 - $ 19,836 $ 266,054 Weighted average pay rate 8.00% 6.70% - 7.67% 7.76% Weighted average receive rate 5.87% 5.98% - 5.87% 5.89% 2000 Maturities $ 3,491 $ 22,806 - $ 4,338 $ 30,635 Weighted average pay rate 6.56% 6.35% - 6.57% 6.41% Weighted average receive rate 5.93% 5.87% - 5.87% 5.88% 2001-2017 Maturities $ 31,500 $ 24,253 - - $ 55,753 Weighted average pay rate 7.01% 7.75% - - 7.33% Weighted average receive rate 5.87% 5.87% - - 5.87% - ---------------------------------------------------------------------------
Foreign Currency Forward Exchange Contracts The Company enters into foreign currency forward exchange contracts to manage foreign exchange risk. The U.S. dollar equivalent of such contracts was $658,808 and $318,054 at December 31, 1995 and 1994, respectively. The Company enters into these contracts to hedge the cash flows associated with foreign currency denominated assets. The term of these contracts is rarely more than three years. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar net cash inflows resulting from these assets will be adversely affected by changes in exchange rates. 75 Other Commitments and Contingencies Certain regional office facilities and equipment of the Company are leased from unrelated parties with renewal options of one to five years. Rental expense to unrelated parties for the years ended December 31, 1995, 1994 and 1993 was $17,258, $14,202 and $9,626, respectively. Rental expense associated with sublease rentals on operating leases for 1995, 1994 and 1993, was $165, $115 and $419, respectively. Minimum annual rental commitments at December 31, 1995, under these operating lease agreements are as follows: 1996 $11,318 1997 8,900 1998 2,964 1999 2,441 2000 1,332 2001 and thereafter 2,431 - --------------------------------------------------------------------------- Total $29,386 - ---------------------------------------------------------------------------
The total of minimum rentals to be received in the future under noncancelable subleases related to operating leases as of December 31, 1995, was $11,841. The total of minimum rentals to be received in the future under noncancelable subleases related to capital leases (recorded as debt) as of December 31, 1995, was $109,290. In the normal course of business, the Company is subject to certain lawsuits and other claims. Such matters are subject to many uncertainties and the outcomes are not predictable with assurance. Consequently, the ultimate monetary liability or financial impact with respect to these matters at December 31, 1995 cannot be ascertained. While these matters could impact the operating results, management believes that after final disposition, any monetary liability or financial impact to the Company would not be material to the consolidated financial statements. 14. FOREIGN OPERATIONS The following data on other geographic areas pertain to operations that are located outside the U.S. (primarily Europe, Canada, the Asia/ Pacific Region, Mexico and South America). Net income (loss) includes certain allocated operating expenses and interest expense. Revenues between geographic areas are not material. 76 A summary of the Company's operations by geographic area is presented below:
For the Years Ended December 31, 1995 1994 1993 - -------------------------------------------------------------------------- Total Revenues: United States $1,370,672 $1,250,591 $1,274,615 Foreign 206,363 133,488 84,974 - -------------------------------------------------------------------------- Total $1,577,035 $1,384,079 $1,359,589 - -------------------------------------------------------------------------- Net Income (Loss): United States $ 130,587 $ 104,558 $ 78,024 Foreign (3,032) (4,222) (9,428) - -------------------------------------------------------------------------- Total $ 127,555 $ 100,336 $ 68,596 - -------------------------------------------------------------------------- At December 31, 1995 1994 1993 - -------------------------------------------------------------------------- Total Assets: United States $7,868,941 $7,148,737 $6,002,857 Foreign 1,672,318 873,186 406,869 - -------------------------------------------------------------------------- Total $9,541,259 $8,021,923 $6,409,726 - --------------------------------------------------------------------------
15. QUARTERLY DATA (Unaudited)
Quarters First Second Third Fourth Total 1995 Total revenues $362,814 $381,956 $395,881 $436,384 $1,577,035 Interest expense 93,998 100,806 106,086 110,150 411,040 Net income 25,083 27,912 32,472 42,088 127,555 Earnings per share 0.53 0.59 0.69 0.89 2.70 Stock price per share high 27.250 27.750 38.625 40.375 - low 21.625 24.000 27.125 35.750 - Dividends declared $ 0.10 $ 0.10 $ 0.10 $ 0.11 $ 0.41 Quarters First Second Third Fourth Total 1994 Total revenues $326,012 $332,216 $348,368 $377,483 $1,384,079 Interest expense 60,107 65,654 68,942 77,109 271,812 Net income 15,805 18,901 25,040 40,590 100,336 Earnings per share 0.34 0.40 0.53 0.86 2.14 Stock price per share high 27.000 24.750 24.375 24.500 - low 22.875 21.625 21.375 19.750 - Dividends declared $ 0.09 $ 0.09 $ 0.09 $ 0.10 $ 0.37 - ---------------------------------------------------------------------------
77 Net income and earnings per share in the fourth quarters of 1995 and 1994, reflected certain securitization transactions (see Note 6). Earnings per share are computed independently for each quarter presented. Because of changes in the weighted average number of shares outstanding, the sum of the quarterly earnings per share may not equal the earnings per share for the year. 16. AT&T SALE OF THE COMPANY (See Note 1) On September 20, 1995, AT&T announced a plan to pursue the public or private sale of its remaining 86% interest in AT&T Capital. As noted in AT&T's 1995 Annual Report on Form 10-K, AT&T has stated that it cannot predict the timing or terms of any such transaction. On such date, AT&T also announced a plan to separate (the "Separation") into three publicly-held stand-alone global businesses that will each be focused on serving certain core businesses: communication services (to be carried on by the new AT&T), communications systems and technology (to be carried on by the newly formed Lucent Technologies Inc. ("Lucent")), and transaction-intensive computing (to be carried on by NCR Corporation ("NCR")). The Separation is to be accomplished via spin-offs of Lucent and NCR to AT&T's shareholders, which in the case of Lucent will be preceded by a public offering of less than 20% of its shares. The Separation is targeted by AT&T to be completed by the end of 1996, but remains subject to a number of conditions. On October 3, 1995, the Company's Board of Directors (the "Board") held a special meeting to consider AT&T's announced plans to sell its remaining interest in the Company to the general public or another company. At that meeting, the Company's Board authorized management to examine possible public and private sale alternatives. The Board also created a Special Committee of the Company's four outside directors to act upon such matters as may arise in the course of considering alternative ways to maximize shareowner value and in which there may be a conflict between the interests of AT&T and those of the Company or its minority shareowners and to make recommendations thereon to the Company's Board or shareowners. Additionally, the Board engaged the investment banking firm of Goldman, Sachs & Co. and the law firm of Sullivan & Cromwell to act as advisors to the Company. Notwithstanding the Separation, the Operating Agreement between AT&T and the Company (pursuant to which the Company serves as AT&T's preferred provider of financing services and has certain related and other rights and privileges in connection with the financing of equipment marketed by AT&T to its customers) will remain in place with respect to AT&T, the initial term of which expires in August 2000. In addition, consistent with the terms of the Operating Agreement, comparable Operating Agreements are being put in place with NCR and Lucent, the initial terms of which expire in August 2000. While the Company is not able to evaluate if the Separation will affect AT&T's, Lucent's or NCR's equipment sales, any resulting change in the level of equipment sales by AT&T, Lucent and NCR would likely have a corresponding impact on the Company's future financing volumes associated with such sales. 78 In addition, the Regional Bell Operating Companies (the "RBOCs"), which have historically been prohibited from manufacturing telecommunications equipment by the terms of the Modified Final Judgment entered into in connection with the divestiture of the RBOCs by AT&T in 1984, will be permitted to manufacture such equipment and compete with Lucent, subject to satisfying certain conditions, pursuant to telecommunications legislation recently enacted by Congress. It is possible that one or more of the RBOCs may decide to manufacture telecommunications equipment or form alliances with other manufacturers. Either of such developments could result in increased competition for Lucent, reduce the RBOCs' purchases of equipment from Lucent, and, consequently, adversely impact the Company's financing volumes. The planned change in the Company's ownership could, as described below, have certain significant effects on the Company. Tax Deconsolidation (see Note 10) The Company is currently a member of AT&T's consolidated federal income tax group. If AT&T's ownership in the Company's common stock drops below 80%, the Company would cease to be a member of AT&T's consolidated federal income tax group ("Tax Deconsolidation"). In light of the announcement made by AT&T, it is expected that AT&T's ownership in the Company will decrease below 80% by the end of 1996. Many financings by the Company of products manufactured by AT&T or its affiliates (the "AT&T Entities") involve the purchase of such products by the Company and the contemporaneous lease of such products to third parties. While the Company is a member of AT&T's consolidated federal income tax group, the payment of taxes associated with certain transactions which qualify as true or operating leases for tax purposes is generally deferred until the products are depreciated or sold outside the consolidated federal income tax group (the amount of such taxes so deferred is herein referred to as "Gross Profit Tax Deferral"). AT&T and the Company are parties to a Gross Profit Tax Deferral Interest Free Loan Agreement which provides that AT&T will from time to time extend interest free loans to the Company equal to the amount of the Gross Profit Tax Deferral. The Company is obligated to repay such interest free loans upon Tax Deconsolidation. Upon Tax Deconsolidation, the Company would no longer receive such loans, which have constituted a competitive advantage to the Company in financing AT&T products. The aggregate outstanding principal amount of such interest free loans was $248.9 million at December 31, 1995. In management's opinion, the Company has sufficient cash and credit resources to repay such loans in the event of a Tax Deconsolidation. Based on unaudited calculations performed by the Company, if a Tax Deconsolidation had occurred on December 31, 1995, and the Company had replaced such interest free loans with interest bearing debt, the Company's net income would thereafter be reduced annually by approximately $8.3 million. This estimate assumes that the Company refinanced the interest free loans at current market interest rates (which are subject to continual change). 79 License Agreement Pursuant to a License Agreement (the "License") with the Company, AT&T has licensed to the Company and certain of its subsidiaries certain trade names and service marks, including but not limited to the AT&T Capital Corporation, AT&T Credit Corporation, AT&T Systems Leasing and AT&T Automotive Services names. The License provides that if AT&T ceases to own more than 50% of the voting stock of the Company (as contemplated by AT&T's September 20, 1995 announcement), AT&T may require (upon one year's notice and generally at AT&T's expense) the Company to discontinue the use of the "AT&T" name as part of its corporate name. The Company's subsidiaries may, notwithstanding such event, continue to use the other AT&T licensed names (including NCR) and service marks pursuant to the License (e.g., as part of such subsidiaries' corporate names and for marketing purposes), subject to extensive restrictions on the use thereof in connection with the issuance of securities and incurrence of indebtedness. Intercompany Agreement AT&T has agreed in the Intercompany Agreement to own, directly or indirectly, at least 20% of the aggregate number of shares of the Company's common stock until August 4, 1998. In its September 20, 1995 press release, AT&T indicated its intent to sell the remainder of its interest in the Company by the end of 1996, subject to obtaining a modification to the existing Intercompany Agreement. AT&T has previously advised the Company that it has no plans to modify the Intercompany Agreement without the approval of a majority of the Company's independent directors. Borrowing Performance (see Note 7) The Company believes that because of its relationship with AT&T it has generally enjoyed borrowing cost savings of approximately 10 basis points. If the Company ceases to be a subsidiary of AT&T, there is no assurance that this cost savings would continue. Any actual impact on borrowing costs would be affected by many factors including the identity of the purchaser or purchasers of AT&T's interest and whether AT&T's interest is sold in the public market or to one or more other companies. 80 Compensation and Benefit Plans (see Note 11) Awards under the Company's SPIP are generally based on the performance of the Company's stock price and dividend yield relative to the interest rate on three-year treasury notes and the total return on the stock of a specified peer group of financial services companies over three-year performance periods. If AT&T reduces its voting interest in the Company, certain provisions of the SPIP trigger the possible acceleration of certain of these cash awards for performance periods pending at such time. The SPIP has been amended, subject to shareholder approval, to provide that upon the consummation of a change in control transaction resulting in the common stock of the Company no longer being publicly traded ("Private Sale"), Maximum Payouts (as defined in the SPIP) associated with the pending and completed performance periods, will be paid to the participants. If it is assumed that a Private Sale occurs by year-end 1996, the Company estimates that it would incur a possible charge to net income between $7 and $15 million. Alternatively, if a Private Sale does not occur, but AT&T otherwise reduces its voting interest in the Company below 50%, coupled with the withdrawal by AT&T of the Company's rights under the License to use the "AT&T" name for certain corporate purposes a "Disaffiliation Event" would occur. If a Disaffiliation Event were to occur, awards for the pending performance periods would be accelerated and payable immediately to participants as an interim payout based upon performance through the date of such Disaffiliation Event, and the performance period would continue. While the Company does not know with certainty if and when a Disaffiliation Event will occur and what the relative performance of the Company's stock as measured against the benchmark group would be as of the date of such Disaffiliation Event, if it is assumed that a Disaffiliation Event occurs by year-end 1996 and that only the then pending performance periods are accelerated as provided in the SPIP, the Company estimates that it would incur a possible charge to net income between $0 and $15 million. In addition, the Company's compensation and benefit plans have various provisions associated with the sale of AT&T's interest in the Company, including the empowerment of the Compensation Committee of the Company's Board to accelerate vesting rights or repurchase stock options on behalf of the Company. Such actions of the Compensation Committee could have a material impact upon the Company's consolidated financial statements. However, due to the uncertainties and range of possible sale structures, the Company cannot estimate with certainty the impact AT&T's sale of its interest in the Company would have on its consolidated financial statements. 81 REPORT OF MANAGEMENT -------------------- Management is responsible for the preparation, integrity and objectivity of the financial statements and all other financial information included in this report. Management is also responsible for maintaining a system of internal controls as a fundamental requirement for the operational and financial integrity of results. The financial statements, which reflect the consolidated accounts of AT&T Capital Corporation and its Subsidiaries, and other financial information shown were prepared in conformity with generally accepted accounting principles. Estimates included in the financial statements were based on judgments of qualified personnel. To maintain its system of internal controls, management carefully selects key personnel and establishes the organizational structure to provide an appropriate division of responsibility. We believe it is essential to conduct business affairs in accordance with the highest ethical standards as set forth in the AT&T Code of Conduct. These guidelines and other informational programs are designed and used to ensure that policies, standards, and managerial authorities are understood throughout the organization. AT&T Capital's Business Controls Group, in conjunction with AT&T's internal auditors, monitor compliance with the system of internal controls by means of an annual plan of internal audits. On an ongoing basis, the system of internal controls is reviewed, evaluated and revised as necessary in light of the results of constant management oversight, internal and independent audits, changes in the Company's business and other conditions. Management believes that the system of internal controls, taken as a whole, provides reasonable assurance that (1) financial records are adequate and can be relied upon to permit the preparation of financial statements in conformity with generally accepted accounting principles, and (2) access to assets occurs only in accordance with management's authorizations. The Audit Committee of the Board of Directors, which is composed of directors who are not employees of the Company or AT&T, meets periodically with management, AT&T Capital's Business Controls Group and the independent auditors to review the manner in which these groups of individuals are performing their responsibilities and to carry out the Audit Committee's oversight role with respect to auditing, internal controls and financial reporting matters. Periodically, the independent auditors meet privately with the Audit Committee. Both the internal auditors and the independent auditors have access to the Audit Committee and its individual members at any time. 82 The financial statements have been audited by Coopers & L.L.P., Independent Auditors. Their audits were conducted in accordance with generally accepted auditing standards and include a consideration of the internal control structure and substantive tests of transactions. Their report follows. Thomas C. Wajnert Chairman and Chief Executive Officer Edward M. Dwyer Senior Vice President, Chief Financial Officer 83 REPORT OF INDEPENDENT AUDITORS ------------------------------ To the Shareowners of AT&T Capital Corporation: We have audited the consolidated balance sheets of AT&T Capital Corporation and Subsidiaries at December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareowners' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AT&T Capital Corporation and Subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 10 to the Consolidated Financial Statements, in 1993, the Company changed its method of accounting for income taxes. COOPERS & LYBRAND L.L.P. 1301 Avenue of the Americas New York, New York January 25, 1996 84 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in independent auditors and no disagreements with independent auditors on any accounting or financial disclosure during the past two years. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS The information set forth under the caption "Nominees for Election" in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on April 19, 1996 (the "Proxy Statement") to be filed within 120 days after the end of the Company's fiscal year ended December 31, 1995, is incorporated herein by reference. EXECUTIVE OFFICERS Executive officers of the Company serve at the discretion of the Board of Directors. No officer of the Company has a written employment or noncompetition agreement with the Company, although each such officer has agreed not to disclose confidential information of the Company. The Company does not have "key man" insurance coverage on any of its officers. The executive officers of the Company comprise the Corporate Leadership Team consisting of the following six officers: Messrs. Wajnert, Rothman, Van Sickle, Dwyer, and McCarthy and Ms. Morey. Thomas C. Wajnert, 52, has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since July 1993 and as a director of the Company since April 1993. From April 1993 to July 1993 Mr. Wajnert was President, Chief Executive Officer and Vice Chairman of the Board of Directors of the Company. From February 1990 to March 1993, Mr. Wajnert was President and Chief Executive Officer and a director of Old Capital. From October 1984 to May 1993, Mr. Wajnert was the Chief Executive Officer of Old Credit. Irving H. Rothman, 48, has served as Group President of the Company since April 1993. Together with Mr. Van Sickle, Mr. Rothman shares responsibility for the operations of the Company, with the heads of the Company's several business units reporting to Messrs. Rothman and Van Sickle jointly. From March 1992 to March 1993 Mr. Rothman served as Vice Chairman of Old Credit. From November 1991 to March 1993, Mr. Rothman was Group President of Old Capital. From March 1990 to January 1992, Mr. Rothman was president and Chief Operating Officer of Old Credit and from February 1990 to March 1993, Mr. Rothman was a director of Old Credit. From February 1988 to February 1990, Mr. Rothman was Executive Vice President and Chief Financial Officer of Old Credit. 85 Charles D. Van Sickle, 53, has served as Group President of the Company since April 1993. Together with Mr. Rothman, Mr. Van Sickle shares responsibility for the operations of the Company, with the heads of the Company's business units reporting to Messrs. Van Sickle and Rothman jointly. From November 1991 to March 1993, Mr. Van Sickle was Group President of Old Capital and from March 1992 to March 1993, he was Vice Chairman of Old Capital's Capital Markets division. From January 1991 to March 1992 Mr. Van Sickle was President and Chief Operating Officer of Old Capital's Capital Markets division. From March 1990 to January 1991 and from November 1991 to March 1993, Mr. Van Sickle was a director of Old Credit. From February 1988 to January 1991, Mr. Van Sickle was a Senior Vice President of Old Credit's Capital Markets division. Edward M. Dwyer, 39, has served as Senior Vice President and Chief Financial Officer of the Company since October, 1995. From July 1994 to October 1995, Mr. Dwyer was Senior Vice President, Chief Financial Officer and Treasurer. From April 1993 to June 1994, Mr. Dwyer was Vice President and Treasurer of the Company. From July 1991 to March 1993, he was Vice President and Treasurer of Old Capital. From February 1990 to July 1991, Mr. Dwyer was Chief Financial Officer of Old Capital's Capital Markets division. From October 1989 to February 1990, he was Old Capital's Head of Business Planning. G. Daniel McCarthy, 46, has served as Senior Vice President, General Counsel, Secretary and Chief Risk Management Officer of the Company since April 1993. From February 1990 to March 1993, Mr. McCarthy was Senior Vice President, General Counsel, Secretary and Chief Risk Management Officer of Old Capital. From February 1988 to February 1990 he was Vice President, General Counsel and Secretary of Old Credit. Ruth A. Morey, 52, has served as Senior Vice President and Corporate Resource Officer of the Company since April 1993. From February 1990 to March 1993, Ms. Morey served as Senior Vice President and Chief Administrative Officer of Old Capital. From March 1989 to February 1991, Ms. Morey was Vice President of Old Credit's Human Resources division and from March 1990 to March 1993 she was a director of Old Credit. From 1987 to March 1989, Ms. Morey was the head of Old Credit's Human Resources division. Item 11. EXECUTIVE COMPENSATION. The information set forth under the caption "Executive Compensation" in the Proxy Statement is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information set forth under the caption "Security Ownership" in the Proxy Statement is incorporated herein by reference. 86 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information set forth under the caption "Executive Compensation" in the Proxy Statement is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K. (a) Documents filed as a part of the report: (1) Financial Statements: Page Consolidated Balance Sheets 41 Consolidated Statements of Income 43 Consolidated Statements of Changes in Shareowners' Equity 45 Consolidated Statements of Cash Flows 46 Notes to the Consolidated Financial Statements 48 Report of Management 82 Report of Independent Auditors 84 (2) Financial Statement Schedules: Schedule VIII - Valuation and Qualifying Accounts Financial statement schedules other than the one listed above are omitted because the required information is included in the financial statements or notes thereto or because of the absence of conditions under which they are required. Report of Independent Auditors (3) Exhibits: Exhibit Number 3(a). Restated Certificate of Incorporation of the registrant is incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form S-1 [No. 33-49605], filed with the Securities and Exchange Commission. 3(b). Amended and Restated By-laws of the registrant dated as of October 21, 1994 is incorporated by reference to Exhibit 3(b) of the registrant's Annual Report on Form 10K [No. 1-11237] for the year ended December 31, 1994, filed with the Securities and Exchange Commission. 87 4(a). Indenture dated as of July 1, 1993 between the registrant and Chemical Bank, Trustee (the "Indenture") is incorporated by reference to Exhibit 4A of the registrant's Registration Statement on Form S-3 [No. 33-49671] filed with the Securities and Exchange Commission. 4(b). First Indenture Supplement dated as of June 24, 1994, to the Indenture is incorporated by reference to Exhibit 4A-2 of the registrant's Registration Statement on Form S-3 [No.33-54359] filed with the Securities and Exchange Commission. 4(c). Instruments other than described above in 4(a) and 4(b) that define the rights of holders of long-term debt of the registrant and all of its consolidated subsidiaries, are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant hereby agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request. 10(a). Operating Agreement between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to exhibit 10.1 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(b). First Amendment to Operating Agreement between the registrant and AT&T dated January 5, 1995. 10(c). Intercompany Agreement between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to Exhibit 10.2 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(d). License Agreement between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to Exhibit 10.3 of the registrant's Registration Statement on Form S-1 [No. 33- 49605] filed with the Securities and Exchange Commission. 10(e). Registration Rights Agreement between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to Exhibit 10.4 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(f). Tax Agreements between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to Exhibit 10.5 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(g). AT&T Capital Corporation 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.9 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 88 10(h). Form of Stock Option Agreement under the 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.10 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(i). Form of Restricted Stock Agreement under the 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.11 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(j). Form of Director's Stock Option Agreement under the 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.12 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(k). Form of Director's Restricted Stock Award under the 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.13 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(l). AT&T Capital Corporation 1993 Leveraged Stock Purchase Plan is incorporated by reference to Exhibit 10.14 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(m). Form of Stock Purchase Agreement and related exhibits under the 1993 Leveraged Stock Purchase Plan is incorporated by reference to Exhibit 10.15 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(n). AT&T Capital Corporation 1993 Share Performance Incentive Plan is incorporated by reference to Exhibit 10.17 on the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(o). Amendment Number 1 to the 1993 Share Performance Incentive Plan dated November 14, 1995. 10(p). Restructuring Agreement dated as of March 29, 1993, among the Registrant, Old Capital, Old Credit and AT&T is incorporated by reference to Exhibit 10.18 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(q). Credit Agreement dated as of June 30, 1995, among the registrant, the Banks listed therein and Morgan Guaranty Trust Company of New York, as Agent (five-year term). 89 10(r). Credit Agreement dated as of June 30, 1995, among the registrant, the Banks listed therein and Morgan Guaranty Trust Company of New York, as Agent (364-day term). 10(s). AT&T Capital Corporation 1993 Employee Compensation Adjustment Plan is incorporated by reference to Exhibit 10.21 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(t). AT&T Capital Corporation 1993 Deferred Compensation Plan as amended on October 21, 1994. 10(u). AT&T Capital Corporation 1993 Financial Counseling Plan is incorporated by reference to Exhibit 10.22 of the registrant's Registration Statement on Form S-1 [No.33-49605] filed with the Securities and Exchange Commission. 10(v). AT&T Capital Corporation 1994 Employee Stock Purchase Plan is incorporated by reference to Exhibit 4(c) of the registrant's Registration Statement on Form S-8 [No. 33- 54315] filed with the Securities and Exchange Commission. 10(w). AT&T Capital Corporation 1995 Annual Incentive Plan is incorporated by reference to Exhibit 10(w) of the registrant's Annual Report on Form 10K [No. 1-11237] for the year ended December 31, 1994, filed with the Securities and Exchange Commission. 10(x). AT&T Capital Corporation 1995 Senior Executive Annual Incentive Plan is incorporated by reference to Exhibit A of the registrant's definitive Proxy Statement dated March 20, 1995 issued in connection with the 1995 Annual Meeting of Stockholders. 10(y). AT&T Capital Corporation Executive Benefit Plan as amended and restated effective as of December 4, 1995. 10(z). AT&T Capital Corporation Supplemental Executive Retirement Plan effective January 1, 1994. 10(aa).AT&T Capital Corporation Compensation Limit Excess Plan effective January 1, 1995. 10(ab).Amendment to the AT&T Capital Corporation Compensation Limit Excess Plan dated October 1, 1995. 10(ac).AT&T Capital Corporation Leadership Severance Plan effective October 2, 1995. 10(ad).The Agreement between the registrant and AT&T dated January 5, 1996. 90 11. Computation of Earnings Per Share 12. Computation of Ratio of Earnings to Fixed Charges. 21. Subsidiaries of the registrant. 23. Consent of Coopers & Lybrand L.L.P. 24(a). Powers of Attorney executed by officers and directors who signed this report. 24(b). Certificate of Corporate Resolution. 27. Financial Data Schedule (b) Reports on Form 8-K: Report on Form 8K dated October 11, 1995 was filed pursuant to Item 5 (Other Events). 91 SCHEDULE VIII AT&T CAPITAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (Dollars In Thousands)
Column A Column B Column C Column D Column E Column F - --------------------------------------------------------------------------- Other Balance at Charge-offs, Additions/ Balance Beginning Net of (Deductions) at End of Period Additions Recoveries (a) of Period - --------------------------------------------------------------------------- 1995 Allowance for Credit Losses: U.S.: Lease Financing(1)$113,735 $ 66,505 $ 34,890 $ (684) $144,666 Finance Receivables(2) 46,637 15,167 9,043 (154) 52,607 Foreign 16,056 4,542 2,837 8,186 25,947 - -------------------------------------------------------------------------- Total $176,428 $ 86,214 $ 46,770 $ 7,348 $223,220 ========================================================================== 1994* Allowance for Credit Losses: U.S.: Lease Financing(1)$ 95,196 $ 62,447 $ 32,919 $(10,989) $113,735 Finance Receivables(2) 56,974 13,488 21,347 (2,478) 46,637 Foreign 7,649 4,953 1,279 4,733 16,056 - --------------------------------------------------------------------------- Total $159,819 $ 80,888 $ 55,545 $ (8,734) $176,428 =========================================================================== 1993* Allowance for Credit Losses: U.S.: Lease Financing(1)$ 86,086 $ 91,605 $ 45,728 $(36,767) $ 95,196 Finance Receivables(2) 36,139 28,604 13,017 5,248 56,974 Foreign 1,736 3,469 284 2,728 7,649 - -------------------------------------------------------------------------- Total $123,961 $123,678 $ 59,029 $(28,791) $159,819 ==========================================================================
(1) Shown on the balance sheet as a deduction from applicable finance assets, primarily capital leases. (2) Shown on the balance sheet as a deduction from finance receivables. (a) Primarily includes transfers out of credit losses related to receivables securitized, transfers in of reserves related to businesses acquired and reclassifications. *Amounts have been reclassified to conform to the 1995 presentation. 92 REPORT OF INDEPENDENT AUDITORS ------------------------------ Our report on the consolidated financial statements of AT&T Capital Corporation and Subsidiaries is included on page 84 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed as an exhibit on page 87 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in our report referred to above, the Company changed its method of accounting for income taxes in 1993. COOPERS & LYBRAND L.L.P. 1301 Avenue of the Americas New York, New York January 25, 1996 93 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AT&T CAPITAL CORPORATION By Thomas C. Wajnert ------------------------- Thomas C. Wajnert, March 6, 1996 (Chairman and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Principal Executive Officer: T. C. Wajnert Chairman and Chief Executive Officer Principal Financial Officer: E. M. Dwyer Senior Vice President, Chief Financial Officer By Thomas C. Wajnert ---------------------------- Principal Accounting Officer: (Thomas C. Wajnert, Attorney-in-fact* and on his own behalf as R. Oliu, Jr. Vice President, Controller Director and a Principal and Chief Accounting Officer Executive Officer). Directors: T. C. Wajnert J. P. Clancey J. P. Kelly March 6, 1996 G. M. Lowrie W. B. Marx, Jr. R. A. McGinn J. J. Melone R. W. Miller * by power of attorney S. L. Prendergast B. Walker, Jr. M. J. Wasser 94 EXHIBIT INDEX Exhibit Number 3(a). Restated Certificate of Incorporation of the registrant is incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form S-1 [No. 33-49605], filed with the Securities and Exchange Commission. 3(b). Amended and Restated By-laws of the registrant dated as of October 21, 1994 is incorporated by reference to Exhibit 3(b) of the registrant's Annual Report on Form 10K [No. 1-11237] for the year ended December 31, 1994, filed with the Securities and Exchange Commission. 4(a). Indenture dated as of July 1, 1993 between the registrant and Chemical Bank, Trustee (the "Indenture") is incorporated by reference to Exhibit 4A of the registrant's Registration Statement on Form S-3 [No. 33-49671] filed with the Securities and Exchange Commission. 4(b). First Indenture Supplement dated as of June 24, 1994, to the Indenture is incorporated by reference to Exhibit 4A-2 of the registrant's Registration Statement on Form S-3 [No.33-54359] filed with the Securities and Exchange Commission. 4(c). Instruments other than described above in 4(a) and 4(b) that define the rights of holders of long-term debt of the registrant and all of its consolidated subsidiaries, are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant hereby agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request. 10(a). Operating Agreement between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to exhibit 10.1 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(b). First Amendment to Operating Agreement between the registrant and AT&T dated January 5, 1995. 10(c). Intercompany Agreement between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to Exhibit 10.2 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(d). License Agreement between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to Exhibit 10.3 of the registrant's Registration Statement on Form S-1 [No. 33- 49605] filed with the Securities and Exchange Commission. 95 10(e). Registration Rights Agreement between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to Exhibit 10.4 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(f). Tax Agreements between the registrant and AT&T dated as of June 25, 1993 is incorporated by reference to Exhibit 10.5 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(g). AT&T Capital Corporation 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.9 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(h). Form of Stock Option Agreement under the 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.10 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(i). Form of Restricted Stock Agreement under the 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.11 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(j). Form of Director's Stock Option Agreement under the 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.12 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(k). Form of Director's Restricted Stock Award under the 1993 Long Term Incentive Plan is incorporated by reference to Exhibit 10.13 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(l). AT&T Capital Corporation 1993 Leveraged Stock Purchase Plan is incorporated by reference to Exhibit 10.14 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(m). Form of Stock Purchase Agreement and related exhibits under the 1993 Leveraged Stock Purchase Plan is incorporated by reference to Exhibit 10.15 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(n). AT&T Capital Corporation 1993 Share Performance Incentive Plan is incorporated by reference to Exhibit 10.17 on the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 96 10(o). Amendment Number 1 to the 1993 Share Performance Incentive Plan dated November 14, 1995. 10(p). Restructuring Agreement dated as of March 29, 1993, among the Registrant, Old Capital, Old Credit and AT&T is incorporated by reference to Exhibit 10.18 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(q). Credit Agreement dated as of June 30, 1995, among the registrant, the Banks listed therein and Morgan Guaranty Trust Company of New York, as Agent (five-year term). 10(r). Credit Agreement dated as of June 30, 1995, among the registrant, the Banks listed therein and Morgan Guaranty Trust Company of New York, as Agent (364-day term). 10(s). AT&T Capital Corporation 1993 Employee Compensation Adjustment Plan is incorporated by reference to Exhibit 10.21 of the registrant's Registration Statement on Form S-1 [No. 33-49605] filed with the Securities and Exchange Commission. 10(t). AT&T Capital Corporation 1993 Deferred Compensation Plan as amended on October 21, 1994. 10(u). AT&T Capital Corporation 1993 Financial Counseling Plan is incorporated by reference to Exhibit 10.22 of the registrant's Registration Statement on Form S-1 [No.33-49605] filed with the Securities and Exchange Commission. 10(v). AT&T Capital Corporation 1994 Employee Stock Purchase Plan is incorporated by reference to Exhibit 4(c) of the registrant's Registration Statement on Form S-8 [No. 33- 54315] filed with the Securities and Exchange Commission. 10(w). AT&T Capital Corporation 1995 Annual Incentive Plan is incorporated by reference to Exhibit 10(w) of the registrant's Annual Report on Form 10K [No. 1-11237] for the year ended December 31, 1994, filed with the Securities and Exchange Commission. 10(x). AT&T Capital Corporation 1995 Senior Executive Annual Incentive Plan is incorporated by reference to Exhibit A of the registrant's definitive Proxy Statement dated March 20, 1995 issued in connection with the 1995 Annual Meeting of Stockholders. 10(y). AT&T Capital Corporation Executive Benefit Plan as amended and restated effective as of December 4, 1995. 10(z). AT&T Capital Corporation Supplemental Executive Retirement Plan effective January 1, 1994. 10(aa).AT&T Capital Corporation Compensation Limit Excess Plan effective January 1, 1995. 97 10(ab).Amendment to the AT&T Capital Corporation Compensation Limit Excess Plan dated October 1, 1995. 10(ac).AT&T Capital Corporation Leadership Severance Plan effective October 2, 1995. 10(ad).The Agreement between the registrant and AT&T dated January 5, 1996. 11 Computation of Earnings Per Share 12 Computation of Ratio of Earnings to Fixed Charges. 21 Subsidiaries of the registrant. 23 Consent of Coopers & Lybrand L.L.P. 24(a). Powers of Attorney executed by officers and directors who signed this report. 24(b). Certificate of Corporate Resolution. 27. Financial Data Schedule 98 EX-10 2 EXHIBIT 10(B) EXHIBIT 10(b) Form 10-K for 1995 File No. 1-11237 EXECUTION COPY FIRST AMENDMENT TO OPERATING AGREEMENT This First Amendment to Operating Agreement dated as of January 5, 1996 (this "Amendment"), is entered into between AT&T CORP. (formerly American Telephone and Telegraph Company), a New York corporation ("AT&T"), and AT&T CAPITAL CORPORATION, a Delaware corporation ("Capital"), and amends the Operating Agreement dated as of June 25, 1993 (as amended hereby, the "Operating Agreement"), entered into among AT&T and Capital. W I T N E S S E T H: WHEREAS, the Board of Directors of AT&T has determined that it is in the best interest of AT&T to separate AT&T's existing businesses into three independent businesses; WHEREAS, as part of the foregoing, AT&T Global Information Solutions, Inc. ("GIS") and NS-MPG Inc. ("NS-MPG") will enter into a Separation and Distribution Agreement with AT&T which provides, among other things, for the separation of the NS-MPG assets and NS-MPG liabilities, and the distribution and the execution and the delivery of certain other agreements in order to facilitate and provide for the foregoing; WHEREAS, in connection with such reorganization, AT&T intends (i) to spin-off GIS and NS-MPG in two or more transactions (including a sale, spin-off or distribution of stock or assets to AT&T's shareowners or to an unrelated Person or Persons) and (ii) to spin-off or sell its interest in Capital (collectively, the "Spin-Off Transactions"); WHEREAS, in contemplation of the Spin-Off Transactions, the parties hereto desire to make certain amendments the Operating Agreement; NOW, THEREFORE, in consideration of the mutual promises herein set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the conditions and upon the terms hereof, the parties hereto hereby agree as follows: SECTION 1. Defined Terms. Terms defined in the Operating Agreement not otherwise defined herein shall have the meanings therein defined. SECTION 2. Amendment to the Operating Agreement. The Operating Agreement is, effective as of the date hereof, hereby amended as follows: -2- 2.01 Article I of the Operating Agreement is amended by adding the following new definitions thereto: "GIS Operating Agreement" means the Comparable Operating Agreement to be entered into between Capital and GIS, as such agreement is amended and supplemented from time to time in accordance with its terms. "NS-MPG Operating Agreement" means the Comparable Operating Agreement to be entered into between Capital and NS-MPG, as such agreement is amended and supplemented from time to time in accordance with its terms. 2.02 Section 4.1(b) of the Operating Agreement is amended by deleting clause (iii) in its entirety and replacing it with the following: (iii) the AT&T Entities (including AT&T Universal Card Services Corporation) may issue credit cards; provided that the AT&T Entities shall not use such credit cards to offer programs for equipment leasing or other types of equipment Financing with respect to Products, asset remarketing or Finance-related equipment insurance in connection with Products that compete with programs for such services offered by the Capital Entities (it being understood that for purposes of this clause (iii) "Products" shall include Products (as defined in the Communications Systems and Technology Operating Agreement and as defined in the Computer Company Operating Agreement); 2.03 The definition of "Captive Financing Trigger Event" in Section 4.2 of the Operating Agreement is amended by (A) deleting the following language beginning in the second line of such definition: "each of the following conditions is met: (i) Capital ceases to be a Subsidiary of AT&T; and (ii) "and (B) deleting "(ii)" in the tenth line of such definition. SECTION 3. Representation Regarding Additional Aqreements. Each of AT&T and Capital represents to the other that as of the date hereof to the best of its knowledge no agreement has been entered into between AT&T and Capital that would vary the terms of the Operating Agreement as contemplated in Section 13.1 of the Operating Agreement. -3- SECTION 4. Reference to and Effect on the Operating Agreement. 4.01 Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Operating Agreement to "this Agreement", "hereunder", "hereof" or words of like import, and each reference in the Intercompany Agreement and the License Agreement to the Operating Agreement, shall mean and be a reference to the Operating Agreement as amended hereby. 4.02 Except as specifically amended above, all of the terms of the Operating Agreement shall remain unchanged and in full force and effect. SECTION 5. Execution in Counterparts. This Amendment may be executed and delivered in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original and all of which taken together shall constitute one and the same original agreement. SECTION 6. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, this Amendment has been duly executed on the date set forth above. AT&T CORP. By: /s/ S. Lawrence Prendergast ------------------------------------ Name: S. Lawrence Prendergast Title: Vice President and Treasurer AT&T CAPITAL CORPORATION By: /s/ G. Daniel McCarthy ------------------------------------ Name: G. Daniel McCarthy Title: Senior Vice President, General Counsel & Secretary EX-10 3 EXHIBIT 10(O) EXHIBIT 10(o) Form 10-K for 1995 File No. 1-11237 AT&T CAPITAL CORPORATION AMENDMENT NUMBER 1 TO 1993 SHARE PERFORMANCE INCENTIVE PLAN Pursuant to resolutions adopted by the Compensation Committee and Executive Committee of AT&T Capital Corporation's Board of Directors (dated November 7, 1995 and November 14, 1995, respectively), the AT&T Capital Corporation 1993 Share Performance Incentive Plan (the "Plan") is hereby amended and supplemented effective November 14, 1995 as set forth below: 1. Section 2 of the Plan is amended and supplemented by adding the following new paragraph (ap) at the end thereof: (ap) "Private Sale" means any Change in Control that results in, or will have the result of, the Common Stock no longer being publicly traded on a national securities exchange or traded on the NASDAQ over-the-counter market. 2. Section 5 of the Plan is amended and supplemented by adding the following Section 5.3 at the end thereof: 5.3 Private Sale. (a) Notwithstanding anything in Sections 5.1 or 5.2 to the contrary, upon the occurrence of a Private Sale during the term of the Plan, the Company shall promptly pay to each Participant (i) 100% of such Participant's Maximum Payout (without discount) for each pending Performance Period under the Plan and (ii) with respect to any Performance Period completed within twelve (12) months prior to such Private Sale, the excess of (A) 100% of the Maximum Payout for such Participant for such Performance Period over (B) the payment actually made to the Participant for such Performance Period. (b) Subject to Section 5.2 hereof, following any Award Payout for pending and completed Performance Periods under this Section 5.3, Award Payouts with respect to any Performance Periods beginning after the occurrence of a Private Sale will be determined in accordance with the provisions of Section 4 hereof without modification. EX-10 4 EXHIBIT 10(Q) Exhibit 10(q) Form 10-K for 1995 File No. 1-11237 $500,000,000 CREDIT AGREEMENT dated as of June 30, 1995 among AT&T Capital Corporation The Banks Listed Herein and Morgan Guaranty Trust Company of New York, as Agent TABLE OF CONTENTS* Page ---- ARTICLE I DEFINITIONS SECTION 1.01 Definitions .................................... 1 1.02 Accounting Terms and Determinations ............ 12 1.03 Types of Borrowings ............................ 13 1.04 Basis for Ratings .............................. 13 ARTICLE II THE CREDITS SECTION 2.01 Commitments to Lend ............................ 13 2.02 Notice of Committed Borrowing .................. 13 2.03 Money Market Borrowings ........................ 14 2.04 Notice to Banks; Funding of Loans .............. 18 2.05 Notes .......................................... 19 2.06 Maturity of Loans; Termination of Commitments .................................. 20 2.07 Interest Rates ................................. 20 2.08 Facility Fees .................................. 24 2.09 Optional Termination or Reduction of Commitments ..................... 24 2.10 Method of Electing Interest Rates .............. 24 2.11 Optional Prepayments ........................... 26 2.12 General Provisions as to Payments .............. 27 2.13 Funding Losses ................................. 28 2.14 Computation of Interest and Fees ............... 28 2.15 Regulation D Compensation ...................... 29 ARTICLE III CONDITIONS SECTION 3.01 Effectiveness .................................. 29 3.02 Borrowings ..................................... 30 - ---------------- *The Table of Contents is not a part of this Agreement. i Page ---- ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 Corporate Existence and Power................... 31 4.02 Corporate and Governmental Authorization; No Contravention............... 31 4.03 Binding Effect.................................. 31 4.04 Financial Information........................... 32 4.05 Litigation...................................... 32 4.06 Subsidiaries.................................... 33 4.07 Not an Investment Company....................... 33 4.08 Full Disclosure................................. 33 ARTICLE V COVENANTS SECTION 5.01 Information..................................... 33 5.02 Maintenance of Existence........................ 34 5.03 Fixed Charge Coverage........................... 34 5.04 Debt............................................ 35 5.05 Limitation on Secured Debt...................... 35 5.06 Consolidations, Mergers and Sales of Assets............................... 37 5.07 Use of Proceeds................................. 38 ARTICLE VI DEFAULTS SECTION 6.01 Events of Default............................... 38 6.02 Notice of Default............................... 40 6.03 Rescission...................................... 40 ARTICLE VII THE AGENT SECTION 7.01 Appointment and Authorization................... 41 7.02 Agent and Affiliates............................ 41 7.03 Action by Agent................................. 41 7.04 Consultation with Experts....................... 41 7.05 Liability of Agent.............................. 41 7.06 Indemnification................................. 42 ii Page ---- 7.07 Credit Decision................................. 42 7.08 Successor Agent................................. 42 7.09 Agent's Fee..................................... 43 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01 Basis for Determining Interest Rate Inadequate or Unfair..................... 43 8.02 Illegality...................................... 44 8.03 Increased Cost and Reduced Return............... 44 8.04 Taxes........................................... 46 8.05 Base Rate Loans Substituted for Affected Fixed Rate Loans..................... 49 8.06 Substitution of Bank............................ 49 8.07 Compensation.................................... 50 ARTICLE IX MISCELLANEOUS SECTION 9.01 Notices......................................... 50 9.02 No Waivers...................................... 51 9.03 Expenses; Indemnification....................... 51 9.04 Sharing of Set-Offs............................. 51 9.05 Amendments and Waivers.......................... 52 9.06 Successors and Assigns.......................... 52 9.07 Collateral...................................... 54 9.08 Governing Law; Submission to Juris- diction....................................... 54 9.09 Counterparts; Integration....................... 55 9.10 WAIVER OF JURY TRIAL............................ 55 9.11 Confidentiality................................. 55 Exhibit A - Note Exhibit B - Money Market Quote Request Exhibit C - Invitation for Money Market Quotes Exhibit D - Money Market Quote iii Exhibit E - Opinion of Counsel for the Borrower Exhibit F - Opinion of Special Counsel for the Agent Exhibit G - Assignment and Assumption Agreement iv CREDIT AGREEMENT AGREEMENT dated as of June 30, 1995 among AT&T CAPITAL CORPORATION, the BANKS party hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. W I T N E S S E T H : WHEREAS, the Borrower (as defined below) has heretofore entered into a $500,000,000 Credit Agreement dated as of July 11, 1994 with the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as agent for such banks (the "Existing Credit Agreement"); and WHEREAS, the Borrower wishes to enter into this Agreement to replace the Existing Credit Agreement; and WHEREAS, upon the effectiveness of this Agreement in accordance with Section 3.01, the Existing Credit Agreement shall terminate; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "Accounts Receivable" shall mean (i) any accounts receivable (whether or not earned by performance), chattel paper, instruments, documents, general intangibles, trade acceptances, any other rights to receive installment, rental or other payments for, or relating to amounts due or to become due on account of equipment or goods sold or leased or to be sold or leased or services rendered or to be rendered or funds advanced or loaned or to be advanced or loaned and other rights to payment of any kind, (ii) any proceeds of any of the foregoing and (iii) any interest in any property or asset of any kind (whether of the obligor under such Accounts Receivable or any other Person) securing the payment of any item listed in clause (i) hereof. "Adjusted CD Rate" has the meaning set forth in Section 2.07(b). "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "Agent" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks hereunder, and its successors in such capacity. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Applicable Margin" has the meaning set forth in Section 2.07(h). "Assessment Rate" has the meaning set forth in Section 2.07(b). "Asset Drop-Down" has the meaning set forth in Section 5.06. "Assignee" has the meaning set forth in Section 9.06(c). "AT&T" means American Telephone and Telegraph Company, a New York corporation, and its successors. "Bank" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means (i) a Committed Loan which bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the provisions of Article VIII or (ii) an 2 overdue amount which was a Base Rate Loan immediately before it became overdue. "Borrower" means AT&T Capital Corporation, a Delaware corporation, and its successors. "Borrower's 1994 Form 10-K" means the Borrower's annual report on Form 10-K for 1994, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended March 31, 1995, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrowing" has the meaning set forth in Section 1.03. "CD Base Rate" has the meaning set forth in Section 2.07(b). "CD Loan" means (i) a Committed Loan which bears interest at a CD Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a CD Loan immediately before it became overdue. "CD Rate" means a rate of interest determined pursuant to Section 2.07(b) on the basis of an Adjusted CD Rate. "CD Reference Banks" means Chemical Bank, Citibank, N.A. and Morgan Guaranty Trust Company of New York. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Section 2.09 or changed pursuant to Section 9.06(c). "Committed Loan" means a loan made by a Bank pursuant to Section 2.01; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term "Committed Loan" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. 3 "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated EBIT" means, for any period, the sum of (i) the consolidated net income from continuing operations of the Borrower and its Consolidated Subsidiaries for such period before extraordinary items and without giving effect to unusual non-recurring events plus (ii) to the extent deducted in determining such consolidated net income from continuing operations, the sum of Consolidated Interest Expense and the provision for income tax for such period. "Consolidated Interest Expense" means, for any period, the interest expense of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis for such period. "Consolidated Net Tangible Assets" means, at the date of any determination, the total assets appearing on the consolidated balance sheet of the Borrower and its Restricted Subsidiaries as at the end of the most recent fiscal quarter of the Borrower for which such balance sheet is available, prepared in accordance with generally accepted accounting principles, less (a) all current liabilities (obligations whose liquidation is reasonably expected to occur within twelve months), (b) investments in and advances to Subsidiaries of the Borrower other than Restricted Subsidiaries or other entities accounted for on the equity method of accounting, and (c) Intangible Assets. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "Consolidated Tangible Net Worth" means, at any date, the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries less Intangible Assets, all determined as of such date. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money and (ii) all obligations of others for borrowed money guaranteed by such Person; provided, however, that any recourse provided by any Person in connection with any sale, transfer or other disposition by such Person of Accounts Receivable or of any subsidiary of such Person substantially all the assets of which are Accounts Receivable which 4 constitutes a "sale" under generally accepted accounting principles (as in effect at the time of such sale, transfer or other disposition) shall not, in any event, constitute Debt. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.07(b). "Drop-Down Subsidiary" has the meaning set forth in Section 5.06. "Effective Date" means the date this Agreement becomes effective in accordance with Section 3.01. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its 5 Euro-Dollar Lending Office by notice to the Borrower and the Agent. "Euro-Dollar Loan" means (i) a Committed Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue. "Euro-Dollar Rate" means a rate of interest determined pursuant to Section 2.07(c) on the basis of a London Interbank Offered Rate. "Euro-Dollar Reference Banks" means the principal London offices of The Fuji Bank, Limited, Royal Bank of Canada and Morgan Guaranty Trust Company of New York. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). "Event of Default" has the meaning set forth in Section 6.01. "Existing Credit Agreement" has the meaning set forth in the recitals hereto. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust 6 Company of New York on such day on such transactions as determined by the Agent. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "Group of Loans" means at any time a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time or (ii) all Committed Loans which are Fixed Rate Loans of the same type having the same Interest Period at such time; provided that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Section 8.02 or 8.05, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "Indemnitee" has the meaning set forth in Section 9.03(b). "Intangible Assets" means the value (net of any applicable reserves), as shown on or reflected in the Borrower's balance sheet, of: (i) all trade names, trademarks, licenses, patents, copyrights and goodwill; (ii) organization and development costs; (iii) deferred charges (other than prepaid items such as insurance, taxes, interest, commissions, rents and similar items and tangible assets being amortized); and (iv) unamortized debt discount and expense, less unamortized premium. "Interest Period" means: (1) with respect to each Euro-Dollar Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day 7 in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (2) with respect to each CD Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (3) with respect to each Money Market LIBOR Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (4) with respect to each Money Market Absolute Rate Loan, the period commencing on the date of borrowing specified in 8 the applicable Notice of Borrowing and ending such number of days thereafter (but not less than 14 days) as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Level I Status" exists at any date if, at such date, both (i) the Borrower's outstanding senior unsecured long-term debt is rated both A+ or higher by S&P and A1 or higher by Moody's and (ii) the Borrower's commercial paper is rated both A1 or higher by S&P and P1 by Moody's. "Level II Status" exists at any date if, at such date, (a) both (i) the Borrower's outstanding senior unsecured long-term debt is rated both A- or higher by S&P and A3 or higher by Moody's and (ii) the Borrower's commercial paper is rated both A1 or higher by S&P and P1 by Moody's and (b) Level I Status does not exist at such date. "Level III Status" exists at any date if, at such date, (a) both (i) the Borrower's outstanding senior unsecured long-term debt is rated both BBB- or higher by S&P and Baa3 or higher by Moody's and (ii) the Borrower's commercial paper is rated both A2 or higher by S&P and P2 or higher by Moody's and (b) neither Level I Status nor Level II Status exists at such date. "Level IV Status" exists at any date if, at such date, neither Level I Status, Level II Status nor Level III Status exists. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "Lien" means any mortgage, pledge, security interest or lien. "Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans or 9 Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.07(c). "Material Adverse Effect" means a material adverse effect on the consolidated financial position of the Borrower and its subsidiaries. "Money Market Absolute Rate" has the meaning set forth in Section 2.03(d). "Money Market Absolute Rate Loan" means a loan made or to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan made or to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.03(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "Moody's" means Moody's Investors Service, Inc. or any successor rating agency acceptable to the Agent and the Borrower. "Non-Recourse Debt" of the Borrower or any Restricted Subsidiary means any indebtedness for borrowed money of the Borrower or any Restricted Subsidiary, as the 10 case may be, which is secured by any Lien on or payable solely from the income and proceeds of any property (including, without limiting the generality of such term, any intangible assets), shares of stock, other equity interests or debt of the Borrower or such Restricted Subsidiary, as the case may be, and which is not a general obligation of the Borrower or such Restricted Subsidiary, as the case may be. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "Notice of Interest Rate Election" has the meaning set forth in Section 2.10. "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.06(b). "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Quarterly Date" means the last Euro-Dollar Business Day of each March, June, September and December. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Banks" means at any time Banks having at least 51% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes 11 evidencing at least 51% of the aggregate unpaid principal amount of the Loans. "Restricted Subsidiary" means each Subsidiary of the Borrower organized under the laws of any State of the United States or the District of Columbia no substantial portion of the business of which is carried on outside of the United States; provided that each Drop-Down Subsidiary (as defined in Section 5.06) shall be a Restricted Subsidiary. "S&P" means Standard & Poor's Ratings Group or any successor rating agency acceptable to the Agent and the Borrower. "Status" means, at any date, whichever of Level I Status, Level II Status, Level III Status or Level IV Status exists at such date. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower (or, if such term is used with reference to any other Person, by such other Person). "Termination Date" means June 30, 2000, or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "United States" means the United States of America, including the States thereof and the District of Columbia, but excluding its territories and possessions. "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes made in consultation with the Borrower's independent public accountants) with the most recent audited consolidated 12 financial statements of the Borrower and its subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Agent that the Borrower wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Banks wish to amend Article V for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article II on the same date, all of which Loans are of the same type (subject to Article VIII) and, except in the case of Base Rate Loans, have the same Interest Period or initial Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article II under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith). SECTION 1.04. Basis for Ratings. The credit ratings to be utilized in the determination of a Status are the ratings assigned to unsecured obligations of the Borrower without third party credit support. Ratings assigned to any obligation which is secured or which has the benefit of third party credit support shall be disregarded. ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time on and after the Effective Date and prior to the Termination Date in amounts such that 13 the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $50,000,000 or any larger multiple of $5,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, prepay Loans to the extent permitted by Section 2.11, and reborrow at any time prior to the Termination Date. SECTION 2.02. Notice of Committed Borrowing. The Borrower shall give the Agent notice (a "Notice of Committed Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or at a CD Rate or a Euro-Dollar Rate, and (d) in the case of a Fixed Rate Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks to make offers to make Money Market Loans to the Borrower prior to the Termination Date. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by telex 14 or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $5,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Agent may agree) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each 15 Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 4:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles III and VI, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, 16 (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) except as provided in subsection (d)(ii)(B)(z), contains qualifying, conditional or similar language; (C) except as provided in subsection (d)(ii)(B)(z), proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. 17 (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $5,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. Notice to Banks; Funding of Loans. 18 (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower by 3:00 P.M. (New York City time) on the date of such Borrowing at the Agent's aforesaid address. (c) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.05. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such 19 Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(a), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount and type of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement or any error in making the same shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.06. Maturity of Loans; Termination of Commitments. (a) The Commitments shall terminate on the Termination Date, and all Committed Loans shall mature, and the principal amount thereof shall be due and payable, on such date. (b) Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date and on the Termination Date, and, with respect to the principal amount of any Base Rate Loan converted to a CD Loan or a Euro-Dollar Loan, on each date a Base Rate Loan is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during 20 each Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for such day plus the Adjusted CD Rate applicable to such Interest Period; provided that if any CD Loan or any portion thereof shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the rate applicable to Base Rate Loans for such day. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate ---------- * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the 21 Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. ss. 327.4(a) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for such day plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "London Interbank Offered Rate" applicable to any Interest Period means a rate of interest determined by the Agent on the basis of at least two offered rates for deposits in United States dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on the Reuters Screen LIBO Page as of 11:00 A.M. (London time) on the day that is two Euro-Dollar Business Days prior to the first day of such Interest Period. If at least two such offered rates appear on the Reuters Screen LIBO Page, the rate with respect to each Interest Period will be the arithmetic average (rounded upwards to the next 1/16th of 1%) of such offered rates. If fewer than two offered rates appear, the "London Interbank Offered Rate" in respect of any Interest Period will be the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which 22 deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 1% plus the rate applicable to Base Rate Loans for such day. (e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day. (f) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation necessary to determine an interest rate in accordance with this Section, the Agent shall determine the relevant interest rate on the basis of the quotation or 23 quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. (h) The "Applicable Margin" with respect to any Euro-Dollar Loan or CD Loan at any date is the applicable percentage amount set forth in the table below based on the Status on such date:
================================================================================================== Level I Level II Level III Level IV Status Status Status Status - -------------------------------------------------------------------------------------------------- Euro Dollar Loans 0.1800% 0.2100% 0.3250% 0.5000% - -------------------------------------------------------------------------------------------------- CD Loans 0.3050% 0.3350% 0.4500% 0.6250% ==================================================================================================
SECTION 2.08. Facility Fees. The Borrower shall pay to the Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate. Such facility fee shall accrue from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused). Accrued facility fees shall be payable quarterly on each Quarterly Date and upon the date of termination of the Commitments in their entirety. The "Facility Fee Rate" at any date is: (i) 0.0700% if Level I Status exists at such date, (ii) 0.0900% if Level II Status exists at such date, (iii) 0.1750% if Level III Status exists at such date and (iv) 0.2500% if Level IV Status exists at such date. SECTION 2.09. Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $25,000,000 or any larger multiple of $5,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. The Agent shall promptly notify each Bank of any such notice received by the Agent. SECTION 2.10. Method of Electing Interest Rates. (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each 24 Group of Loans (subject in each case to the provisions of Article VIII), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to CD Loans as of any Domestic Business Day or to Euro-Dollar Loans as of any Euro-Dollar Business Day; (ii) if such Loans are CD Loans, the Borrower may elect to convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue such Loans as CD Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans; and (iii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or CD Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Agent at least three Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted from Domestic Loans to Domestic Loans of the other type or continued as Domestic Loans of the same type for an additional Interest Period, in which case such notice shall be delivered to the Agent at least two Domestic Business Days before such conversion or continuation is to be effective). A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such notice applies, and the remaining portion to which it does not apply, are each $50,000,000 or any larger multiple of $5,000,000. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; 25 (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if such new Loans are Fixed Rate Loans, the duration of the initial Interest Period applicable thereto; and (iv) if such Loans are to be continued as CD Loans or Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Upon receipt of a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Agent shall promptly notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate Election to the Agent for any Group of Fixed Rate Loans, such Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto. SECTION 2.11. Optional Prepayments. (a) The Borrower may, upon at least one Domestic Business Day's notice to the Agent, prepay the Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) in whole at any time, or from time to time in part in amounts aggregating $50,000,000 or any larger multiple of $5,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing. (b) The Borrower may, upon at least three Domestic Business Days' notice to the Agent, in the case of a Group of CD Loans or upon at least three Euro-Dollar Business Days' notice to the Agent, in the case of a Group of Euro-Dollar Loans, prepay the Loans comprising such a Group on the last day of any Interest Period applicable to such Group, in whole at any time, or from time to time in part in amounts aggregating $50,000,000 or any larger multiple of $5,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group. (c) Except as provided in subsection (a) above, the Borrower may not prepay all or any portion of the 26 principal amount of any Money Market Loan prior to the maturity thereof. (d) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans or the Money Market LIBOR Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Absolute Rate Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended pursuant to this Agreement or by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such 27 Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted to a Base Rate Loan (pursuant to Article VI or VIII or otherwise) on any day prior to the last day of an Interest Period applicable thereto, or if the Borrower fails to borrow, continue, convert or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a), 2.10(c) or 2.11(d), the Borrower shall reimburse each Bank as provided in the following paragraph for any resulting loss or expense incurred by it (or by a Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of the Applicable Margin or any other margin for the period after any such payment or conversion or failure to borrow or prepay. A certificate of each Bank setting forth such amount or amounts (including the computation of such amount or amounts) as shall be necessary to compensate such Bank or a Participant for the out-of-pocket expenses incurred by such Bank shall be delivered to the Borrower and such amount or amounts may be reviewed by the Borrower. If the Borrower, after receipt of any such certificate from such Bank, disagrees in good faith with such Bank on the computation of the amount or amounts owed to such Bank pursuant to this Section 2.13, such Bank and the Borrower shall negotiate in good faith to promptly resolve such disagreement. Any payment required to be paid to such Bank pursuant to this Section 2.13 shall be paid within 30 days after demand is made therefor (or if there is a disagreement, after such disagreement is resolved). Each Bank shall have a duty to mitigate the damages to such Bank that may arise as a consequence of such funding losses described above to the extent that such mitigation will not, in the judgment of such Bank, entail any cost or disadvantage to such Bank that such Bank is not reimbursed or compensated for by the Borrower. SECTION 2.14. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). 28 SECTION 2.15. Regulation D Compensation. For so long as any Bank maintains reserves against "Eurocurrency liabilities" (or any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of such Bank to United States residents), and as a result the cost to such Bank (or its Applicable Lending Office) of making or maintaining its Euro-Dollar Loans is increased, then such Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum up to but not exceeding the excess of (i)(A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the rate specified in clause (i)(A). Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the rate and place indicated in such notice with respect to each Interest Period commencing at least three Euro- Dollar Business Days after the giving of such notice and (y) shall furnish to the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans an officers' certificate setting forth the amount to which such Bank is then entitled under this Section 2.15 (which shall be consistent with such Bank's good faith estimate of the level at which the related reserves are maintained by it). ARTICLE III CONDITIONS SECTION 3.01. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex, facsimile transmission or other written confirmation from such party of execution of a counterpart hereof by such party); 29 (b) receipt by the Agent of a duly executed Note for the account of each Bank dated on or before the Effective Date complying with the provisions of Section 2.05; (c) receipt by the Agent of evidence satisfactory to it that no loans are outstanding under the Existing Credit Agreement; (d) receipt by the Agent of an opinion of the General Counsel or any Assistant General Counsel of the Borrower, substantially in the form of Exhibit E hereto; (e) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit F hereto; and (f) receipt by the Agent of all documents the Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than July 7, 1995. The Agent shall promptly notify the Borrower and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. The Banks that are parties to the Existing Credit Agreement, comprising the "Required Banks" as defined therein, and the Borrower agree that the commitments under the Existing Credit Agreement shall terminate in their entirety simultaneously with and subject to the effectiveness of this Agreement and that the Borrower shall be obligated to pay on the Effective Date the accrued facility fees thereunder to but excluding the date of such effectiveness. SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) immediately after such Borrowing, the aggregate outstanding principal amount of the Loans 30 will not exceed the aggregate amount of the Commitments; (c) immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (d) the representations and warranties of the Borrower contained in this Agreement (except the representations and warranties set forth in Sections 4.04(c) and 4.05) shall be true in all material respects on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted except those which the failure to have would not have a Material Adverse Effect. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower's corporate power, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any material agreement, judgment, injunction, order, decree or other material instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and the Notes, when executed and delivered in accordance 31 with this Agreement, will constitute valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether considered in a proceeding in equity or at law). SECTION 4.04. Financial Information. (a) The consolidated balance sheet of the Borrower and its subsidiaries as of December 31, 1994 and the related consolidated statements of income, changes in stockholders' equity and cash flows for the fiscal year then ended, reported on by Cooper's & Lybrand and set forth in the Borrower's 1994 Form 10-K, a copy of which has been delivered to each of the Banks, present fairly, in all material respects, the consolidated financial position of the Borrower and its subsidiaries as of such date and the consolidated results of their operations and cash flows for such fiscal year, in conformity with generally accepted accounting principles. (b) The unaudited consolidated balance sheet of the Borrower and its subsidiaries as of March 31, 1995 and the related unaudited consolidated statements of income and cash flows for the three months then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of the Banks, present fairly, in all material respects, the consolidated financial position of the Borrower and its subsidiaries as of such date and the consolidated results of their operations and cash flows for such three-month period, in conformity with generally accepted accounting principles for interim financial information applied on a basis consistent with the financial statements referred to in subsection (a) of this Section. (c) From March 31, 1995 through the Effective Date there has been no material adverse change in the consolidated financial condition of the Borrower and its subsidiaries. SECTION 4.05. Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable probability of an adverse decision which would have a Material Adverse Effect, or which in any manner draws 32 into question the validity or enforceability of this Agreement or the Notes. SECTION 4.06. Subsidiaries. Each of the Borrower's Consolidated Subsidiaries which is a corporation is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except those which the failure to have would not have a Material Adverse Effect. SECTION 4.07. Not an Investment Company. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.08. Full Disclosure. No written information heretofore furnished by the Borrower to the Agent or any Bank pursuant to Section 4.04 is, and no written information hereafter furnished by the Borrower to the Agent or any Bank pursuant to Section 5.01 contains or will contain any material misstatement of any material facts. ARTICLE V COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) within 105 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its subsidiaries as of the end of such fiscal year and the related consolidated statements of income, changes in stockholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures as of the end of and for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission by Coopers & Lybrand or other independent public accountants of nationally recognized standing; 33 (b) within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its subsidiaries as of the end of such quarter and the related consolidated statements of income for such quarter and the related consolidated statements of income and cash flows for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in the case of such statements of income in comparative form the figures for the corresponding quarter and in the case of such statements of income and cash flows the corresponding portion of the Borrower's previous fiscal year, all certified as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower, subject to normal year end adjustments; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.03 and 5.04, inclusive, on the date of the consolidated balance sheet included in such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) promptly after the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; and (e) promptly after the filing thereof, copies of all reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission. SECTION 5.02. Maintenance of Existence. The Borrower will preserve, renew and keep in full force and effect its corporate existence except as otherwise permitted under Section 5.06. SECTION 5.03. Fixed Charge Coverage. The ratio 34 of Consolidated EBIT to Consolidated Interest Expense will not, for any period of four consecutive fiscal quarters, be less than 1.15 to 1. SECTION 5.04. Debt. Consolidated Debt determined at the end of any fiscal quarter will not exceed 850% of Consolidated Tangible Net Worth determined at the end of such fiscal quarter, and Consolidated Debt determined at the end of any fiscal month which is not the last month of a fiscal quarter will not exceed 850% of the greater of (i) Consolidated Tangible Net Worth determined at the end of the most recently ended fiscal quarter or (ii) Consolidated Tangible Net Worth determined at the end of such fiscal month. SECTION 5.05. Limitation on Secured Debt. The Borrower will not, nor will it permit any Restricted Subsidiary to, incur, issue, assume or guarantee any Debt secured by any Lien on any property or assets of the Borrower or any Restricted Subsidiary, or on any shares of stock or Debt of any Restricted Subsidiary, without effectively providing that the principal of, premium, if any, and interest, if any, on the Loans (together with, if the Borrower so determines, any other Debt of the Borrower or such Restricted Subsidiary, which is not subordinated to the Loans) shall be secured equally and ratably with (or prior to) such Debt, so long as any such Debt shall be so secured, unless, after giving effect thereto, the aggregate amount of all such secured Debt of the Borrower and the Restricted Subsidiaries would not exceed 10% of Consolidated Net Tangible Assets of the Borrower and the Restricted Subsidiaries; provided, however, that no Asset Drop Down shall, in any event, constitute a Lien; and provided further that neither the satisfaction and discharge of any Debt pursuant to any indenture or instrument governing such Debt, nor the defeasance of any Debt pursuant to any indenture or instrument governing such Debt, shall be deemed the incurrence, issue, assumption or guarantee of Debt secured by a Lien for purposes of this Section. Notwithstanding the foregoing, this Section shall neither limit nor be deemed or construed as limiting the right of the Borrower or any Restricted Subsidiary to incur, issue, assume or guarantee any Debt secured by any one or more of the following: (1) Liens on property of, or on any shares of stock or Debt of, any corporation existing at the time such corporation becomes a Restricted Subsidiary of the Borrower; (2) Liens on property, shares of stock, other equity interests, or Debt existing at the time of acquisition or repossession thereof by the Borrower or any Restricted Subsidiary; (3) Liens on physical property (or any Accounts Receivable arising in connection with the lease thereof), shares of 35 stock, other equity interests, or Debt acquired (or, in the case of physical property, constructed) after the date hereof by the Borrower or any Restricted Subsidiary, which Liens are created prior to, at the time of, or within one year after such acquisition (or, in the case of physical property, the completion of such construction or commencement of commercial operation of such property, whichever is later) to secure any Debt issued, incurred, assumed or guaranteed prior to, at the time of, or within one year after such acquisition (or such completion or commencement, whichever is later) or to secure any other Debt issued, incurred, assumed or guaranteed at any time thereafter for the purpose of refinancing all or any part of such Debt; (4) Liens on Accounts Receivable of the Borrower or any Restricted Subsidiary arising from or in connection with transactions entered into by the Borrower or such Restricted Subsidiary after the date hereof or on Accounts Receivable acquired by the Borrower or such Restricted Subsidiary after such date from others, which Liens are created prior to, at the time of, or within one year after such Accounts Receivable arise or are acquired or, if later, the completion of the delivery or installation of the equipment or goods or the rendering of the services or the advancement or loaning of funds relating thereto (i) as a result of any guarantee, repurchase or other contingent (direct or indirect) or recourse obligation of the Borrower or such Restricted Subsidiary in connection with the discounting, sale, assignment, transfer or other disposition of such Accounts Receivable or any interest therein, or (ii) to secure or provide for the payment of all or any part of the investment of the Borrower or such Restricted Subsidiary in any such Accounts Receivable (whether or not such Accounts Receivable are the Accounts Receivable on which such Liens are created) or the purchase price thereof or to secure any debt (including, without limitation, Non- Recourse Debt) issued, incurred, assumed or guaranteed for the purpose of financing or refinancing all or any part of such investment or purchase price; (5) Liens in favor of the Borrower or any Restricted Subsidiary; (6) Liens in favor of the United States of America or any State thereof or the District of Columbia, or any agency, department or other instrumentality thereof, to secure progress, advance or other payments pursuant to any contract or provision of any statute; (7) Liens securing the performance of letters of credit, bids, tenders, sales contracts, purchase agreements, leases, surety and performance bonds, and other similar obligations not incurred in connection with the borrowing of money; (8) Liens to secure Non-Recourse Debt in connection with the Borrower or any Restricted Subsidiary engaging in any leveraged or single-investor or other lease transactions, whether (in the case of Liens on or relating 36 to leases or groups of leases or the particular properties subject thereto) such Liens be on the particular properties subject to any leases involved in any of such transactions and/or the rental or other payments or rights under such leases or, in the case of any group of related or unrelated leases, on the properties subject to the leases comprising such group and/or the rental or other payments or rights under such leases, or on any direct or indirect interest therein, and whether (in any case) (i) such Liens be created prior to, at the time of, or at any time after the entering into of such lease transactions and/or (ii) such leases be in existence prior to, or be entered into by the Borrower or such Restricted Subsidiary at the time of or at any time after, the purchase or other acquisition by the Borrower or such Restricted Subsidiary of the properties subject to such leases; and (9) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any of the foregoing; provided, however, that any such extension, renewal or replacement shall be limited to all or a part of the property or assets which secured the Lien so extended, renewed or replaced (plus any improvements on such property). SECTION 5.06. Consolidations, Mergers and Sales of Assets. The Borrower covenants that it will not merge or consolidate with any other corporation or sell or convey all or substantially all of its assets to any person (other than such a sale or conveyance to a Subsidiary or any successor thereto (such a sale or conveyance being called an "Asset Drop-Down")), unless (i) either the Borrower shall be the continuing corporation or the successor corporation or the person which acquires by sale or conveyance substantially all the assets of the Borrower (if other than the Borrower) shall be a corporation organized under the laws of the United States of America or any State thereof and shall expressly assume the due and punctual payment of the principal of and interest on all the Notes according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Agreement to be performed or observed by the Borrower, by one or more agreements, reasonably satisfactory in form to the Required Banks, executed and delivered to the Agent by such corporation, and (ii) the Borrower or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition. In the event of any Asset Drop-Down after the date of this Agreement, any subsequent sale or conveyance of assets by a Subsidiary to which assets were transferred in such Asset Drop-Down (a "Drop-Down 37 Subsidiary") will be deemed to be a sale or conveyance of assets by the Borrower for purposes of this Section 5.06. SECTION 5.07. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for general corporate purposes, including, without limitation, the repayment of maturing commercial paper and other Debt of the Borrower. None of such proceeds will be used for the purpose of buying or carrying any "margin stock" within the meaning of Regulation U. ARTICLE VI DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five Domestic Business Days of the due date thereof any interest on any Loan, any fees or any other amount payable hereunder; (b) the Borrower shall fail to observe or perform any covenant contained in Section 5.02, 5.03, 5.04 or 5.06; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Agent at the request of the Required Banks; (d) any representation or warranty made or deemed made by the Borrower in this Agreement or in any certificate delivered pursuant to this Agreement shall prove to have been materially incorrect when made (or deemed made pursuant to Section 3.02); (e) the Borrower shall fail to make any payment or payments, in the aggregate in excess of $300,000,000, on principal of Debt of the Borrower when due and such failure shall continue for 30 days after the due date thereof or, if longer, beyond any applicable grace periods; 38 (f) any event or condition shall occur which results in the acceleration of the maturity of the principal of any Debt of the Borrower in the aggregate in excess of $300,000,000 which acceleration shall not have been rescinded within 30 days; (g) the Borrower shall commence a voluntary case seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case seeking such relief commenced against it under any such law, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability generally to pay its debts as they become due; (h) an order for relief shall be entered against the Borrower under the federal bankruptcy laws as now or hereafter in effect in an involuntary case or other proceeding seeking liquidation, reorganization or other relief with respect to it or its debts or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such decree or order shall remain undismissed and unstayed for a period of 20 days; (i) both (i) a person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) other than AT&T shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 20% or more of the outstanding shares of common stock of the Borrower and (ii) the Borrower shall have ceased to be a Subsidiary of AT&T; provided that, notwithstanding clauses (i) and (ii) above, no Event of Default shall occur under this paragraph (i) if and for so long as both (x) officers, directors and employees of AT&T constitute a majority of the Board of Directors of the Borrower and (y) no person or group of persons has beneficial ownership of a greater percentage of the outstanding shares of common stock of the Borrower than does AT&T; 39 then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in paragraph (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by the Required Banks and shall thereupon notify all the Banks thereof. SECTION 6.03. Rescission. If at any time after termination of the Commitments and/or acceleration of the maturity of the Loans pursuant to Section 6.01, the Borrower shall pay all arrears of interest and all payments on account of principal of the Loans which shall have become due otherwise than by acceleration (with interest on principal at the rates specified in this Agreement) and all Defaults (other than nonpayment of principal of and accrued interest on the Loans due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 9.05, then upon the written consent of the Required Banks and notice to the Borrower, such termination of the Commitments and/or such acceleration and their consequences may be rescinded and annulled; but such action shall not affect any subsequent Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Banks to a decision which may be made at the election of the Required Banks; they are not intended to benefit the Borrower and do not give the Borrower the right to require the Banks to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. 40 ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of New York shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent hereunder. SECTION 7.03. Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified 41 in Article III, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Borrower shall have the right to appoint a successor Agent from among the Banks. If no successor Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's 42 resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent. ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any CD Loan, Euro-Dollar Loan or Money Market LIBOR Loan: (a) the Agent is advised by the CD Reference Banks or, under the circumstances contemplated by the final sentence of the definition of London Interbank Offered Rate, the Euro-Dollar Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to such Reference Banks in the relevant market for such Interest Period, or (b) in the case of CD Loans or Euro-Dollar Loans, Banks having 50% or more of the aggregate principal amount of the affected Loans advise the Agent that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may be, as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, or to convert outstanding Loans into CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended and (ii) each outstanding CD Loan or Euro-Dollar Loan, as the case may be, shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Agent at least one Domestic Business Day before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate 43 Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. SECTION 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan to such day. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by 44 any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any such requirement with respect to which such Bank is entitled to compensation during the relevant Interest Period under Section 2.15, special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then pursuant to paragraph (c) below, the Borrower shall pay to such Bank such additional 45 amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section. A certificate of a Bank setting forth such amount or amounts (including computation of such amount or amounts) as shall be necessary to compensate such Bank or its Parent as specified in paragraph (a) or (b) above, as the case may be, shall be delivered to the Borrower and such amount or amounts may be reviewed by the Borrower. Unless the Borrower disagrees in good faith with the computation of the amount or amounts in such certificate, the Borrower shall pay to such Bank, within 30 days after receipt by the Borrower of such certificate delivered by such Bank, the amount shown as due on any such certificate. If the Borrower, after receipt of any such certificate from a Bank, disagrees with such Bank on the computation of the amount or amounts owed to such Bank pursuant to paragraph (a) or (b) above, such Bank and the Borrower shall negotiate in good faith to promptly resolve such disagreement. In either case, however, such Bank shall have a duty to mitigate the damages that may arise as a consequence of paragraph (a) or (b) above (including, without limitation, changing its Applicable Lending Office) to the extent that such mitigation will not, in the judgment of such Bank, entail any cost or disadvantage to such Bank that such Bank is not reimbursed or compensated for by the Borrower. SECTION 8.04. Taxes. (a) Any and all payments by the Borrower to or for the account of any Bank or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings imposed by the United States or any political subdivision or taxing authority thereof, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its net income, and franchise taxes imposed on it, by the United States or any political subdivision or taxing authority thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Agent (as the case 46 may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and reasonable out-of-pocket expenses) arising therefrom or with respect thereto (other than any such liability that results from the gross negligence or willful misconduct of such Bank and the Agent, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other governmental authority). This indemnification shall be made within 30 days from the date such Bank or the Agent (as the case may be) makes written demand therefor. If any Bank or the Agent receives a refund in respect of any Taxes or Other Taxes for which such Bank or the Agent has received payment from the Borrower hereunder it shall promptly repay such refund (including any interest received by such Bank or the Agent from the taxing authority with respect to the refund with respect to such Taxes or Other Taxes) to the Borrower, net of all reasonable out-of-pocket expenses of such Bank; provided that the Borrower, upon the request of such Bank or the Agent, agrees to return such refund (plus penalties, interest or other charges) to such Bank or the Agent in the event such Bank or the Agent is required to repay such refund. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if 47 requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, duly executed by such Bank, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 8.04(a). (e) Each Bank further agrees to promptly notify the Borrower if such Bank changes its Applicable Lending Office and, upon written request from the Borrower, deliver forms 1001 or 4224 required pursuant to Section 8.04(d) prior to the immediately following due date of any payment by the Borrower hereunder. (f) The Borrower shall not be required to pay any additional amounts to any Bank or the Agent in respect of Taxes and Other Taxes pursuant to paragraphs (a), (b) and (c) above if the obligation to pay such additional amounts would not have arisen but for a failure by such Bank or Agent to comply, if required, with the provisions of paragraphs (d) and (e) above unless such failure results from (i) a change in applicable law, regulation or official interpretation thereof or (ii) an amendment, modification or revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case after the date hereof or after such Bank became a party hereto; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (g) Any Bank claiming any additional amounts payable under this Section 8.04 shall (i) to the extent legally able to do so, upon reasonable written request from the Borrower, file any certificate or document if such filing would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue, and the Borrower shall not be obligated to pay such additional 48 amounts if, after the Borrower's request, any Bank could have filed such certificate or document and failed to do so; or (ii) consistent with legal and regulatory restrictions, use reasonable efforts to change the jurisdiction of its Applicable Lending Office if the making of such change would avoid the need for or reduce the amount of any additional amounts which may thereafter accrue and would not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as (or continued as or converted into) CD Loans or Euro-Dollar Loans, as the case may be, shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid (or converted to a Base Rate Loan), all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. If such Bank notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the first day of the next succeeding Interest Period applicable to the related CD Loans or Euro-Dollar Loans of the other Banks. SECTION 8.06. Substitution of Bank. If any Bank (i) has demanded compensation for increased costs pursuant to Section 8.03 or 8.04 or, (ii) has determined that the making or continuation of any Euro-Dollar Rate Loan has become unlawful or impermissible pursuant to Section 8.02 and similar additional interest or compensation has not been 49 demanded by, or a similar determination has not been made by, all of the Banks, the Borrower shall have the right to designate an Assignee which is not an affiliate of the Borrower to purchase for cash, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit G hereto, the outstanding Loans and Commitment of such Bank and to assume all of such Bank's other rights and obligations hereunder without recourse to or warranty by, or expense to, such Bank, for a purchase price equal to the principal amount of all of such Bank's outstanding Loans plus any accrued but unpaid interest thereon and the accrued but unpaid facility fees in respect of that Bank's Commitment hereunder plus such amount, if any, as would be payable pursuant to Section 2.13 if the outstanding Loans of such Bank were prepaid in their entirety on the date of consummation of such assignment. SECTION 8.07. Compensation. The Borrower shall not be liable for compensating any Bank under Sections 2.13, 8.03 and 8.04 for any funding losses, increased costs or taxes incurred by such Bank more than 30 days prior to such Bank's written notice of its intention to demand payment therefor. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address or telex or facsimile number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex or facsimile number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telex or facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when received at the address specified in this Section; provided that notices to the Agent under Article II or Article VIII shall not be effective until received. 50 SECTION 9.02. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent, including reasonable fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agent and each Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and reasonable out-of-pocket expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel) which were actually incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct. SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other 51 Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes. SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the scheduled maturity of any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification 52 or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Sections 2.13 and 2.15 and Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Agent; provided that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans; and provided further that the interest of the Assignee shall be in a minimum amount equivalent to an original Commitment of $15,000,000 and the collective interest of the transferor Bank and its affiliates shall be in a minimum amount equivalent to an original Commitment of $25,000,000 unless, in the case of the transferor Bank and its affiliates, they have no Commitment after giving effect to such assignment. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to 53 exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.06, disclose to the Assignee or Participant or proposed Assignee or Participant any information relating to the Borrower or its Subsidiaries furnished to such Bank by the Agent or by or on behalf of the Borrower; provided that, prior to any such disclosure, such Assignee or Participant or proposed Assignee or Participant shall agree to preserve in accordance with Section 9.11 the confidentiality of any confidential information described therein. SECTION 9.07. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. 54 SECTION 9.09. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.11. Confidentiality. Subject to Section 9.06(f), the Banks shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Borrower in accordance with such Bank's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide offeree or transferee in connection with the contemplated transfer, or as required or requested by any governmental authority or representative thereof, or pursuant to legal process, or to its accountants, lawyers and other advisors, and shall require any such offeree or transferee to agree (and require any of its offerees, transferees or participants to agree) to comply with this Section 9.11. 55 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AT&T CAPITAL CORPORATION By ------------------------------------ Title: 44 Whippany Road Morristown, New Jersey 07962 Fax: (201) 397-3106 Commitments - ------------ $40,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By --------------------------------- Title: $23,750,000 BARCLAYS BANK PLC By ___________________________________ Title: $23,750,000 THE CHASE MANHATTAN BANK, N.A. By ___________________________________ Title: Commitments $23,750,000 CHEMICAL BANK By ___________________________________ Title: $23,750,000 CITIBANK, N.A. By ___________________________________ Title: $23,750,000 CREDIT LYONNAIS NEW YORK BRANCH By ___________________________________ Title: $23,750,000 THE FUJI BANK, LIMITED By _____________________________________ Title: $16,250,000 CREDIT SUISSE By _____________________________________ Title: By _____________________________________ Title: Commitments $16,250,000 DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By ___________________________________ Title: By ___________________________________ Title: $16,250,000 THE FIRST NATIONAL BANK OF CHICAGO By ___________________________________ Title: $16,250,000 THE INDUSTRIAL BANK OF JAPAN, LTD., NEW YORK BRANCH By _____________________________________ Title: $16,250,000 MELLON BANK By ___________________________________ Title: $16,250,000 NATIONSBANK OF NORTH CAROLINA, N.A. By ___________________________________ Title: Commitments $16,250,000 PNC BANK, NATIONAL ASSOCIATION By ___________________________________ Title: $16,250,000 ROYAL BANK OF CANADA By _____________________________________ Title: $16,250,000 SOCIETE GENERALE By _____________________________________ Title: $16,250,000 THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By ___________________________________ Title: $16,250,000 SWISS BANK CORPORATION By ___________________________________ Title: By ___________________________________ Title: Commitments $8,750,000 ABN AMRO BANK N.V. NEW YORK BRANCH By ___________________________________ Title: By __________________________________ Title: $8,750,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By _____________________________________ Title: $8,750,000 BANK OF BOSTON By _____________________________________ Title: $8,750,000 BANK OF HAWAII By ___________________________________ Title: $8,750,000 THE BANK OF NEW YORK By ___________________________________ Title: Commitments $8,750,000 BANQUE PARIBAS By ___________________________________ Title: By ___________________________________ Title: $8,750,000 CIBC INC. By _____________________________________ Title: $8,750,000 COMERICA BANK By _____________________________________ Title: $8,750,000 COMMERZBANK AKTIENGESELLSCHAFT NEW YORK BRANCH By ___________________________________ Title: By ___________________________________ Title: Commitments $8,750,000 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By ___________________________________ Title: By ___________________________________ Title: $8,750,000 THE NORTHERN TRUST COMPANY By ___________________________________ Title: $8,750,000 TRUST COMPANY BANK By _____________________________________ Title: $8,750,000 WACHOVIA BANK OF GEORGIA, N.A. By _____________________________________ Title: $6,250,000 BANCA COMMERCIALE ITALIANA SpA By ___________________________________ Title: Commitments $6,250,000 BANCO CENTRAL HISPANOAMERICANO S.A. By ___________________________________ Title: $6,250,000 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By ___________________________________ Title: $6,250,000 WESTPAC BANKING CORPORATION By _____________________________________ Title: _________________ $500,000,000 Total Commitments _________________ _________________ MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By ___________________________________ Title: 60 Wall Street New York, New York 10260-0060 Attention: Telex number: 177615 EXHIBIT A NOTE New York, New York , 19 For value received, AT&T Capital Corporation, a Delaware corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in and subject to the terms of the $500,000,000 Credit Agreement dated as of June 30, 1995 among the Borrower, the banks party thereto and Morgan Guaranty Trust Company of New York, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the mandatory and optional prepayment hereof and the acceleration of the maturity hereof. AT&T CAPITAL CORPORATION By________________________ Title: 2 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL
- ------------------------------------------------------------------ Amount of Amount of Type of Principal Notation Date Loan Loan Repaid Made By - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------
3 EXHIBIT B Form of Money Market Quote Request [Date] To: Morgan Guaranty Trust Company of New York (the "Agent") From: AT&T Capital Corporation Re: $500,000,000 Credit Agreement (as amended, the "Credit Agreement") dated as of June 30, 1995 among the Borrower, the Banks party thereto and the Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________
Principal Amount* Interest Period** - ----------------- ----------------- $
Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] - -------- *Amount must be $5,000,000 or a larger multiple of $1,000,000. **Not less than one month (LIBOR Auction) or not less than 14 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. 1 Terms used herein have the meanings assigned to them in the Credit Agreement. AT&T CAPITAL CORPORATION By________________________ Title: EXHIBIT C Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to AT&T Capital Corporation (the "Borrower") Pursuant to Section 2.03 of the $500,000,000 Credit Agreement (as amended, the "Credit Agreement") dated as of June 30, 1995 among the Borrower, the Banks parties thereto and the undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________
Principal Amount Interest Period - ---------------- --------------- $
Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [4:00 P.M.] [9:30 A.M.] (New York City time) on [date]. Terms used herein have the meanings assigned to them in the Credit Agreement. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By______________________ Authorized Officer EXHIBIT D Form of Money Market Quote To: Morgan Guaranty Trust Company of New York, as Agent Re: Money Market Quote to AT&T Capital Corporation (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 19__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: ----------------------------- 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market Amount** Period*** [Margin****][Absolute Rate*****] - --------- --------- --------------------------------- $ $
[Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** - ---------- * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the $500,000,000 Credit Agreement (as amended, the "Credit Agreement") dated as of June 30, 1995 among the Borrower, the Banks party thereto and yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Terms used herein have the meanings assigned to them in the Credit Agreement. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer - ---------- *** Not less than one month or not less than 14 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). 2 EXHIBIT E OPINION OF COUNSEL FOR THE BORROWER To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: I am [General Counsel] [Assistant General Counsel] of AT&T Capital Corporation (the "Borrower"), and as such, have acted as counsel for the Borrower in connection with the $500,000,000 Credit Agreement (the "Credit Agreement") dated as of June 30, 1995 among the Borrower, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of the Borrower pursuant to Section 3.01(b) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except those which the failure to have would not have a Material Adverse Effect. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate power, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any material agreement, judgment, injunction, order, decree or other material instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. 3. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether considered in a proceeding in equity or at law). 4. There is no action, suit or proceeding pending against, or to the best of my knowledge threatened against, the Borrower or any of its Consolidated Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable probability of an adverse decision which would have a Material Adverse Effect or which in any manner draws into question the validity of the Credit Agreement or the Notes. 5. Each of the Borrower's Consolidated Subsidiaries which is a corporation is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except those which the failure to have would not have a Material Adverse Effect. I am a member of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, I express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any 2 Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without my prior written consent. Very truly yours, 3 EXHIBIT F OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have participated in the preparation of the $500,000,000 Credit Agreement (the "Credit Agreement") dated as of June 30, 1995 among AT&T Capital Corporation, a Delaware corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate power and have been duly authorized by all necessary corporate action. 1 2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether considered in a proceeding in equity or at law). We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT G ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), AT&T CAPITAL CORPORATION (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the $500,000,000 Credit Agreement dated as of June 30, 1995 among the Borrower, the Assignor and the other Banks party thereto, as Banks, and the Agent (as amended, the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Committed Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, [Committed] Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding [Committed] Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the [Committed] Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and the Agent and the payment of the amounts specified in Section 3 hereof required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them. It is understood that commitment and/or facility fees accrued to the date hereof in respect of the Assigned Amount are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. SECTION 4. Consent of the Borrower and the Agent. This Agreement is conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein. SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection 2 with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By_________________________ Title: [ASSIGNEE] By__________________________ Title: AT&T CAPITAL CORPORATION By__________________________ Title: 3 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By__________________________ Title: 4 EX-10 5 EXHIBIT 10(R) Exhibit 10(r) Form 10-K for 1995 File No. 1-11237 $1,500,000,000 CREDIT AGREEMENT dated as of June 30, 1995 among AT&T Capital Corporation The Banks Listed Herein and Morgan Guaranty Trust Company of New York, as Agent TABLE OF CONTENTS*
Page ARTICLE I DEFINITIONS SECTION 1.01 Definitions................................................ 1 1.02 Accounting Terms and Determinations........................ 12 1.03 Types of Borrowings........................................ 13 1.04 Basis for Ratings.......................................... 13 ARTICLE II THE CREDITS SECTION 2.01 Commitments to Lend........................................ 13 2.02 Notice of Committed Borrowing.............................. 14 2.03 Money Market Borrowings.................................... 14 2.04 Notice to Banks; Funding of Loans.......................... 18 2.05 Notes...................................................... 19 2.06 Maturity of Loans; Termination of Commitments.............................................. 20 2.07 Interest Rates............................................. 20 2.08 Facility Fees.............................................. 24 2.09 Optional Termination or Reduction of Commitments................................. 24 2.10 Method of Electing Interest Rates.......................... 24 2.11 Optional Prepayments....................................... 26 2.12 General Provisions as to Payments.......................... 27 2.13 Funding Losses............................................. 28 2.14 Computation of Interest and Fees........................... 28 2.15 Regulation D Compensation.................................. 29 ARTICLE III CONDITIONS SECTION 3.01 Effectiveness. . . ........................................ 29 3.02 Borrowings................................................. 30
- -------- *The Table of Contents is not a part of this Agreement. i
Page ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 Corporate Existence and Power.............................. 30 4.02 Corporate and Governmental Authorization; No Contravention.......................... 30 4.03 Binding Effect............................................. 30 4.04 Financial Information...................................... 32 4.05 Litigation................................................. 32 4.06 Subsidiaries............................................... 33 4.07 Not an Investment Company.................................. 33 4.08 Full Disclosure............................................ 33 ARTICLE V COVENANTS SECTION 5.01 Information................................................ 33 5.02 Maintenance of Existence................................... 34 5.03 Fixed Charge Coverage...................................... 34 5.04 Debt....................................................... 35 5.05 Limitation on Secured Debt................................. 35 5.06 Consolidations, Mergers and Sales of Assets.......................................... 37 5.07 Use of Proceeds............................................ 38 ARTICLE VI DEFAULTS SECTION 6.01 Events of Default.......................................... 38 6.02 Notice of Default.......................................... 40 6.03 Rescission................................................. 40 ARTICLE VII THE AGENT SECTION 7.01 Appointment and Authorization.............................. 41 7.02 Agent and Affiliates....................................... 41 7.03 Action by Agent............................................ 41 7.04 Consultation with Experts.................................. 41 7.05 Liability of Agent......................................... 41 7.06 Indemnification............................................ 42
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Page 7.07 Credit Decision............................................ 42 7.08 Successor Agent............................................ 42 7.09 Agent's Fee................................................ 43 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01 Basis for Determining Interest Rate Inadequate or Unfair................................ 43 8.02 Illegality.................................................... 44 8.03 Increased Cost and Reduced Return............................. 44 8.04 Taxes...................................................... 46 8.05 Base Rate Loans Substituted for Affected Fixed Rate Loans................................ 49 8.06 Substitution of Bank....................................... 49 8.07 Compensation............................................... 50 ARTICLE IX MISCELLANEOUS SECTION 9.01 Notices.................................................... 50 9.02 No Waivers................................................. 51 9.03 Expenses; Indemnification.................................. 51 9.04 Sharing of Set-Offs........................................ 51 9.05 Amendments and Waivers..................................... 52 9.06 Successors and Assigns..................................... 52 9.07 Collateral................................................. 54 9.08 Governing Law; Submission to Juris- diction.................................................. 54 9.09 Counterparts; Integration.................................. 55 9.10 WAIVER OF JURY TRIAL....................................... 55 9.11 Confidentiality............................................ 55 Exhibit A - Note Exhibit B - Money Market Quote Request Exhibit C - Invitation for Money Market Quotes Exhibit D - Money Market Quote
iii
Page Exhibit E - Opinion of Counsel for the Borrower Exhibit F - Opinion of Special Counsel for the Agent Exhibit G - Assignment and Assumption Agreement
iv CREDIT AGREEMENT AGREEMENT dated as of June 30, 1995 among AT&T CAPITAL CORPORATION, the BANKS party hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. W I T N E S S E T H : WHEREAS, the Borrower (as defined below) has heretofore entered into a $1,500,000,000 Credit Agreement dated as of July 11, 1994 with the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as agent for such banks (the "Existing Credit Agreement"); and WHEREAS, the Borrower wishes to enter into this Agreement to replace the Existing Credit Agreement; and WHEREAS, upon the effectiveness of this Agreement in accordance with Section 3.01, the Existing Credit Agreement shall terminate; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "Accounts Receivable" shall mean (i) any accounts receivable (whether or not earned by performance), chattel paper, instruments, documents, general intangibles, trade acceptances, any other rights to receive installment, rental or other payments for, or relating to amounts due or to become due on account of equipment or goods sold or leased or to be sold or leased or services rendered or to be rendered or funds advanced or loaned or to be advanced or loaned and other rights to payment of any kind, (ii) any proceeds of any of the foregoing and (iii) any interest in any property or asset of any kind (whether of the obligor under such Accounts Receivable or any other Person) securing the payment of any item listed in clause (i) hereof. "Adjusted CD Rate" has the meaning set forth in Section 2.07(b). "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "Agent" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks hereunder, and its successors in such capacity. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Applicable Margin" has the meaning set forth in Section 2.07(h). "Assessment Rate" has the meaning set forth in Section 2.07(b). "Asset Drop-Down" has the meaning set forth in Section 5.06. "Assignee" has the meaning set forth in Section 9.06(c). "AT&T" means American Telephone and Telegraph Company, a New York corporation, and its successors. "Bank" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means (i) a Committed Loan which bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the provisions of Article VIII or (ii) an 2 overdue amount which was a Base Rate Loan immediately before it became overdue. "Borrower" means AT&T Capital Corporation, a Delaware corporation, and its successors. "Borrower's 1994 Form 10-K" means the Borrower's annual report on Form 10-K for 1994, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended March 31, 1995, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrowing" has the meaning set forth in Section 1.03. "CD Base Rate" has the meaning set forth in Section 2.07(b). "CD Loan" means (i) a Committed Loan which bears interest at a CD Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a CD Loan immediately before it became overdue. "CD Rate" means a rate of interest determined pursuant to Section 2.07(b) on the basis of an Adjusted CD Rate. "CD Reference Banks" means Chemical Bank, Citibank, N.A. and Morgan Guaranty Trust Company of New York. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Section 2.09 or changed pursuant to Section 9.06(c). "Committed Loan" means a loan made by a Bank pursuant to Section 2.01; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term "Committed Loan" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. 3 "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated EBIT" means, for any period, the sum of (i) the consolidated net income from continuing operations of the Borrower and its Consolidated Subsidiaries for such period before extraordinary items and without giving effect to unusual non-recurring events plus (ii) to the extent deducted in determining such consolidated net income from continuing operations, the sum of Consolidated Interest Expense and the provision for income tax for such period. "Consolidated Interest Expense" means, for any period, the interest expense of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis for such period. "Consolidated Net Tangible Assets" means, at the date of any determination, the total assets appearing on the consolidated balance sheet of the Borrower and its Restricted Subsidiaries as at the end of the most recent fiscal quarter of the Borrower for which such balance sheet is available, prepared in accordance with generally accepted accounting principles, less (a) all current liabilities (obligations whose liquidation is reasonably expected to occur within twelve months), (b) investments in and advances to Subsidiaries of the Borrower other than Restricted Subsidiaries or other entities accounted for on the equity method of accounting, and (c) Intangible Assets. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "Consolidated Tangible Net Worth" means, at any date, the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries less Intangible Assets, all determined as of such date. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money and (ii) all obligations of others for borrowed money guaranteed by such Person; provided, however, that any recourse provided by any Person in connection with any sale, transfer or other disposition by such Person of Accounts Receivable or of any subsidiary of such Person substantially all the assets of which are Accounts Receivable which 4 constitutes a "sale" under generally accepted accounting principles (as in effect at the time of such sale, transfer or other disposition) shall not, in any event, constitute Debt. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.07(b). "Drop-Down Subsidiary" has the meaning set forth in Section 5.06. "Effective Date" means the date this Agreement becomes effective in accordance with Section 3.01. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its 5 Euro-Dollar Lending Office by notice to the Borrower and the Agent. "Euro-Dollar Loan" means (i) a Committed Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue. "Euro-Dollar Rate" means a rate of interest determined pursuant to Section 2.07(c) on the basis of a London Interbank Offered Rate. "Euro-Dollar Reference Banks" means the principal London offices of The Fuji Bank, Limited, Royal Bank of Canada and Morgan Guaranty Trust Company of New York. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). "Event of Default" has the meaning set forth in Section 6.01. "Existing Credit Agreement" has the meaning set forth in the recitals hereto. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty 6 Trust Company of New York on such day on such transactions as determined by the Agent. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "Group of Loans" means at any time a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time or (ii) all Committed Loans which are Fixed Rate Loans of the same type having the same Interest Period at such time; provided that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Section 8.02 or 8.05, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "Indemnitee" has the meaning set forth in Section 9.03(b). "Intangible Assets" means the value (net of any applicable reserves), as shown on or reflected in the Borrower's balance sheet, of: (i) all trade names, trademarks, licenses, patents, copyrights and goodwill; (ii) organization and development costs; (iii) deferred charges (other than prepaid items such as insurance, taxes, interest, commissions, rents and similar items and tangible assets being amortized); and (iv) unamortized debt discount and expense, less unamortized premium. "Interest Period" means: (1) with respect to each Euro-Dollar Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day 7 in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (2) with respect to each CD Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (3) with respect to each Money Market LIBOR Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (4) with respect to each Money Market Absolute Rate Loan, the period commencing on the date of borrowing specified in 8 the applicable Notice of Borrowing and ending such number of days thereafter (but not less than 14 days) as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Level I Status" exists at any date if, at such date, both (i) the Borrower's outstanding senior unsecured long-term debt is rated both A+ or higher by S&P and A1 or higher by Moody's and (ii) the Borrower's commercial paper is rated both A1 or higher by S&P and P1 by Moody's. "Level II Status" exists at any date if, at such date, (a) both (i) the Borrower's outstanding senior unsecured long-term debt is rated both A- or higher by S&P and A3 or higher by Moody's and (ii) the Borrower's commercial paper is rated both A1 or higher by S&P and P1 by Moody's and (b) Level I Status does not exist at such date. "Level III Status" exists at any date if, at such date, (a) both (i) the Borrower's outstanding senior unsecured long-term debt is rated both BBB- or higher by S&P and Baa3 or higher by Moody's and (ii) the Borrower's commercial paper is rated both A2 or higher by S&P and P2 or higher by Moody's and (b) neither Level I Status nor Level II Status exists at such date. "Level IV Status" exists at any date if, at such date, neither Level I Status, Level II Status nor Level III Status exists. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "Lien" means any mortgage, pledge, security interest or lien. "Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans or 9 Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.07(c). "Material Adverse Effect" means a material adverse effect on the consolidated financial position of the Borrower and its subsidiaries. "Money Market Absolute Rate" has the meaning set forth in Section 2.03(d). "Money Market Absolute Rate Loan" means a loan made or to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan made or to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.03(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "Moody's" means Moody's Investors Service, Inc. or any successor rating agency acceptable to the Agent and the Borrower. "Non-Recourse Debt" of the Borrower or any Restricted Subsidiary means any indebtedness for borrowed money of the Borrower or any Restricted Subsidiary, as the 10 case may be, which is secured by any Lien on or payable solely from the income and proceeds of any property (including, without limiting the generality of such term, any intangible assets), shares of stock, other equity interests or debt of the Borrower or such Restricted Subsidiary, as the case may be, and which is not a general obligation of the Borrower or such Restricted Subsidiary, as the case may be. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "Notice of Interest Rate Election" has the meaning set forth in Section 2.10. "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.06(b). "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Quarterly Date" means the last Euro-Dollar Business Day of each March, June, September and December. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Banks" means at any time Banks having at least 51% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes 11 evidencing at least 51% of the aggregate unpaid principal amount of the Loans. "Restricted Subsidiary" means each Subsidiary of the Borrower organized under the laws of any State of the United States or the District of Columbia no substantial portion of the business of which is carried on outside of the United States; provided that each Drop-Down Subsidiary (as defined in Section 5.06) shall be a Restricted Subsidiary. "S&P" means Standard & Poor's Ratings Group or any successor rating agency acceptable to the Agent and the Borrower. "Status" means, at any date, whichever of Level I Status, Level II Status, Level III Status or Level IV Status exists at such date. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower (or, if such term is used with reference to any other Person, by such other Person). "Termination Date" means June 28, 1996, or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "United States" means the United States of America, including the States thereof and the District of Columbia, but excluding its territories and possessions. "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes made in consultation with the Borrower's independent public accountants) with the most recent audited consolidated 12 financial statements of the Borrower and its subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Agent that the Borrower wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Banks wish to amend Article V for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article II on the same date, all of which Loans are of the same type (subject to Article VIII) and, except in the case of Base Rate Loans, have the same Interest Period or initial Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article II under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith). SECTION 1.04. Basis for Ratings. The credit ratings to be utilized in the determination of a Status are the ratings assigned to unsecured obligations of the Borrower without third party credit support. Ratings assigned to any obligation which is secured or which has the benefit of third party credit support shall be disregarded. ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time on and after the Effective Date and prior to the Termination Date in amounts such that 13 the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $50,000,000 or any larger multiple of $5,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, prepay Loans to the extent permitted by Section 2.11, and reborrow at any time prior to the Termination Date. SECTION 2.02. Notice of Committed Borrowing. The Borrower shall give the Agent notice (a "Notice of Committed Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or at a CD Rate or a Euro-Dollar Rate, and (d) in the case of a Fixed Rate Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks to make offers to make Money Market Loans to the Borrower prior to the Termination Date. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by telex 14 or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $5,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Agent may agree) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each 15 Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 4:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles III and VI, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, 16 (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) except as provided in subsection (d)(ii)(B)(z) contains qualifying, conditional or similar language; (C) except as provided in subsection (d)(ii)(B)(z) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. 17 (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $5,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. Notice to Banks; Funding of Loans. 18 (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower by 3:00 P.M. (New York City time) on the date of such Borrowing at the Agent's aforesaid address. (c) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.05. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such 19 Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(a), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount and type of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement or any error in making the same shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.06. Maturity of Loans; Termination of Commitments. (a) The Commitments shall terminate on the Termination Date, and all Committed Loans shall mature, and the principal amount thereof shall be due and payable, on such date. (b) Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date and on the Termination Date, and, with respect to the principal amount of any Base Rate Loan converted to a CD Loan or a Euro-Dollar Loan, on each date a Base Rate Loan is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during 20 each Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for such day plus the Adjusted CD Rate applicable to such Interest Period; provided that if any CD Loan or any portion thereof shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the rate applicable to Base Rate Loans for such day. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate - ---------- * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the 21 Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. ss. 327.4(a) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for such day plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "London Interbank Offered Rate" applicable to any Interest Period means a rate of interest determined by the Agent on the basis of at least two offered rates for deposits in United States dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on the Reuters Screen LIBO Page as of 11:00 A.M. (London time) on the day that is two Euro-Dollar Business Days prior to the first day of such Interest Period. If at least two such offered rates appear on the Reuters Screen LIBO Page, the rate with respect to each Interest Period will be the arithmetic average (rounded upwards to the next 1/16th of 1%) of such offered rates. If fewer than two offered rates appear, the "London Interbank Offered Rate" in respect of any Interest Period will be the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which 22 deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 1% plus the rate applicable to Base Rate Loans for such day. (e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day. (f) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation necessary to determine an interest rate in accordance with this Section, the Agent shall determine the relevant interest rate on the basis of the quotation or 23 quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. (h) The "Applicable Margin" with respect to any Euro-Dollar Loan or CD Loan at any date is the applicable percentage amount set forth in the table below based on the Status on such date: ==================================================================================================
Level I Level II Level III Level IV Status Status Status Status - -------------------------------------------------------------------------------------------------- Euro-Dollar Loans 0.2000% 0.2400% 0.3750% 0.5500% - -------------------------------------------------------------------------------------------------- CD Loans 0.3250% 0.3650% 0.5000% 0.6750% ==================================================================================================
SECTION 2.08. Facility Fees. The Borrower shall pay to the Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate. Such facility fee shall accrue from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused). Accrued facility fees shall be payable quarterly on each Quarterly Date and upon the date of termination of the Commitments in their entirety. The "Facility Fee Rate" at any date is: (i) 0.0500% if Level I Status exists at such date, (ii) 0.0600% if Level II Status exists at such date, (iii) 0.1250% if Level III Status exists at such date and (iv) 0.2000% if Level IV Status exists at such date. SECTION 2.09. Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $25,000,000 or any larger multiple of $5,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. The Agent shall promptly notify each Bank of any such notice received by the Agent. SECTION 2.10. Method of Electing Interest Rates. (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to 24 change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article VIII), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to CD Loans as of any Domestic Business Day or to Euro-Dollar Loans as of any Euro-Dollar Business Day; (ii) if such Loans are CD Loans, the Borrower may elect to convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue such Loans as CD Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans; and (iii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or CD Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Agent at least three Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted from Domestic Loans to Domestic Loans of the other type or continued as Domestic Loans of the same type for an additional Interest Period, in which case such notice shall be delivered to the Agent at least two Domestic Business Days before such conversion or continuation is to be effective). A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such notice applies, and the remaining portion to which it does not apply, are each $50,000,000 or any larger multiple of $5,000,000. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; 25 (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if such new Loans are Fixed Rate Loans, the duration of the initial Interest Period applicable thereto; and (iv) if such Loans are to be continued as CD Loans or Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Upon receipt of a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Agent shall promptly notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate Election to the Agent for any Group of Fixed Rate Loans, such Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto. SECTION 2.11. Optional Prepayments. (a) The Borrower may, upon at least one Domestic Business Day's notice to the Agent, prepay the Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) in whole at any time, or from time to time in part in amounts aggregating $50,000,000 or any larger multiple of $5,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing. (b) The Borrower may, upon at least three Domestic Business Days' notice to the Agent, in the case of a Group of CD Loans or upon at least three Euro-Dollar Business Days' notice to the Agent, in the case of a Group of Euro-Dollar Loans, prepay the Loans comprising such a Group on the last day of any Interest Period applicable to such Group, in whole at any time, or from time to time in part in amounts aggregating $50,000,000 or any larger multiple of $5,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group. (c) Except as provided in subsection (a) above, the Borrower may not prepay all or any portion of the 26 principal amount of any Money Market Loan prior to the maturity thereof. (d) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans or the Money Market LIBOR Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Absolute Rate Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended pursuant to this Agreement or by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such 27 Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted to a Base Rate Loan (pursuant to Article VI or VIII or otherwise) on any day prior to the last day of an Interest Period applicable thereto, or if the Borrower fails to borrow, continue, convert or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a), 2.10(c) or 2.11(d), the Borrower shall reimburse each Bank as provided in the following paragraph for any resulting loss or expense incurred by it (or by a Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of the Applicable Margin or any other margin for the period after any such payment or conversion or failure to borrow or prepay. A certificate of each Bank setting forth such amount or amounts (including the computation of such amount or amounts) as shall be necessary to compensate such Bank or a Participant for the out-of-pocket expenses incurred by such Bank shall be delivered to the Borrower and such amount or amounts may be reviewed by the Borrower. If the Borrower, after receipt of any such certificate from such Bank, disagrees in good faith with such Bank on the computation of the amount or amounts owed to such Bank pursuant to this Section 2.13, such Bank and the Borrower shall negotiate in good faith to promptly resolve such disagreement. Any payment required to be paid to such Bank pursuant to this Section 2.13 shall be paid within 30 days after demand is made therefor (or if there is a disagreement, after such disagreement is resolved). Each Bank shall have a duty to mitigate the damages to such Bank that may arise as a consequence of such funding losses described above to the extent that such mitigation will not, in the judgment of such Bank, entail any cost or disadvantage to such Bank that such Bank is not reimbursed or compensated for by the Borrower. SECTION 2.14. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). 28 SECTION 2.15. Regulation D Compensation. For so long as any Bank maintains reserves against "Eurocurrency liabilities" (or any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of such Bank to United States residents), and as a result the cost to such Bank (or its Applicable Lending Office) of making or maintaining its Euro-Dollar Loans is increased, then such Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum up to but not exceeding the excess of (i)(A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the rate specified in clause (i)(A). Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the rate and place indicated in such notice with respect to each Interest Period commencing at least three Euro- Dollar Business Days after the giving of such notice and (y) shall furnish to the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans an officers' certificate setting forth the amount to which such Bank is then entitled under this Section 2.15 (which shall be consistent with such Bank's good faith estimate of the level at which the related reserves are maintained by it). ARTICLE III CONDITIONS SECTION 3.01. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex, facsimile transmission or other written confirmation from such party of execution of a counterpart hereof by such party); 29 (b) receipt by the Agent of a duly executed Note for the account of each Bank dated on or before the Effective Date complying with the provisions of Section 2.05; (c) receipt by the Agent of evidence satisfactory to it that no loans are outstanding under the Existing Credit Agreement; (d) receipt by the Agent of an opinion of the General Counsel or any Assistant General Counsel of the Borrower, substantially in the form of Exhibit E hereto; (e) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit F hereto; and (f) receipt by the Agent of all documents the Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than July 7, 1995. The Agent shall promptly notify the Borrower and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. The Banks that are parties to the Existing Credit Agreement, comprising the "Required Banks" as defined therein, and the Borrower agree that the commitments under the Existing Credit Agreement shall terminate in their entirety simultaneously with and subject to the effectiveness of this Agreement and that the Borrower shall be obligated to pay on the Effective Date the accrued facility fees thereunder to but excluding the date of such effectiveness. SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) immediately after such Borrowing, the aggregate outstanding principal amount of the Loans 30 will not exceed the aggregate amount of the Commitments; (c) immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (d) the representations and warranties of the Borrower contained in this Agreement (except the representations and warranties set forth in Sections 4.04(c) and 4.05) shall be true in all material respects on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted except those which the failure to have would not have a Material Adverse Effect. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower's corporate power, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any material agreement, judgment, injunction, order, decree or other material instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower 31 and the Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether considered in a proceeding in equity or at law). SECTION 4.04. Financial Information. (a) The consolidated balance sheet of the Borrower and its subsidiaries as of December 31, 1994 and the related consolidated statements of income, changes in stockholders' equity and cash flows for the fiscal year then ended, reported on by Cooper's & Lybrand and set forth in the Borrower's 1994 Form 10-K, a copy of which has been delivered to each of the Banks, present fairly, in all material respects, the consolidated financial position of the Borrower and its subsidiaries as of such date and the consolidated results of their operations and cash flows for such fiscal year, in conformity with generally accepted accounting principles. (b) The unaudited consolidated balance sheet of the Borrower and its subsidiaries as of March 31, 1995 and the related unaudited consolidated statements of income and cash flows for the three months then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of the Banks, present fairly, in all material respects, the consolidated financial position of the Borrower and its subsidiaries as of such date and the consolidated results of their operations and cash flows for such three-month period, in conformity with generally accepted accounting principles for interim financial information applied on a basis consistent with the financial statements referred to in subsection (a) of this Section. (c) From March 31, 1995 through the Effective Date there has been no material adverse change in the consolidated financial condition of the Borrower and its subsidiaries. SECTION 4.05. Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable probability of an adverse decision which would have a Material Adverse Effect, or which in any manner draws 32 into question the validity or enforceability of this Agreement or the Notes. SECTION 4.06. Subsidiaries. Each of the Borrower's Consolidated Subsidiaries which is a corporation is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except those which the failure to have would not have a Material Adverse Effect. SECTION 4.07. Not an Investment Company. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.08. Full Disclosure. No written information heretofore furnished by the Borrower to the Agent or any Bank pursuant to Section 4.04 is, and no written information hereafter furnished by the Borrower to the Agent or any Bank pursuant to Section 5.01 contains or will contain any material misstatement of any material facts. ARTICLE V COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) within 105 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its subsidiaries as of the end of such fiscal year and the related consolidated statements of income, changes in stockholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures as of the end of and for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission by Coopers & Lybrand or other independent public accountants of nationally recognized standing; 33 (b) within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its subsidiaries as of the end of such quarter and the related consolidated statements of income for such quarter and the related consolidated statements of income and cash flows for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in the case of such statements of income in comparative form the figures for the corresponding quarter and in the case of such statements of income and cash flows the corresponding portion of the Borrower's previous fiscal year, all certified as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower, subject to normal year end adjustments; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.03 and 5.04, inclusive, on the date of the consolidated balance sheet included in such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) promptly after the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; and (e) promptly after the filing thereof, copies of all reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission. SECTION 5.02. Maintenance of Existence. The Borrower will preserve, renew and keep in full force and effect its corporate existence except as otherwise permitted under Section 5.06. SECTION 5.03. Fixed Charge Coverage. The ratio 34 of Consolidated EBIT to Consolidated Interest Expense will not, for any period of four consecutive fiscal quarters, be less than 1.15 to 1. SECTION 5.04. Debt. Consolidated Debt determined at the end of any fiscal quarter will not exceed 850% of Consolidated Tangible Net Worth determined at the end of such fiscal quarter, and Consolidated Debt determined at the end of any fiscal month which is not the last month of a fiscal quarter will not exceed 850% of the greater of (i) Consolidated Tangible Net Worth determined at the end of the most recently ended fiscal quarter or (ii) Consolidated Tangible Net Worth determined at the end of such fiscal month. SECTION 5.05. Limitation on Secured Debt. The Borrower will not, nor will it permit any Restricted Subsidiary to, incur, issue, assume or guarantee any Debt secured by any Lien on any property or assets of the Borrower or any Restricted Subsidiary, or on any shares of stock or Debt of any Restricted Subsidiary, without effectively providing that the principal of, premium, if any, and interest, if any, on the Loans (together with, if the Borrower so determines, any other Debt of the Borrower or such Restricted Subsidiary, which is not subordinated to the Loans) shall be secured equally and ratably with (or prior to) such Debt, so long as any such Debt shall be so secured, unless, after giving effect thereto, the aggregate amount of all such secured Debt of the Borrower and the Restricted Subsidiaries would not exceed 10% of Consolidated Net Tangible Assets of the Borrower and the Restricted Subsidiaries; provided, however, that no Asset Drop Down shall, in any event, constitute a Lien; and provided further that neither the satisfaction and discharge of any Debt pursuant to any indenture or instrument governing such Debt, nor the defeasance of any Debt pursuant to any indenture or instrument governing such Debt, shall be deemed the incurrence, issue, assumption or guarantee of Debt secured by a Lien for purposes of this Section. Notwithstanding the foregoing, this Section shall neither limit nor be deemed or construed as limiting the right of the Borrower or any Restricted Subsidiary to incur, issue, assume or guarantee any Debt secured by any one or more of the following: (1) Liens on property of, or on any shares of stock or Debt of, any corporation existing at the time such corporation becomes a Restricted Subsidiary of the Borrower; (2) Liens on property, shares of stock, other equity interests, or Debt existing at the time of acquisition or repossession thereof by the Borrower or any Restricted Subsidiary; (3) Liens on physical property (or any Accounts Receivable arising in connection with the lease thereof), shares of 35 stock, other equity interests, or Debt acquired (or, in the case of physical property, constructed) after the date hereof by the Borrower or any Restricted Subsidiary, which Liens are created prior to, at the time of, or within one year after such acquisition (or, in the case of physical property, the completion of such construction or commencement of commercial operation of such property, whichever is later) to secure any Debt issued, incurred, assumed or guaranteed prior to, at the time of, or within one year after such acquisition (or such completion or commencement, whichever is later) or to secure any other Debt issued, incurred, assumed or guaranteed at any time thereafter for the purpose of refinancing all or any part of such Debt; (4) Liens on Accounts Receivable of the Borrower or any Restricted Subsidiary arising from or in connection with transactions entered into by the Borrower or such Restricted Subsidiary after the date hereof or on Accounts Receivable acquired by the Borrower or such Restricted Subsidiary after such date from others, which Liens are created prior to, at the time of, or within one year after such Accounts Receivable arise or are acquired or, if later, the completion of the delivery or installation of the equipment or goods or the rendering of the services or the advancement or loaning of funds relating thereto (i) as a result of any guarantee, repurchase or other contingent (direct or indirect) or recourse obligation of the Borrower or such Restricted Subsidiary in connection with the discounting, sale, assignment, transfer or other disposition of such Accounts Receivable or any interest therein, or (ii) to secure or provide for the payment of all or any part of the investment of the Borrower or such Restricted Subsidiary in any such Accounts Receivable (whether or not such Accounts Receivable are the Accounts Receivable on which such Liens are created) or the purchase price thereof or to secure any debt (including, without limitation, Non- Recourse Debt) issued, incurred, assumed or guaranteed for the purpose of financing or refinancing all or any part of such investment or purchase price; (5) Liens in favor of the Borrower or any Restricted Subsidiary; (6) Liens in favor of the United States of America or any State thereof or the District of Columbia, or any agency, department or other instrumentality thereof, to secure progress, advance or other payments pursuant to any contract or provision of any statute; (7) Liens securing the performance of letters of credit, bids, tenders, sales contracts, purchase agreements, leases, surety and performance bonds, and other similar obligations not incurred in connection with the borrowing of money; (8) Liens to secure Non-Recourse Debt in connection with the Borrower or any Restricted Subsidiary engaging in any leveraged or single-investor or other lease transactions, whether (in the case of Liens on or relating 36 to leases or groups of leases or the particular properties subject thereto) such Liens be on the particular properties subject to any leases involved in any of such transactions and/or the rental or other payments or rights under such leases or, in the case of any group of related or unrelated leases, on the properties subject to the leases comprising such group and/or the rental or other payments or rights under such leases, or on any direct or indirect interest therein, and whether (in any case) (i) such Liens be created prior to, at the time of, or at any time after the entering into of such lease transactions and/or (ii) such leases be in existence prior to, or be entered into by the Borrower or such Restricted Subsidiary at the time of or at any time after, the purchase or other acquisition by the Borrower or such Restricted Subsidiary of the properties subject to such leases; and (9) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any of the foregoing; provided, however, that any such extension, renewal or replacement shall be limited to all or a part of the property or assets which secured the Lien so extended, renewed or replaced (plus any improvements on such property). SECTION 5.06. Consolidations, Mergers and Sales of Assets. The Borrower covenants that it will not merge or consolidate with any other corporation or sell or convey all or substantially all of its assets to any person (other than such a sale or conveyance to a Subsidiary or any successor thereto (such a sale or conveyance being called an "Asset Drop-Down")), unless (i) either the Borrower shall be the continuing corporation or the successor corporation or the person which acquires by sale or conveyance substantially all the assets of the Borrower (if other than the Borrower) shall be a corporation organized under the laws of the United States of America or any State thereof and shall expressly assume the due and punctual payment of the principal of and interest on all the Notes according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Agreement to be performed or observed by the Borrower, by one or more agreements, reasonably satisfactory in form to the Required Banks, executed and delivered to the Agent by such corporation, and (ii) the Borrower or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition. In the event of any Asset Drop-Down after the date of this Agreement, any subsequent sale or conveyance of assets by a Subsidiary to which assets were transferred in such Asset Drop-Down (a "Drop-Down 37 Subsidiary") will be deemed to be a sale or conveyance of assets by the Borrower for purposes of this Section 5.06. SECTION 5.07. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for general corporate purposes, including, without limitation, the repayment of maturing commercial paper and other Debt of the Borrower. None of such proceeds will be used for the purpose of buying or carrying any "margin stock" within the meaning of Regulation U. ARTICLE VI DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five Domestic Business Days of the due date thereof any interest on any Loan, any fees or any other amount payable hereunder; (b) the Borrower shall fail to observe or perform any covenant contained in Section 5.02, 5.03, 5.04 or 5.06; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Agent at the request of the Required Banks; (d) any representation or warranty made or deemed made by the Borrower in this Agreement or in any certificate delivered pursuant to this Agreement shall prove to have been materially incorrect when made (or deemed made pursuant to Section 3.02); (e) the Borrower shall fail to make any payment or payments, in the aggregate in excess of $300,000,000, on principal of Debt of the Borrower when due and such failure shall continue for 30 days after the due date thereof or, if longer, beyond any applicable grace periods; 38 (f) any event or condition shall occur which results in the acceleration of the maturity of the principal of any Debt of the Borrower in the aggregate in excess of $300,000,000 which acceleration shall not have been rescinded within 30 days; (g) the Borrower shall commence a voluntary case seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case seeking such relief commenced against it under any such law, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability generally to pay its debts as they become due; (h) an order for relief shall be entered against the Borrower under the federal bankruptcy laws as now or hereafter in effect in an involuntary case or other proceeding seeking liquidation, reorganization or other relief with respect to it or its debts or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such decree or order shall remain undismissed and unstayed for a period of 20 days; (i) both (i) a person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) other than AT&T shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 20% or more of the outstanding shares of common stock of the Borrower and (ii) the Borrower shall have ceased to be a Subsidiary of AT&T; provided that, notwithstanding clauses (i) and (ii) above, no Event of Default shall occur under this paragraph (i) if and for so long as both (x) officers, directors and employees of AT&T constitute a majority of the Board of Directors of the Borrower and (y) no person or group of persons has beneficial ownership of a greater percentage of the outstanding shares of common stock of the Borrower than does AT&T; 39 then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in paragraph (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by the Required Banks and shall thereupon notify all the Banks thereof. SECTION 6.03. Rescission. If at any time after termination of the Commitments and/or acceleration of the maturity of the Loans pursuant to Section 6.01, the Borrower shall pay all arrears of interest and all payments on account of principal of the Loans which shall have become due otherwise than by acceleration (with interest on principal at the rates specified in this Agreement) and all Defaults (other than nonpayment of principal of and accrued interest on the Loans due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 9.05, then upon the written consent of the Required Banks and notice to the Borrower, such termination of the Commitments and/or such acceleration and their consequences may be rescinded and annulled; but such action shall not affect any subsequent Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Banks to a decision which may be made at the election of the Required Banks; they are not intended to benefit the Borrower and do not give the Borrower the right to require the Banks to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. 40 ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of New York shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent hereunder. SECTION 7.03. Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified 41 in Article III, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Borrower shall have the right to appoint a successor Agent from among the Banks. If no successor Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's 42 resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent. ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any CD Loan, Euro-Dollar Loan or Money Market LIBOR Loan: (a) the Agent is advised by the CD Reference Banks or, under the circumstances contemplated by the final sentence of the definition of London Interbank Offered Rate, the Euro-Dollar Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to such Reference Banks in the relevant market for such Interest Period, or (b) in the case of CD Loans or Euro-Dollar Loans, Banks having 50% or more of the aggregate principal amount of the affected Loans advise the Agent that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may be, as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, or to convert outstanding Loans into CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended and (ii) each outstanding CD Loan or Euro-Dollar Loan, as the case may be, shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Agent at least one Domestic Business Day before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate 43 Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. SECTION 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan to such day. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in anyapplicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by 44 any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any such requirement with respect to which such Bank is entitled to compensation during the relevant Interest Period under Section 2.15, special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then pursuant to paragraph (c) below, the Borrower shall pay to such Bank such additional 45 amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section. A certificate of a Bank setting forth such amount or amounts (including computation of such amount or amounts) as shall be necessary to compensate such Bank or its Parent as specified in paragraph (a) or (b) above, as the case may be, shall be delivered to the Borrower and such amount or amounts may be reviewed by the Borrower. Unless the Borrower disagrees in good faith with the computation of the amount or amounts in such certificate, the Borrower shall pay to such Bank, within 30 days after receipt by the Borrower of such certificate delivered by such Bank, the amount shown as due on any such certificate. If the Borrower, after receipt of any such certificate from a Bank, disagrees with such Bank on the computation of the amount or amounts owed to such Bank pursuant to paragraph (a) or (b) above, such Bank and the Borrower shall negotiate in good faith to promptly resolve such disagreement. In either case, however, such Bank shall have a duty to mitigate the damages that may arise as a consequence of paragraph (a) or (b) above (including, without limitation, changing its Applicable Lending Office) to the extent that such mitigation will not, in the judgment of such Bank, entail any cost or disadvantage to such Bank that such Bank is not reimbursed or compensated for by the Borrower. SECTION 8.04. Taxes. (a) Any and all payments by the Borrower to or for the account of any Bank or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings imposed by the United States or any political subdivision or taxing authority thereof, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its net income, and franchise taxes imposed on it, by the United States or any political subdivision or taxing authority thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Agent (as the case 46 may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and reasonable out-of-pocket expenses) arising therefrom or with respect thereto (other than any such liability that results from the gross negligence or willful misconduct of such Bank and the Agent, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other governmental authority). This indemnification shall be made within 30 days from the date such Bank or the Agent (as the case may be) makes written demand therefor. If any Bank or the Agent receives a refund in respect of any Taxes or Other Taxes for which such Bank or the Agent has received payment from the Borrower hereunder it shall promptly repay such refund (including any interest received by such Bank or the Agent from the taxing authority with respect to the refund with respect to such Taxes or Other Taxes) to the Borrower, net of all reasonable out-of-pocket expenses of such Bank; provided that the Borrower, upon the request of such Bank or the Agent, agrees to return such refund (plus penalties, interest or other charges) to such Bank or the Agent in the event such Bank or the Agent is required to repay such refund. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if 47 requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, duly executed by such Bank, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 8.04(a). (e) Each Bank further agrees to promptly notify the Borrower if such Bank changes its Applicable Lending Office and, upon written request from the Borrower, deliver forms 1001 or 4224 required pursuant to Section 8.04(d) prior to the immediately following due date of any payment by the Borrower hereunder. (f) The Borrower shall not be required to pay any additional amounts to any Bank or the Agent in respect of Taxes and Other Taxes pursuant to paragraphs (a), (b) and (c) above if the obligation to pay such additional amounts would not have arisen but for a failure by such Bank or Agent to comply, if required, with the provisions of paragraphs (d) and (e) above unless such failure results from (i) a change in applicable law, regulation or official interpretation thereof or (ii) an amendment, modification or revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case after the date hereof or after such Bank became a party hereto; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (g) Any Bank claiming any additional amounts payable under this Section 8.04 shall (i) to the extent legally able to do so, upon reasonable written request from the Borrower, file any certificate or document if such filing would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue, and the Borrower shall not be obligated to pay such additional 48 amounts if, after the Borrower's request, any Bank could have filed such certificate or document and failed to do so; or (ii) consistent with legal and regulatory restrictions, use reasonable efforts to change the jurisdiction of its Applicable Lending Office if the making of such change would avoid the need for or reduce the amount of any additional amounts which may thereafter accrue and would not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as (or continued as or converted into) CD Loans or Euro-Dollar Loans, as the case may be, shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid (or converted to a Base Rate Loan), all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. If such Bank notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the first day of the next succeeding Interest Period applicable to the related CD Loans or Euro-Dollar Loans of the other Banks. SECTION 8.06. Substitution of Bank. If any Bank (i) has demanded compensation for increased costs pursuant to Section 8.03 or 8.04 or, (ii) has determined that the making or continuation of any Euro-Dollar Rate Loan has become unlawful or impermissible pursuant to Section 8.02 and similar additional interest or compensation has not been 49 demanded by, or a similar determination has not been made by, all of the Banks, the Borrower shall have the right to designate an Assignee which is not an affiliate of the Borrower to purchase for cash, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit G hereto, the outstanding Loans and Commitment of such Bank and to assume all of such Bank's other rights and obligations hereunder without recourse to or warranty by, or expense to, such Bank, for a purchase price equal to the principal amount of all of such Bank's outstanding Loans plus any accrued but unpaid interest thereon and the accrued but unpaid facility fees in respect of that Bank's Commitment hereunder plus such amount, if any, as would be payable pursuant to Section 2.13 if the outstanding Loans of such Bank were prepaid in their entirety on the date of consummation of such assignment. SECTION 8.07. Compensation. The Borrower shall not be liable for compensating any Bank under Sections 2.13, 8.03 and 8.04 for any funding losses, increased costs or taxes incurred by such Bank more than 30 days prior to such Bank's written notice of its intention to demand payment therefor. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address or telex or facsimile number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex or facsimile number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telex or facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when received at the address specified in this Section; provided that notices to the Agent under Article II or Article VIII shall not be effective until received. 50 SECTION 9.02. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent, including reasonable fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agent and each Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and reasonable out-of-pocket expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel) which were actually incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct. SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other 51 Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes. SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the scheduled maturity of any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification 52 or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Sections 2.13 and 2.15 and Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Agent; provided that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans; and provided further that the interest of the Assignee shall be in a minimum amount equivalent to an original Commitment of $15,000,000 and the collective interest of the transferor Bank and its affiliates shall be in a minimum amount equivalent to an original Commitment of $25,000,000 unless, in the case of the transferor Bank and its affiliates, they have no Commitment after giving effect to such assignment. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to 53 exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.06, disclose to the Assignee or Participant or proposed Assignee or Participant any information relating to the Borrower or its Subsidiaries furnished to such Bank by the Agent or by or on behalf of the Borrower; provided that, prior to any such disclosure, such Assignee or Participant or proposed Assignee or Participant shall agree to preserve in accordance with Section 9.11 the confidentiality of any confidential information described therein. SECTION 9.07. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. 54 SECTION 9.09. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.11. Confidentiality. Subject to Section 9.06(f), the Banks shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Borrower in accordance with such Bank's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide offeree or transferee in connection with the contemplated transfer, or as required or requested by any governmental authority or representative thereof, or pursuant to legal process, or to its accountants, lawyers and other advisors, and shall require any such offeree or transferee to agree (and require any of its offerees, transferees or participants to agree) to comply with this Section 9.11. 55 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AT&T CAPITAL CORPORATION By ___________________________________ Title: 44 Whippany Road Morristown, New Jersey 07962 Fax: (201) 397-3106 Commitments $120,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ___________________________________ Title: $71,250,000 BARCLAYS BANK PLC By ___________________________________ Title: $71,250,000 THE CHASE MANHATTAN BANK, N.A. By ___________________________________ Title: Commitments $71,250,000 CHEMICAL BANK By ___________________________________ Title: $71,250,000 CITIBANK, N.A. By ___________________________________ Title: $71,250,000 CREDIT LYONNAIS NEW YORK BRANCH By ___________________________________ Title: $71,250,000 THE FUJI BANK, LIMITED By _____________________________________ Title: $48,750,000 CREDIT SUISSE By _____________________________________ Title: By _____________________________________ Title: Commitments $48,750,000 DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By ___________________________________ Title: By ___________________________________ Title: $48,750,000 THE FIRST NATIONAL BANK OF CHICAGO By ___________________________________ Title: $48,750,000 THE INDUSTRIAL BANK OF JAPAN, LTD., NEW YORK BRANCH By _____________________________________ Title: Commitments $48,750,000 MELLON BANK By ___________________________________ Title: $48,750,000 NATIONSBANK OF NORTH CAROLINA, N.A. By ___________________________________ Title: $48,750,000 PNC BANK, NATIONAL ASSOCIATION By ___________________________________ Title: $48,750,000 ROYAL BANK OF CANADA By _____________________________________ Title: $48,750,000 SOCIETE GENERALE By _____________________________________ Title: Commitments $48,750,000 THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By ___________________________________ Title: $48,750,000 SWISS BANK CORPORATION By ___________________________________ Title: By ___________________________________ Title: $26,250,000 ABN AMRO BANK N.V. NEW YORK BRANCH By ___________________________________ Title: By __________________________________ Title: $26,250,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By _____________________________________ Title: $26,250,000 BANK OF BOSTON By _____________________________________ Title: Commitments $26,250,000 BANK OF HAWAII By ___________________________________ Title: $26,250,000 THE BANK OF NEW YORK By ___________________________________ Title: $26,250,000 BANQUE PARIBAS By ___________________________________ Title: By ___________________________________ Title: $26,250,000 CIBC INC. By _____________________________________ Title: $26,250,000 COMERICA BANK By _____________________________________ Title: Commitments $26,250,000 COMMERZBANK AKTIENGESELLSCHAFT NEW YORK BRANCH By ___________________________________ Title: By ___________________________________ Title: $26,250,000 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By ___________________________________ Title: By ___________________________________ Title: $26,250,000 THE NORTHERN TRUST COMPANY By ___________________________________ Title: $26,250,000 TRUST COMPANY BANK By _____________________________________ Title: $26,250,000 WACHOVIA BANK OF GEORGIA, N.A. By _____________________________________ Title: Commitments $18,750,000 BANCA COMMERCIALE ITALIANA SpA By ___________________________________ Title: $18,750,000 BANCO CENTRAL HISPANOAMERICANO S.A. By ___________________________________ Title: $18,750,000 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By ___________________________________ Title: $18,750,000 WESTPAC BANKING CORPORATION By _____________________________________ Title: _________________ Total Commitments $1,500,000,000 _________________ _________________ MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By ___________________________________ Title: 60 Wall Street New York, New York 10260-0060 Attention: Telex number: 177615 EXHIBIT A NOTE New York, New York , 19 For value received, AT&T Capital Corporation, a Delaware corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in and subject to the terms of the $1,500,000,000 Credit Agreement dated as of June 30, 1995 among the Borrower, the banks party thereto and Morgan Guaranty Trust Company of New York, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the mandatory and optional prepayment hereof and the acceleration of the maturity hereof. AT&T CAPITAL CORPORATION By________________________ Title: 2 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - -------------------------------------------------------------------------------- Amount of Amount of Type of Principal Notation Date Loan Loan Repaid Made By - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3 EXHIBIT B Form of Money Market Quote Request [Date] To: Morgan Guaranty Trust Company of New York (the "Agent") From: AT&T Capital Corporation Re: $1,500,000,000 Credit Agreement (as amended, the "Credit Agreement") dated as of June 30, 1995 among the Borrower, the Banks party thereto and the Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount* Interest Period** $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] - -------- * Amount must be $5,000,000 or a larger multiple of $1,000,000. ** Not less than one month (LIBOR Auction) or not less than 14 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. 1 Terms used herein have the meanings assigned to them in the Credit Agreement. AT&T CAPITAL CORPORATION By________________________ Title: EXHIBIT C Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to AT&T Capital Corporation (the "Borrower") Pursuant to Section 2.03 of the $1,500,000,000 Credit Agreement (as amended, the "Credit Agreement") dated as of June 30, 1995 among the Borrower, the Banks parties thereto and the undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount Interest Period $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [4:00 P.M.] [9:30 A.M.] (New York City time) on [date]. Terms used herein have the meanings assigned to them in the Credit Agreement. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By______________________ Authorized Officer EXHIBIT D Form of Money Market Quote To: Morgan Guaranty Trust Company of New York, as Agent Re: Money Market Quote to AT&T Capital Corporation (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 19__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: ----------------------------- 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest Money Market Amount** Period*** [Margin****] [Absolute Rate*****] $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** - ---------- * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. 1 We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the $1,500,000,000 Credit Agreement (as amended, the "Credit Agreement") dated as of June 30, 1995 among the Borrower, the Banks party thereto and yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Terms used herein have the meanings assigned to them in the Credit Agreement. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer - ---------- *** Not less than one month or not less than 14 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). EXHIBIT E OPINION OF COUNSEL FOR THE BORROWER To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: I am [General Counsel] [Assistant General Counsel] of AT&T Capital Corporation (the "Borrower"), and as such, have acted as counsel for the Borrower in connection with the $1,500,000,000 Credit Agreement (the "Credit Agreement") dated as of June 30, 1995 among the Borrower, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of the Borrower pursuant to Section 3.01(b) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except those which the failure to have would not have a Material Adverse Effect. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate power, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any material agreement, judgment, injunction, order, decree or other material instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. 3. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether considered in a proceeding in equity or at law). 4. There is no action, suit or proceeding pending against, or to the best of my knowledge threatened against, the Borrower or any of its Consolidated Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable probability of an adverse decision which would have a Material Adverse Effect or which in any manner draws into question the validity of the Credit Agreement or the Notes. 5. Each of the Borrower's Consolidated Subsidiaries which is a corporation is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except those which the failure to have would not have a Material Adverse Effect. I am a member of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, I express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without my prior written consent. Very truly yours, 3 EXHIBIT F OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have participated in the preparation of the $1,500,000,000 Credit Agreement (the "Credit Agreement") dated as of June 30, 1995 among AT&T Capital Corporation, a Delaware corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate power and have been duly authorized by all necessary corporate action. 1 2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether considered in a proceeding in equity or at law). We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, 2 EXHIBIT G ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), AT&T CAPITAL CORPORATION (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the $1,500,000,000 Credit Agreement dated as of June 30, 1995 among the Borrower, the Assignor and the other Banks party thereto, as Banks, and the Agent (as amended, the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Committed Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, [Committed] Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding [Committed Loans], and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the [Committed] Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and the Agent and the payment of the amounts specified in Section 3 hereof required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them. It is understood that commitment and/or facility fees accrued to the date hereof in respect of the Assigned Amount are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. SECTION 4. Consent of the Borrower and the Agent. This Agreement is conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein. SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection 2 with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By_________________________ Title: [ASSIGNEE] By__________________________ Title: AT&T CAPITAL CORPORATION By__________________________ Title: 3 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By__________________________ Title: 4 EX-10 6 EXHIBIT 10(T) EXHIBIT 10(t) Form 10-K for 1995 File No. 1-11237 As Amended on October 21, 1994 AT&T CAPITAL CORPORATION 1993 DEFERRED COMPENSATION PLAN 1. PURPOSE OF PLAN. The purpose of the AT&T Capital Corporation 1993 Deferred Compensation Plan (the "Plan") is to permit each eligible employee of AT&T Capital Corporation, a Delaware corporation (the "Company"), and its Subsidiaries (as defined in Section 11 below) to defer receipt of all or a portion of certain incentive compensation payable to such employee by the Company or such Subsidiaries until the time set forth herein. 2. PARTICIPATION. (a) ELIGIBILITY: Each employee who is a "Participant" in the AT&T Capital Corporation 1993 Share Performance Incentive Plan (the "SPIP") or who is granted a performance unit award under the Company's 1993 Long Term Incentive Plan ("LTIP") during any Deferral Year (as defined below) and any other employee or class of employees designated by the Committee (as defined below) shall be entitled to elect to participate in this Plan in respect of all or a portion of his compensation earned during such Deferral Year pursuant to a performance unit award granted under the 1993 Annual Incentive Plan, the 1995 Annual Incentive Plan, the 1995 Senior Executive Annual Incentive Plan (collectively, the "AIP"), the LTIP, the SPIP, and any other incentive compensation plan selected by the Committee (collectively, the "Incentive Plans"). A "Deferral Year" for the purposes hereof shall mean the period beginning on the Effective Date of this Plan pursuant to Section 15 below and ending on December 31, 1993 and each twelve-month period beginning on January 1, 1994 or on any subsequent January 1 during the term of this Plan. -1- (b) EMPLOYEE DEFERRALS. Each employee who is eligible to participate in this Plan for a Deferral Year pursuant to paragraph (a) of this Section 2 may do so by filing an election to defer the receipt of all or a portion of any compensation to be earned for such Deferral Year under any or all Incentive Plans. Such election shall be made on a form provided by and filed with the Committee (or its designated agent) not later than: (i) in the case of compensation payable with respect to a three year performance period under the SPIP or in connection with the applicable performance period regarding a performance unit awarded under the LTIP, no later than December 31 of the calendar year ending immediately before the end of such performance period; (ii) in the case of compensation payable under the AIP, no later than September 30 of the year for which such compensation is payable; (iii) in the case of compensation payable under any other performance based Incentive Plan, at such time prior to the time when such compensation can be accurately calculated as the Committee shall determine; and (iv) in the case of compensation payable under any other Incentive Plan, the day immediately preceding the first day of each Deferral Year for which such compensation is to be earned. Such election shall specify the amount or percentage of such compensation to be deferred. An election to defer compensation once made, may not be revoked or changed by the employee. Notwithstanding the foregoing, an election to defer compensation shall not be applicable to any amount of compensation which becomes payable pursuant to an Incentive Plan on account of or after a "Change in Control" of the Company as defined in such Incentive Plan. 3. DEFERRED COMPENSATION ACCOUNT. Compensation deferred by an employee under Section 2 shall be credited to a deferred compensation bookkeeping account, established on the Company's books on behalf of the employee (a "Deferred Compensation Account"), as of the first day of the month coinciding with or next following the day on which, but for the election under such Section 2, such compensation would have been payable to the employee. As of the last day of each Deferral Year, an amount in respect of interest at (i) a rate of six per cent (6%) per annum (or, if higher, the applicable Federal rate for an -2- obligation with a term of seven years determined under Section 1274(d) of the Internal Revenue Code of 1986, as amended, in effect for the month in which occurs the later of (A) the Effective Date, and (B) the date on which the employee first becomes eligible to participate in the Plan), or (ii) such other rate as the Committee may from time to time determine, shall be credited to the balance of each Deferred Compensation Account. In addition, an employee's Deferred Compensation Account shall be charged with any payments made to the employee out of such account during such Deferral Year pursuant to Section 4(d). Each employee who has elected to defer compensation hereunder shall receive written notice of his Deferred Compensation Account balance as soon as practicable following the last day of each Deferral Year. 4. PAYMENT OF DEFERRED COMPENSATION. Amounts credited to an employee's Deferred Compensation Account shall be distributed by the Company to or on behalf of the employee as provided in this Section. (a) IN GENERAL. Except as otherwise provided herein, the balance of an employee's Deferred Compensation Account shall be distributed to or on behalf of the employee on the first to occur of (i) the date certain, if any, specified by the employee in the employee's deferral election pursuant to Section 2 and (ii) at such time as the Committee shall determine following the termination of the employee's employment by the Company and its Subsidiaries, but not later than March 15th of the calendar year next following the calendar year in which such termination of employment occurs. If an employee makes more than one election to defer compensation pursuant to Section 2, the employee may specify in any such election a different date certain for distribution of the amounts deferred pursuant to such election that is different from the date certain specified in any other such election and, if such a different date certain is specified, the Company shall establish a separate Deferred Compensation Account (which shall be credited and charged in accordance with the applicable provisions of this Plan) in respect of the amounts deferred with respect to each such date. (b) DISTRIBUTIONS UPON DEATH. If an employee's employment by the Company and its Subsidiaries is terminated by reason of the employee's death, the value of the employee's Deferred Compensation Account shall be distributed, at the time specified in paragraph (a) above, to the employee's estate, provided that, if so determined by the Committee, an employee may, in the manner established by the Committee, designate a beneficiary to exercise the rights of the employee under this Plan upon the death of the employee. -3- (c) MANNER OF PAYMENT. Amounts credited to an employee's Deferred Compensation Account shall be paid in one lump sum payment on the date described in paragraph (a) above, unless such employee elects no later than the last day of the calendar year prior to the calendar year in which such employee's termination of employment occurs to receive payment in not less than two nor more than 10 annual installments. The amount of each installment shall be determined by dividing the amount credited to the employee's Deferred Compensation Account as of the date of distribution (but before reduction by the amount of the current distribution) by the number of then remaining installments (including the current installment). Such election shall be irrevocable, except as provided in paragraph (d) below. In the event the employee's termination of employment is by reason of the employee's death, the employee's beneficiary shall receive distribution of the balance of the employee's Deferred Compensation Account in one lump sum payment, unless the employee made an election otherwise pursuant to this Section. (d) HARDSHIP. An employee with a Deferred Compensation Account may request at any time a withdrawal of part or all of the amount then credited to the employee's Deferred Compensation Account on account of "hardship" (as defined below) by submitting a written request to the Vice President - Human Resources accompanied by evidence that his or her financial condition constitutes a hardship. The Vice President - Human Resources shall review the employee's request and determine the extent, if any, to which such request is justified. Any such withdrawal shall be limited to an amount reasonably necessary to meet the hardship, but not more than the amount of benefit to which the employee would be entitled if his or her employment were terminated. (e) CHANGE IN CONTROL. Notwithstanding any provision of the Plan to the contrary, upon the occurrence of a "Change in Control" of the Company (as defined below), the balance of each Deferred Compensation Account shall be determined pursuant to Section 3 as if such date were the last day of a Deferral Year and the amount thereof shall be paid as soon as is practicable thereafter, but not more than three (3) business days after the occurrence of such Change in Control. (f) ALTERNATE DISTRIBUTEES. Any distribution to a person who at the time of payment is under legal disability or who is in the judgment of the Company unable to care for his or her affairs because of illness or accident may be distributed to the spouse or any child or personal representatives of such person or to any other individual or entity deemed by the Company to have -4- incurred expenses for such person. Any such distribution shall be a complete discharge of the Company for such payment under this Plan. 5. NATURE OF THE COMPANY'S OBLIGATIONS. The amounts deferred hereunder will be unfunded for purposes of the Internal Revenue Code of 1986, as amended (the "Code"), and the Employee Retirement Income Security Act of 1974 as amended ("ERISA"). In any event, the Company's obligation hereunder shall constitute a general, unsecured obligation, payable solely out of its general assets, and no employee or other person shall have any right to any specific assets. This Plan is intended to be an unfunded plan primarily for the benefit of a select group of management or highly compensated employees within the meaning of Title I of ERISA. 6. ADMINISTRATION. (a) The Plan shall be administered by the Committee. The Committee shall have full power and authority to: (i) interpret and administer this Plan and any instrument or agreement entered into under this Plan; (ii) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of this Plan; (iii) make any other determination and take any other action that the Committee deems necessary or desirable for administration of this Plan, including the exclusion of any employee or employees from participation if the Committee believes such exclusion is necessary for this Plan to be primarily for the benefit of a select group of management or highly compensated employees within the meaning of Title I of ERISA. (b) Decisions of the Committee shall be final, conclusive and binding upon all persons, including the Company, any stockholder of the Company, and any employee of the Company or of any Subsidiary. (c) The Committee may employ attorneys, consultants, accountants or other persons (who may be attorneys, consultants, accountants or persons performing other services for the Company or any affiliate), and the Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. No member of the Company's Board of Directors or the Committee, nor any officer, director or employee of the Company or any Subsidiary acting on behalf of the Board of Directors or the Committee, shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to this Plan, and all members of the Company's Board of Directors and the Committee -5- and each officer or employee of the Company or a Subsidiary acting on their behalf shall be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. 7. UNFUNDED STATUS. The claims of any employee hereunder shall be solely those of a general unsecured creditor of the Company or any Subsidiary. This Plan constitutes a mere promise by the Company and its Subsidiaries to make benefit payments in the future. The Company or any Subsidiary may, in its sole discretion, choose to invest its assets in one or more life insurance policies insuring the lives of any employee with a Deferred Compensation Account, and, if so, such employee shall, as a condition of the employee's participation in this Plan, take any action as shall be reasonably requested by the Company or such Subsidiary, including submitting to a physical examination requested by an insurance company, to enable the Company or such Subsidiary to obtain any such life insurance policy. Any such life insurance policy shall be and remain the property of the Company or such Subsidiary. Nothing in this Plan shall be construed as granting any employee any interest in any such insurance policy or in any other asset of the Company or any Subsidiary. 8. NONASSIGNABILITY. The rights of employees and other persons hereunder may not be sold, transferred, assigned, pledged, hypothecated or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as otherwise provided in Section 4(b). 9. AMENDMENT TO THE PLAN. the Company may, in its sole discretion and without the consent of any employee or beneficiary, amend this Plan at any time; provided, however, that no amendment shall reduce the balance of the Deferred Compensation Account of any employee as of the date immediately before the adoption of such amendment. 10. NO EMPLOYMENT CONTRACT. Nothing in this Plan shall be interpreted as conferring any right on any employee to remain employed by the Company or any Subsidiary for any stated period of time or otherwise change the employee's employment relationship with the Company or such Subsidiary from an employment at will relationship. -6- 11. MEANING OF CERTAIN TERMS. For the purposes hereof, the following terms shall have the meanings set forth below: "Change in Control" shall mean the occurrence of any of the following events: (i) An acquisition (other than in a non-control transaction, as defined in clause (iii) below) of any shares of capital stock or other securities of the Company that are generally entitled to vote in elections for directors ("Voting Securities") by any "person" or "group" of persons (as such terms are used in Sections 13 and 14 of the Securities Exchange Act or 1934, as amended), other than the Company, any Subsidiary or any employee benefit plan (or a trust forming a part thereof) maintained by the Company or any Subsidiary as a result of which such person or group becomes the "beneficial owner" (as such term is used in Section 13 of the Securities Exchange Act of 1934, as amended) of Voting Securities representing fifteen percent (15%) or more of the combined voting power of all Voting Securities then outstanding; provided that no such acquisition shall be deemed to give rise to a Change in Control so long as, after giving effect to such acquisition, AT&T Corp. (formerly American Telephone and Telegraph Company), a New York corporation, remains the beneficial owner of Voting Securities representing a greater percentage of the combined voting power of all Voting Securities then outstanding than is represented by the Voting Securities beneficially owned by such person or group; provided, further, that an acquisition of Voting Securities directly from the Company or any Subsidiary shall not be deemed to give rise to a Change in Control if, immediately prior to such acquisition, no person or group is directly or indirectly in "control" of the Company (as such term is defined in Rule 405 under the Securities Act of 1933, as amended); (ii) The individuals who, as of the date of the first sale of shares of the Company's common stock, $.01 par value ("Shares") in the 1993 initial public offering of the Company, are members of the Company's Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for the purposes of this definition, be considered a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if -7- such individual initially assumed office as a result of either an actual or threatened "election contest" (as described in Rule 14a-11 under the Securities Exchange Act of 1934, as amended) or other actual or threatened solicitation of proxies or consents by or on behalf of any person or group other than the Board (a "proxy contest"), including by reason of any agreement intended to avoid or settle any election contest or proxy contest; or (iii) The approval by the requisite vote of the Company's stockholders of: (A) a merger, consolidation or reorganization involving the Company, unless (1) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation surviving such merger, consolidation or reorganization (the "surviving corporation") in substantially the same proportion as their ownership of the Voting Securities of the Company immediately prior to such merger, consolidation or reorganization, (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board of directors of the surviving corporation and (3) no person (other than the Company, any Subsidiary any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the surviving corporation or any Subsidiary Company, or any person who, immediately prior to such merger, consolidation or reorganization had beneficial ownership of fifteen percent (15%) or more of the then outstanding Voting Securities of the Company) has beneficial ownership of fifteen percent (15%) or more of the combined voting power of the surviving corporation's then outstanding voting securities (a transaction meeting the criteria set forth in the foregoing clauses (1) through (3) being sometimes referred to herein as a "non-control transaction"); (B) A complete liquidation or dissolution of the Company; or -8- (C) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred solely because any person or group becomes the beneficial owner of more than the permitted amount of the outstanding Voting Securities of the Company as a result of an acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of Voting Securities owned by such person or group, provided that if (i) a Change in Control would have been deemed to have occurred but for the operation of this sentence as a result of such acquisition of Voting Securities by the Company and (ii) such person or group thereupon or thereafter becomes the beneficial owner of any additional Voting Securities resulting in an increase in the percentage of the then outstanding Voting Securities beneficially owned by such person or group (and which percentage is in excess of fifteen percent (15%)), then a Change in Control shall be deemed to have occurred at the time of such acquisition of beneficial ownership of such additional Voting Securities by such person or group. "Committee" shall mean the Compensation Committee of the Board of Directors of the Company; provided that the Board of Directors may otherwise appoint (i) the Board of Directors or (ii) a committee consisting of two or more members of the Board of Directors, to act as the Committee, and provided further that upon a Change in Control of the Company, the Committee shall be the Committee as in existence immediately before the occurrence of such Change in Control. "Hardship" shall mean a severe financial hardship to an employee resulting from a sudden and unexpected illness or accident of the employee or a dependent (within the meaning of Section 152(a) of the Internal Revenue Code of 1986, as amended (the "Code")) of the employee, loss of the employee's property due to casualty, or other similar extraordinary and unforeseeable circumstances, arising from events beyond the employee's control. Whether circumstances constitute a hardship depends on the facts of each case, but in any case does not include a hardship that may be relieved: (i) through reimbursement or compensation by insurance or otherwise; -9- (ii) by liquidation of the employee's assets to the extent that liquidation itself would not cause such a severe financial hardship; or (iii) by ceasing to defer receipt of any compensation not yet earned. The need to send an employee's child to college and the desire to purchase a home shall not constitute hardships. "Subsidiary" shall mean (i) any individual, corporation, partnership, association, joint stock company, trust or unincorporated organization which is controlled by the Company and (ii) any other such entity, association or organization in which the Company has a significant equity interest, as determined by the Committee. As used herein, employment by the Company shall include employment by any Subsidiary. References in this Agreement to sections of the Code or ERISA shall be deemed to refer to any successor section of the Code or ERISA or any successor law. 12. SUCCESSORS. This Plan shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of any employee, acquire any rights hereunder. 13. GOVERNING LAW. This Plan shall be governed by, and interpreted in accordance with, the internal laws of the State of New Jersey. 14. TERMINATION OF THE PLAN. The Company may, in its sole discretion without the consent of any employee or beneficiary, terminate the Plan at any time by giving written notice thereof to each employee with a Deferred Compensation Account. All amounts credited to Deferred Compensation Accounts shall be paid to the persons entitled thereto at such time and in such manner as the Company shall determine, but not later than payments would have been made had the Plan not been terminated. 15. EFFECTIVE DATE. This Plan shall be effective as of the date that shares of the Company's common stock, $.01 par value, are first offered for sale to the public. -10- EX-10 7 EXHIBIT 10(Y) EXHIBIT 10(y) Form 10-K for 1995 File No. 1-11237 AT&T CAPITAL CORPORATION EXECUTIVE BENEFIT PLAN (As Amended and Restated Effective as of December 4, 1995) AT&T CAPITAL CORPORATION EXECUTIVE BENEFIT PLAN (As Amended and Restated Effective as of December 4, 1995) TABLE OF CONTENTS
Page ---- ARTICLE I ESTABLISHMENT AND PURPOSES 1.1 Establishment................................................. 1 1.2 Purpose....................................................... 1 ARTICLE II DEFINITIONS 2.1 Accrued Retirement Benefit.................................... 2 2.2 Actuarial Assumptions......................................... 2 2.3 Actuarial Equivalent.......................................... 3 2.4 Affiliate..................................................... 3 2.5 Annual Offset Benefits........................................ 4 2.6 AT&T Pension Plans............................................ 4 2.7 Automatic Joint and Surviving Spouse Annuity...................................................... 4 2.8 AT&T Capital.................................................. 4 2.9 Board......................................................... 4 2.10 Cause......................................................... 5 2.11 Change in Control............................................. 6 2.12 CLT........................................................... 10 2.13 Code.......................................................... 10 2.14 Commencement Date............................................. 10 2.15 Committee..................................................... 10 2.16 Credited Service.............................................. 10 2.17 Date of Termination .......................................... 11 2.18 Deferral Date................................................. 11 2.19 Early Commencement Date....................................... 11 2.20 Early Retirement Date......................................... 11 2.21 Effective Date CEO............................................ 11 2.22 Excess Plans.................................................. 11 2.23 Final Annual Pay.............................................. 11 2.24 Good Reason................................................... 13 2.25 Gross Annual Benefit.......................................... 16 2.26 Married Participant........................................... 16 2.27 Nonqualifying Termination..................................... 16 2.28 Normal Retirement Date........................................ 16 2.29 Participant................................................... 17
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Page ---- 2.30 Plan Administrator............................................ 17 2.31 Plan Year..................................................... 17 2.32 Retirement Benefits........................................... 17 2.33 RSP........................................................... 17 2.34 SBL........................................................... 17 2.35 SBU........................................................... 17 2.36 SERP.......................................................... 17 2.37 Single Life Annuity........................................... 17 2.38 Spouse........................................................ 17 2.39 Subsidiary.................................................... 18 2.40 Survivor Benefit.............................................. 18 2.41 Tier 1 Participant............................................ 18 2.42 Tier 2 Participant............................................ 18 2.43 Tier 3 Participant............................................ 18 2.44 Vested Participant............................................ 18 2.45 Vested Retirement Date........................................ 18 2.46 Vesting Event................................................. 18 2.47 Voting Securities............................................. 19 ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility................................................... 19 3.2 Maintaining Participant Status................................ 20 ARTICLE IV RETIREMENT BENEFITS 4.1 Eligibility for Retirement Benefits........................... 20 4.2 Amount of Retirement Benefits................................. 21 4.3 Commencement.................................................. 23 ARTICLE V ALTERNATIVE FORMS OF PAYMENT 5.1 Automatic Joint and Surviving Spouse Annuity.................. 24 5.2 Other Optional Forms of Payment............................... 28 ARTICLE VI DEATH BENEFITS 6.1 Preretirement Surviving Spouse Benefits....................... 29 6.2 Amount........................................................ 30 6.3 Commencement.................................................. 31
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Page ---- ARTICLE VII RIGHTS OF PARTICIPANTS 7.1 Vesting....................................................... 32 7.2 Change in Control and Involuntary Termination Provisions...... 33 7.3 Contractual Obligation........................................ 34 7.4 Unsecured Interest............................................ 34 7.5 Employment.................................................... 35 ARTICLE VIII NONTRANSFERABILITY 8.1 Nontransferability............................................ 35 ARTICLE IX ADMINISTRATION 9.1 Administration................................................ 35 9.2 Severability.................................................. 36 9.3 Expenses...................................................... 36 ARTICLE X APPLICABLE LAW 10.1 Applicable Law................................................. 36 10.2 Successors and Assigns......................................... 36 ARTICLE XI WITHHOLDING OF TAXES 11.1 Tax Withholding............................................... 38 ARTICLE XII INDEMNIFICATION 12.1 Indemnification............................................... 39 ARTICLE XIII CLAIMS PROCEDURE
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Page ---- 13.1 Claims Procedure.............................................. 39
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Page ---- ARTICLE XIV AMENDMENT AND TERMINATION 14.1 Amendment and Termination..................................... 41 APPENDICES A Tier 1 Participants......................................... A-1 B AT&T Unisex Table............................................ B-1 C AT&T Active Table............................................ C-1 -v-
AT&T CAPITAL CORPORATION EXECUTIVE BENEFIT PLAN (As Amended and Restated Effective as of December 4, 1995) ARTICLE I ESTABLISHMENT AND PURPOSES 1.1 Establishment. AT&T Capital Corporation (hereinafter "AT&T Capital") heretofore established and presently maintains an unfunded supplemental executive retirement plan, known as the "AT&T CAPITAL CORPORATION EXECUTIVE BENEFIT PLAN" (hereinafter referred to as the "Plan"). The Plan which was initially effective as of January 1, 1994, is hereby amended and restated, effective as of December 4, 1995, to reflect recent design changes, including the addition of change-in-control provisions. 1.2 Purpose. AT&T Capital desires to provide supplemental retirement benefits for certain individuals who have been in the employ of AT&T Capital and who are now serving as executive officers of AT&T Capital. AT&T Capital believes it is in its best interest that such individuals' services be retained. In order to induce such individuals to continue in the employ of AT&T Capital and in recognition of such individuals' service, and in order to attract qualified executives to AT&T Capital, AT&T Capital hereby amends and restates the Plan as set forth herein. The Plan is an unfunded pension plan for a "select group of management and highly-compensated Participants" within the meaning of sections 201(2), 301(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE II DEFINITIONS Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. Whenever used herein, the following terms shall have the meaning set forth below: 2.1 "Accrued Retirement Benefit" shall mean, as of any given date, the monthly amount of Retirement Benefits payable to a Participant, determined in accordance with Section 4.2, based on the Participant's actual Credited Service and Final Annual Pay as of such given date. 2.2 "Actuarial Assumptions" means, for purposes of determining amounts under Sections 4.2 and 6.2(b), with respect to the RSP and the Excess Plans, (i) assuming a hypothetical uniform points allocation account ("Hypothetical Account") consisting solely of the uniform points allocation contributions made under the RSP or the Excess Plans, as applicable, (ii) assuming contributions to the Hypothetical Account are made at the same time as the uniform points allocation contributions are actually made to -2- the Participant's accounts in the RSP or the Excess Plans, as applicable, (iii) determining the accumulated value of the Hypothetical Account as of the Commencement Date, assuming a rate of return for the Hypothetical Account in any given year predicated on the annual yield on a ten-year U.S. Treasury Bond, recalculated as of the first day of such year (regardless of how a Participant's uniform points allocations are actually invested in the RSP and the Excess Plans), and (iv) converting the accumulated value of the Hypothetical Account into an Actuarial Equivalent Single Life Annuity based on a discount rate of six (6) percent and the AT&T Unisex Table in effect as of the Participant's Date of Termination. 2.3 "Actuarial Equivalent" as used with respect to a stated benefit shall mean a benefit or amount which has the same present value on the date payment commences as such stated benefit. Where no specifically applicable factor or Actuarial Assumptions are set forth for determining an Actuarial Equivalent value, the determinations of actuarial equivalence shall be based on a discount rate of six (6) percent, the AT&T Unisex Table for determining post-termination mortality, and the AT&T Active Table (with male rates and female rates calculated separately) for determining pre-termination mortality, both in effect as of the Participant's Date of Termination. -3- 2.4 "Affiliate" means any corporation, trade, or business if it and AT&T Capital are members of a controlled group of corporations, or under common control, or are members of an affiliated service group (within the meaning of sections 414(b), 414(c), and 414(m) of the Code, respectively). 2.5 "Annual Offset Benefits" shall have the meaning set forth in Section 4.2. 2.6 "AT&T Pension Plans" mean (i) the AT&T Management Pension Plan (the "AT&T MPP"), (ii) the AT&T Pension Plan, and (iii) the NCR Corporation Pension Plan, each as in effect on December 31, 1993. 2.7 "Automatic Joint and Surviving Spouse Annuity" means a contingent annuity that provides a level unreduced monthly benefit to the Participant for his lifetime and, upon his death, an annuity for the life of his surviving Spouse in a monthly amount equal to 45 percent of the monthly amount payable to the Participant during his life. 2.8 "AT&T Capital" means AT&T Capital Corporation and its successors and assigns. The term "AT&T Capital" as used herein shall also include any wholly-owned Subsidiary of AT&T Capital unless such Subsidiary is specifically excluded from participation under the Plan in a resolution adopted by the Board. -4- 2.9 "Board" means the Board of Directors of AT&T Capital. 2.10 "Cause" means any of the following: (a) A determination by the Board that a Participant has committed a material breach of the duties and responsibilities of the Participant that has caused significant adverse harm to AT&T Capital, which breach is (1) demonstrably willful and deliberate, (2) committed in bad faith or without reasonable belief that such breach is in the best interests of AT&T Capital and (3) not remedied within a reasonable period of time after receipt of written notice from AT&T Capital specifying such breach; (b) The determination by the Board that the Participant has defrauded AT&T Capital; or (c) The Participant's conviction of, or plea of guilty or nolo contendere to, a felony. Cause may be determined by the Committee if such authority is expressly given in writing to the Committee by the Board. Cause shall not exist unless and until AT&T Capital has delivered to the Participant a copy of a resolution duly adopted by three-quarters (3/4) of the Board (or a majority of the Committee) at a meeting of the Board (or the Committee) called and held for such purpose (after reasonable notice to the Participant and an opportunity for -5- the Participant, together with counsel, to be heard before the Board or the Committee, as the case may be), finding that in the good faith opinion of the Board (or the Committee) the Participant was guilty of the conduct set forth in this Section 2.10 and specifying the particulars thereof in detail. -6- 2.11 "Change in Control" means any of the following events: -7- (a) An acquisition (other than in a "non-control transaction", as defined in clause (c) below) of any Voting Securities by any "person" or "group" of persons (as such terms are used in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than AT&T Capital, any Subsidiary or any employee benefit plan (or a trust forming a part thereof) maintained by AT&T Capital or any Subsidiary, as a result of which such person or group becomes, directly or indirectly, the "beneficial owner" (as such term is used in Section 13 of the Exchange Act) of Voting Securities representing fifteen percent (15%) or more of the combined voting power of all Voting Securities then outstanding; provided that no such acquisition shall be deemed to give rise to a Change in Control so long as, after giving effect to such acquisition, AT&T remains the beneficial owner of Voting Securities representing a greater percentage of the combined voting power of all Voting Securities then outstanding than is represented by the Voting Securities beneficially owned by such person or group; provided, however, that an acquisition of Voting Securities directly from AT&T Capital or any Subsidiary shall not be deemed to give rise to a Change in Control if, immediately prior to such acquisition, no person or -8- group is directly or indirectly in "control" of AT&T Capital (as such term is defined in Rule 405 under the Securities Act of 1933, as amended); (b) The individuals who, as of January 1, 1995, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election or nomination for election by AT&T Capital's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for the purposes of this definition, be considered a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "election contest" (as described in Rule 14a-11 under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of any person or group other than the Board (a "proxy contest"), including by reason of any agreement intended to avoid or settle any election contest or proxy contest; -9- (c) The approval by the requisite vote of AT&T Capital's shareholders of: -10- (i) a merger, consolidation or reorganization involving AT&T Capital, unless (A) the stockholders of AT&T Capital, immediately before such merger, consolidation or reorganization, own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation surviving such merger, consolidation or reorganization (the "surviving corporation") in substantially the same proportion as their ownership of the Voting Securities of AT&T Capital immediately prior to such merger, consolidation or reorganization, (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board of directors of the surviving corporation and (C) no person (other than AT&T Capital, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by AT&T Capital, the surviving corporation or any Subsidiary, or any person who, immediately prior to such merger, consolidation or reorganization -11- had beneficial ownership of fifteen percent (15%) or more of the then outstanding Voting Securities of AT&T Capital) has beneficial ownership of fifteen percent (15%) or more of the combined voting power of the surviving corporation's then outstanding voting securities (a transaction meeting the criteria set forth in the foregoing clauses (A) through (C) being sometimes referred to herein as a "non-control transaction"); (ii) a complete liquidation or dissolution of AT&T Capital; or (iii) an agreement for the sale or other disposition of all or substantially all of the assets of AT&T Capital to any person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred solely because any person or group becomes the beneficial owner of more than the permitted amount of the outstanding Voting Securities of AT&T Capital as a result of an acquisition of Voting Securities by AT&T Capital which, by reducing the number of Voting Securities outstanding, increases the proportional number of Voting Securities owned by such person or group, provided that if (i) a Change in Control would have been deemed to have occurred but for the operation of this -12- sentence as a result of such acquisition of Voting Securities by AT&T Capital and (ii) such person or group thereupon or thereafter becomes the beneficial owner of any additional Voting Securities resulting in an increase in the percentage of the then outstanding Voting Securities beneficially owned by such person or group (and which percentage is in excess of fifteen percent (15%)), then a Change in Control shall be deemed to have occurred at the time of such acquisition of beneficial ownership of such additional Voting Securities by such person or group. 2.12 "CLT" means the AT&T Capital Corporate Leadership Team, and any successor thereto. 2.13 "Code" means the Internal Revenue Code of 1986, as amended. 2.14 "Commencement Date" shall have the meaning set forth in Section 4.2. 2.15 "Committee" means the Compensation Committee of the Board. 2.16 "Credited Service" means a Participant's period of employment, in complete years only (each period of 12 months of continuous employment constitutes a complete year), with any and all of the following: (a) AT&T Capital; (b) any Subsidiary of AT&T Capital after AT&T Capital acquired at least 50 percent ownership of the Subsidiary; and (c) to the extent such period occurred prior to January 1, 1994, AT&T Corp. or any subsidiary of AT&T Corp. after AT&T Corp. -13- acquired at least 80 percent ownership interest in such subsidiary. Notwithstanding the foregoing, the Committee shall expressly have the authority, by adopting a written resolution, to include any period of employment with a Subsidiary of AT&T Capital prior to AT&T Capital's acquisition of at least a 50 percent ownership of such Subsidiary. 2.17 "Date of Termination" means the date as of which the Participant ceases his employment with AT&T Capital and all Affiliates. 2.18 "Deferral Date" shall have the meaning set forth in Section 4.2. 2.19 "Early Commencement Date" shall have the meaning set forth in Section 4.3(b). 2.20 "Early Retirement Date" means the date on which a Participant attains age 58; provided that with respect to the Effective Date CEO, "Early Retirement Date" shall mean the date on which he attains age 55. 2.21 "Effective Date CEO" means the Chief Executive Officer of AT&T Capital as of December 4, 1995. 2.22 "Excess Plans" means the AT&T Capital Corporation Excess Benefit Plan, and the AT&T Capital Corporation Compensation Limit Excess Plan as amended from time to time. 2.23 "Final Annual Pay" means the higher of (1) the sum of (i) a Participant's then current annual rate of -14- base salary as of his Date of Termination, (ii) 110% of the Participant's target annual incentive for the year in which his Date of Termination occurs (not taking into account any reductions which would constitute Good Reason hereunder), and (iii) commissions actually paid during the twelve (12) months immediately preceding the Date of Termination, and (2) the quotient equal to (A) the sum of (i) a Participant's annual rate of base salary (not taking into account any reductions which would constitute Good Reason hereunder), (ii) actual incentive payments earned (including any deferred amounts), and (iii) commissions actually paid, each during the three (3) consecutive calendar years preceding the Participant's Date of Termination in which such Participant had the greatest aggregate earnings, divided by (B) three (3) ("Average Earnings"). In the event that a Participant has less than three (3) calendar years of employment with AT&T Capital, the Participant's Average Earnings shall be the average amount of such Participant's annual rate of base salary (prorated for any partial calendar year), actual incentive payments earned, and actual commissions paid, for the relevant period. For purposes of determining Final Annual Pay prior to a Participant's Date of Termination, the date as of which the Accrued Retirement Benefit is being calculated shall be substituted for the Participant's Date of Termination. -15- 2.24 "Good Reason" means the occurrence, without a Participant's express written consent, of any of the following events: (a) A reduction in a Participant's base salary or target annual incentive as in effect immediately prior to a Change in Control, or as the same may be increased from time to time thereafter; (b) A change in the Participant's work location to a location more than twenty-five (25) miles from the facility where the Participant is located at the time of the Change in Control; (c) A requirement that a Participant travel on AT&T Capital business to an extent substantially more burdensome than the travel obligations of the Participant immediately prior to a Change in Control; (d) The assignment to the Participant of any duties inconsistent in any material adverse respect with the Participant's position(s), duties, responsibilities or status with AT&T Capital immediately prior to a Change in control; (e) A material adverse change in the Participant's reporting responsibilities, titles or offices with AT&T Capital as in effect immediately prior to a Change in Control; -16- (f) The removal of the Participant from, or failure to reelect the Participant to, any position with AT&T Capital held by the Participant immediately prior to a Change in Control or the removal of the Participant from, or the failure to nominate the Participant for re-election to, any position on the Board held by the Participant prior to a Change in Control (except, in each case, in connection with such Participant's promotion or termination for Cause or in the case of retirement, death or permanent disability); (g) The failure of AT&T Capital to (i) continue in effect any employee benefit plan or compensation plan in which the Participant is participating immediately prior to a Change in Control (unless AT&T Capital substitutes comparable plans that would not materially reduce the Participant's benefits as were in effect for the Participant immediately prior to the Change in Control) or (ii) provide the Participant and the Participant's dependents with welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs and policies of AT&T Capital and its affiliated companies in effect -17- for the Participant immediately prior to a Change in Control; or (h) Any event or fact that would be deemed a "Good Reason" under AT&T Capital's 1993 Leveraged Stock Purchase Plan ("LSPP") or would be grounds for a termination of employment by a Participant for one or more of the reasons described in the definition of "Qualifying Termination" in the LSPP. For purposes of this Plan, any good faith determination of Good Reason made by a Participant shall be conclusive so long as the Participant terminates employment within one hundred and eighty (180) days following the Participant's actual knowledge of the event constituting Good Reason; provided, however, that a Participant who terminates his employment for Good Reason pursuant to the immediately preceding sentence shall not be required to terminate his employment prior to the date that is one hundred and eighty (180) days following an actual Change in Control; and provided, further, that an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by AT&T Capital promptly after receipt of notice thereof given by a Participant shall not constitute Good Reason. In the event that upon a Change in Control, AT&T Capital ceases to be a publicly traded corporation, such event will not, in and of itself, constitute Good Reason unless one of the -18- reasons set forth in paragraphs (a) through (h) above occurs. Any event or condition described in this Section 2.24 (a) through (h) which occurs within the one-year period prior to a Change in Control, but was at the request of a third party or otherwise occurred in connection with, or in anticipation of, a Change in Control, shall constitute Good Reason following a Change in Control for purposes of this Plan notwithstanding that it occurred prior to the Change in Control. 2.25 "Gross Annual Benefit" shall have the meaning set forth in Section 4.2. 2.26 "Married Participant" shall have the meaning set forth in Section 5.1(a). 2.27 "Nonqualifying Termination" means termination of a Participant's employment-- (i) by AT&T Capital for Cause, or (ii) by the Participant for any reason other than Good Reason; provided, however, that a Nonqualifying Termination shall not include a termination of employment due to permanent disability or death. For purposes of the preceding sentence, "permanent disability" shall mean a determination by the Committee that such Participant has become "disabled" within the meaning of AT&T Capital's long term disability plan, as -19- in effect at the time of such termination of employment. 2.28 "Normal Retirement Date"Normal Retirement Date" means the first day of the month coincident with or next following the date on which a Participant attains age 60. 2.29 "Participant" means a Tier 1 Participant, a Tier 2 Participant or a Tier 3 Participant, and shall include any former Participant (and the eligible surviving Spouse of any deceased Married Participant) until such Participant's Retirement Benefits under the Plan, if any, have been fully distributed. 2.30 "Plan Administrator" means AT&T Capital. The Plan is administered on behalf of AT&T Capital by the Vice-President, Human Resources of AT&T Capital. 2.31 "Plan Year" means the calendar year. 2.32 "Retirement Benefits" means the benefits payable pursuant to Article IV. 2.33 "RSP" means the AT&T Capital Corporation Retirement and Savings Plan, as amended from time to time. 2.34 "SBL" means a Strategic Business Leader of an SBU. 2.35 "SBU" means a subsidiary business unit of AT&T Capital, as designated by the Board. 2.36 "SERP" means the AT&T Capital Corporation Supplemental Executive Retirement Plan, as amended from time to time. -20- 2.37 "Single Life Annuity" means an annuity providing equal monthly payments for the lifetime of the recipient with no survivor benefits. 2.38 "Spouse" means any person who is legally recognized under applicable law as the spouse of a Participant, provided that such person has been the Participant's spouse for the continuous one-year period ending on the earlier of: (a) the Participant's Commencement Date, or (b) the Participant's date of death. 2.39 "Subsidiary" means (i) any person that is directly or indirectly controlled by AT&T Capital or (ii) any other person in which AT&T Capital has a significant equity interest, as determined by the Committee 2.40 "Survivor Benefit" shall have the meaning set forth in Section 6.1. 2.41 "Tier 1 Participant" shall have the meaning set forth in Section 3.1(a). 2.42 "Tier 2 Participant" shall have the meaning set forth in Section 3.1(b). 2.43 "Tier 3 Participant" shall have the meaning set forth in Section 3.1(c). 2.44 "Vested Participant" shall have the meaning set forth in Section 7.1. -21- 2.45 "Vested Retirement Date" shall have the meaning set forth in Section 7.1 or Section 7.2, as applicable. 2.46 "Vesting Event" shall have the meaning set forth in Section 7.2. 2.47 "Voting Securities" means any shares of the capital stock or other securities of AT&T Capital that are generally entitled to vote in elections for directors. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. (a) Tier 1 Participants. Each person listed on Appendix A shall be a "Tier 1 Participant" as of January 1, 1995. (b) Tier 2 Participants. Each member of AT&T Capital who becomes a member of the CLT after January 1, 1995 shall become a "Tier 2 Participant" as of the date he is selected to participate in the Plan by the Committee. Such member shall cease to be a Tier 2 Participant if such member ceases to be a member of the CLT prior to the earlier of (i) his Date of Termination, or (ii) his Vested Retirement Date. (c) Tier 3 Participants. Each member of AT&T Capital who is an SBL on January 1, 1995 or who is -22- designated as an SBL subsequent to January 1, 1995, and who is not listed on Appendix A, shall become a "Tier 3 Participant" as of the date that he has been selected to participate in the Plan by the Committee, except that a foreign national SBL of an SBU headquartered outside of the United States shall not become a Tier 3 Participant hereunder. Such member shall cease to be a Tier 3 Participant if such member ceases to be an SBL prior to the earlier of (i) his Date of Termination, or (ii) his Vested Retirement Date. Notwithstanding the foregoing, a Tier 3 Participant may become a Tier 2 Participant pursuant to Section 3.1(b) upon appointment to the CLT, at which time status as a Tier 3 Participant shall cease. 3.2 Maintaining Participant StatusMaintaining Participant Status. Notwithstanding the provisions of Sections 3.1(b) or 3.1(c), a Vested Participant shall not cease to be a Participant, and shall be deemed to remain either a Tier 2 Participant or a Tier 3 Participant, as applicable, if his position is reduced under circumstances which would constitute Good Reason hereunder. -23- ARTICLE IV RETIREMENT BENEFITS 4.1 Eligibility for Retirement BenefitsEligibility for Retirement Benefits. A Participant whose Date of Termination is on or after his Vested Retirement Date shall be eligible to receive, beginning on the Commencement Date determined pursuant to Section 4.3, his Accrued Retirement Benefit as of his Date of Termination. Subject to Section 5.2, the Accrued Retirement Benefit shall be payable in the form of a Single Life Annuity; provided, however, that for a Married Participant, the form of benefit shall be determined under Section 5.1. 4.2 Amount of Retirement BenefitsAmount of Retirement Benefits. Subject to Section 4.3(b), the monthly amount of a Participant's Accrued Retirement Benefit shall equal one-twelfth of the excess, if any, of the "Gross Annual Benefit" over the sum of the "Annual Offset Benefits". For purposes of this Section 4.2, "Gross Annual Benefit" means-- (a) with respect to a Tier 1 Participant (other than any Tier 1 Participant who is an SBL), the product of 4.0 percent of the Participant's Final Annual Pay multiplied by the Participant's Credited Service (not exceeding 10 years); (b) with respect to a Tier 2 Participant, the product of 2.67 percent of the Participant's Final -24- Annual Pay multiplied by the Participant's Credited Service (not exceeding 15 years); (c) with respect to a Tier 3 Participant or any Tier 1 Participant who is an SBL, the product of 1.9 percent of the Participant's Final Annual Pay multiplied by the Participant's Credited Service (not exceeding 20 years). For purposes of this Section 4.2, "Annual Offset Benefits" shall mean the following items (d) through (h) (each individually an "Annual Offset Benefit"): (d) the annual amount, if any, paid or payable to the Participant with respect to the RSP, but solely attributable to the Hypothetical Account (as defined in Section 2.2), calculated using the Actuarial Assumptions; (e) the annual amount, if any, paid or payable to the Participant with respect to the Excess Plans, but solely attributable to the Hypothetical Account (as defined in Section 2.2), calculated using the Actuarial Assumptions; (f) the annual amount, if any, paid or payable from the SERP to the Participant, converted if necessary to an Actuarial Equivalent Single Life Annuity; -25- (g) the annual amount, if any, paid or payable under any of the AT&T Pension Plans to the Participant, but only to the extent such benefits were accrued for the period prior to January 1, 1994, and converted if necessary to an Actuarial Equivalent Single Life Annuity; (h) the annual amount, if any, paid or payable to the Participant under any other AT&T Capital nonqualified pension plan, or, to the extent benefits were accrued for the period prior to January 1, 1994, payable under any other nonqualified AT&T pension plan, converted if necessary to an Actuarial Equivalent Single Life Annuity. Subject to Section 5.2, in the event that any Annual Offset Benefit is not yet payable as of the date on which Retirement Benefits are scheduled to commence under the Plan (the "Commencement Date"), but is payable at a later date ("Deferral Date"), then such Annual Offset Benefit shall be deemed to be $0 when determining the Participant's initial Accrued Retirement Benefit commencing as of the Commencement Date. In such event, the Participant's Accrued Retirement Benefit as determined in accordance with the preceding sentence shall then be recalculated, commencing with the payment as of the Deferral Date, by taking into account the amount of such Annual Offset Benefit then payable to the Participant. 4.3 Commencement. (a) Subject to Sections 4.3(b) and 5.2, the Accrued Retirement Benefits payable under this Article IV shall begin as of the later of the Participant's (i) Date of Termination, or (ii) Normal Retirement Date. (b) A participant whose Date of Termination precedes his Normal Retirement Date may elect to receive a reduced Accrued Retirement Benefit, commencing on the first day of any month coincident with or following his Early Retirement Date but not later than his Normal Retirement Date ("Early Commencement Date"). No such election (or revocation of any such election) shall be honored unless made more than one (1) year prior to the Participant's Early Commencement Date. The amount of such reduced Accrued Retirement Benefit shall be determined by applying the provisions of Section 4.2, except that the Gross Annual Benefit shall be reduced by one percent of Final Annual Pay for each year (or portion of a year) by which the Early Commencement Date precedes such Participant's Normal Retirement Date. For example, the Accrued Retirement Benefit payable at age 60 to a Tier 1 Participant with at least 10 years of Credited Service -27- is based on a Gross Annual Benefit equal to forty (40%) percent of Final Annual Pay, and the Accrued Retirement Benefit for the same Tier 1 Participant who elects an Early Commencement Date of age 58 shall be based on a Gross Annual Benefit equal to thirty-eight (38%) of Final Annual Pay. ARTICLE V ALTERNATIVE FORMS OF PAYMENT 5.1 Automatic Joint and Surviving Spouse Annuity. (a) General Rule. Subject to Section 5.2, and unless elected otherwise pursuant to paragraph (b) below, the Retirement Benefits payable under Article IV to a Participant who has a Spouse (a "Married Participant") shall be payable in the form of an Automatic Joint and Surviving Spouse Annuity. (b) Election Procedures. (1) General Rule. A Married Participant may elect in writing, on a form supplied by the Plan Administrator, to waive an Automatic Joint and Surviving Spouse Annuity, and to receive his Retirement Benefits in the form of a Single Life Annuity or in accordance with an optional form of payment described in Section 5.2. Any election pursuant to this paragraph (1) must be filed with -28- the Plan Administrator during the time described in paragraph (5). For such an election to be effective-- (A) the Spouse must consent in writing to such election; and (B) such Spouse's consent must be withnessed by a notary public. (2) Exception to Consent Requirement. The consent of the Spouse shall not be required where: (A) the Married Participant elects an Automatic Joint and Surviving Spouse Annuity under Section 5.2; (B) the Plan Administrator determines that the required consent cannot be obtained -29- because there is no Spouse or the Spouse cannot be located; (C) the Plan Administrator determines that the Married Participant is legally separated; (D) the Plan Administrator determines that the Married Participant has been abandoned within the meaning of local law and there is a court order to that effect; or (E) there exists any other circumstance (as determined by the Plan Administrator) which excepts the Married Participant from the consent requirement. (3) Revocation and Modification. An election, pursuant to paragraph (1), to waive an Automatic Joint and Surviving Spouse Annuity may be revoked by the Married Participant, in writing, without the consent of his Spouse at any time during the election period. Any subsequent election to waive an Automatic Joint and Surviving Spouse Annuity, or any subsequent modification of a prior election (other than a revocation of a waiver of an Automatic Joint and Surviving Spouse Annuity), must comply with the requirements set forth in paragraph (1) above, unless a "general -30- consent" has been executed by the Spouse. A Spouse's consent shall be considered a "general consent" if the following requirements are satisfied-- (A) the consent permits the Married Participant to waive the Automatic Joint and Surviving Spouse Annuity; (B) the consent permits the Married Participant to change the optional form of Retirement Benefit payment without any requirement of further consent by the Spouse; and (C) the Spouse acknowledges in the consent that-- (i) he has the right to limit consent to a specific optional form of benefit, and (ii) he voluntarily relinquishes such right. (4) Validity of Spousal Consent. Any consent or election under this Section shall be valid only with respect to the Spouse who signs the consent or, if the Spouse's consent is excused by the Plan Administrator pursuant to paragraph -31- (2) above, the Spouse so excused, but shall be irrevocable once made. (5) Timing of election. (A) A Married Participant who elects to receive his Retirement Benefits in the form of a lump sum payment must elect to waive the Automatic Joint and Survivor Annuity at the same time he makes the election under Section 5.2(a) to receive his Retirement Benefits in the form of a lump sum payment. (B) A Married Participant who elects to receive an optional form of payment other than a lump sum payment must so elect within the 90-day period ending on the Participant's Commencement Date. -32- 5.2 Other Optional Forms of Payment. (a) A Participant may elect to receive his Retirement Benefit in the form of a single Actuarial Equivalent lump sum payment; provided, however, that the discount rate for purposes of this Section 5.2(a) shall be 6.0 percent. In such event, the Actuarial Equivalent lump sum value shall be determined assuming that the Participant's Retirement Benefits would otherwise have commenced from this Plan on the date which would have been the Participant's Early Retirement Date (i.e., on a reduced basis), and such lump sum payment shall be paid within 30 days following the Participant's Date of Termination. For a Participant to receive his Retirement Benefits in a single lump sum payment, such Participant must so elect, on a form provided by the Plan Administrator for such purpose, at least one year prior to the Participant's Date of Termination; provided, however, that such an election by a Tier 1 Participant made during 1995 shall be valid without regard to such Tier 1 Participant's Date of Termination. Elections which do not satisfy such requirements will not be honored. Any revocation of a lump sum election will be honored only if made at least one year prior to the Participant's Date of Termination. -33- (b) Subject to the provisions of Section 5.1, the Committee may, in its sole discretion, make available to Participants other optional forms of payment which are the Actuarial Equivalent of the Retirement Benefits otherwise payable to the Participant under the Plan. Any such optional forms of payment which may be offered to Participants shall be elected by the Participant on a form provided by the Plan Administrator for such purpose. ARTICLE VI DEATH BENEFITS 6.1 Preretirement Surviving Spouse Benefits. If a Married Participant who is either (i) a Tier 1 Participant, or (ii) a Vested Participant, dies before his Commencement Date, the surviving Spouse of such Married Participant, if any, shall be eligible to receive a surviving spouse annuity benefit determined under Section 6.2 (the "Survivor Benefit"), commencing as of the date determined under Section 6.3. Notwithstanding any election which may have been made by the Participant with respect to the form or commencement of his Retirement Benefits, the Survivor Benefit shall be distributed in accordance with Section 6.3. -34- 6.2 Amount. (a) Determination of Benefit. The monthly amount of the Survivor Benefit payable to an eligible Spouse pursuant to Section 6.1 shall equal one-twelfth of the excess, if any, of (1) over (2) below: (1) 45 percent of the amount of the Gross Annual Benefit determined as of the Participant's date of death, reduced pursuant to Section 4.3(b) (if the commencement date of the Survivor Benefit determined under Section 6.3 is earlier than the date which would have been the Participant's Normal Retirement Date); (2) the offset amounts determined under Section 6.2(b). (b) Determination of Offsets. The amount of offset shall be the sum of the annual amounts of the Actuarial Equivalent of the preretirement surviving Spouse benefits, if any, payable to the surviving Spouse under the RSP, the Excess Plans, the SERP, the AT&T Pension Plans, the Nonqualified AT&T Pension Plan, or any other AT&T Capital nonqualified pension plan, payable as a Single Life Annuity as of the surviving Spouse's Commencement Date. For purposes of this Section 6.2(b), the preretirement surviving Spouse benefit, if any, payable under the RSP or the Excess -35- Plans, means the amount payable to the surviving Spouse with respect to the RSP or the Excess Plan, but solely attributable to the Hypothetical Account (defined under Section 2.2), calculated using the Actuarial Assumptions. In addition, the methodology underlying the last paragraph of Section 4.2 shall apply with respect to any offsets under this Section 6.2(b) which may not be payable until after the surviving Spouse's Commencement Date determined in accordance with Section 6.3. 6.3 Commencement. (a) Subject to Section 6.3(b), the Survivor Benefit shall be payable as a Single Life Annuity commencing as of the first day of the month coincident with or next following the Participant's death; provided, however, that payments shall not be made to a surviving Spouse any earlier than the date which would have been the Participant's Early Retirement Date. (b) Notwithstanding Section 6.3(a), the Committee may in its sole discretion direct that the Survivor Benefit be paid to the surviving Spouse, within 30 days following the Participant's date of death, in a single lump sum payment of Actuarial Equivalent value, determined assuming that the deceased Participant's Retirement Benefits would otherwise have commenced from -36- this Plan on the date which would have been the Participant's Early Retirement Date (i.e., on a reduced basis). ARTICLE VII RIGHTS OF PARTICIPANTS 7.1 Vesting. Subject to Section 7.2, a Participant who has reached his Vested Retirement Date (a "Vested Participant") shall have a nonforfeitable right to his Accrued Retirement Benefit on his Date of Termination. The term "Vested Retirement Date" shall have the meaning given such term under paragraph (a), (b), (c) or (d) below, as applicable. (a) Tier 1 Participants. With respect to any Tier 1 Participant (other than the Effective Date CEO), "Vested Retirement Date" shall mean January 1, 1999. (b) Effective Date CEO. The "Vested Retirement Date" for the Effective Date CEO shall mean the date on which he attains age 55. (c) Tier 2 Participants. With respect to any Tier 2 Participant, "Vested Retirement Date" shall mean the earlier of (i) the date on which such Participant attains age 60, or (ii) the date on which such Participant completes fifteen (15) years of Credited Service. -37- (d) Tier 3 Participants. With respect to any Tier 3 Participant, "Vested Retirement Date" shall mean the earlier of (i) the date on which such Participant attains age 60, or (ii) the date on which such Participant completes twenty (20) years of Credited Service. 7.2 Change in Control and Involuntary Termination ProvisionsChange in Control and Involuntary Termination Provisions. In the event of a Change in Control or upon a Participant's Date of Termination (other than as a result of a Nonqualifying Termination) (a "Vesting Event"), paragraphs (a) and (b) of Section 7.1 shall be superseded to the extent provided in the following sentence. If any Tier 1 Participant has not already become a Vested Participant, then the date of such Vesting Event shall be deemed to be such Tier 1 Participant's Vested Retirement Date, and for all purposes under the Plan such Tier 1 Participant shall have a nonforfeitable right to his Accrued Retirement Benefit. -38- 7.3 Contractual Obligation. (a) General Rule. It is intended that AT&T Capital is under a contractual obligation to pay Retirement Benefits payable under the Plan when due. Payment of Retirement Benefits under the Plan shall be made out of AT&T Capital's general assets or, at the discretion of the Board, from a grantor trust established by AT&T Capital to pay Retirement Benefits hereunder. (b) Statement of AT&T Capital Intention. Notwithstanding anything in paragraph (a) to the contrary, AT&T Capital shall establish an irrevocable grantor trust and fully fund, upon or prior to a potential Change in Control, the potential Retirement Benefits of Tier 1 Participants (based upon the actuarial assumptions herein and assuming increases in Final Annual Pay), whether or not such Retirement Benefits have vested under the provisions of this Article VII or have been accrued as of such date. 7.4 Unsecured Interest.Unsecured Interest. Notwithstanding anything in Section 7.3 to the contrary, no Participant or Spouse shall have any interest whatsoever in any specific asset of AT&T Capital. To the extent that any person acquires a right to receive payments under the Plan (or if a grantor trust is established and funded pursuant to Sections 7.3, under such grantor trust), such right shall be no greater -39- than the right of any unsecured general creditor of AT&T Capital. 7.5 Employment. Nothing in the Plan shall interfere with or limit in any way the right of AT&T Capital to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of AT&T Capital. ARTICLE VIII NONTRANSFERABILITY 8.1 Nontransferability. In no event shall AT&T Capital make any payment under the Plan to any assignee or creditor of a Participant or Spouse. Prior to the time of payment hereunder, a Participant or Spouse shall have no rights by way of anticipation or may otherwise dispose of any interest under the Plan nor shall such rights be assigned or transferred by operation of law. -40- ARTICLE IX ADMINISTRATION 9.1 Administration. Except where powers are specifically conferred in the Board or the Committee in the Plan, the Plan shall be administered by the Plan Administrator. The Plan Administrator may from time to time establish rules for the administration of the Plan that are consistent with the intent and purposes of the Plan, and which will aid in the prompt and efficient administration of the Plan. 9.2 Severability. If any provision of this Plan or the application of any such provision to any Participant or circumstances shall be determined by any court of competent jurisdiction or duly authorized arbitration tribunal to be invalid, illegal or unenforceable to any extent, the remainder of this Plan or such provision or the application of such provision to such Participant or circumstances, other than those to which it is so determined to be invalid, illegal or unenforceable, shall remain in full force and effect to the fullest extent permitted by law and shall not be affected thereby, unless such a construction would be unreasonable. 9.3 Expenses. The cost of providing benefits from the Plan and the expenses of administering the Plan shall be borne by AT&T Capital. -41- ARTICLE X APPLICABLE LAW 10.1 Applicable Law. The Plan shall be governed and construed in accordance with the laws of the State of New Jersey and the United States of America. 10.2 Successors and Assigns. (a) This Plan shall not be terminated by any merger or consolidation of AT&T Capital whereby AT&T Capital is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of AT&T Capital or a purchase of the securities of AT&T Capital. In the event of any such merger, consolidation, transfer of assets or purchase, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) AT&T Capital agrees that concurrently with any merger, consolidation, transfer of assets or purchase of the securities of AT&T Capital referred to in paragraph (a) of this Section 10.2, it will cause any successor or transferee unconditionally to assume all of the obligations of AT&T Capital hereunder. -42- (c) This Plan shall inure to the benefit of and be enforceable by each Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If a Participant shall die while any amounts would be payable to the Participant hereunder had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant's estate. (d) AT&T Capital's obligation to make any payments provided for by this Plan to a Participant and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which AT&T Capital may have against the Participant or others. ARTICLE XI WITHHOLDING OF TAXES 11.1 Tax WithholdingTax Withholding. AT&T Capital shall have the right to deduct from all payments made from the Plan any federal, state, or local taxes required by law to be withheld with respect to such payments. -43- To the extent a Participant is subject to FICA taxes with respect to Retirement Benefits accrued but not yet payable under the Plan pursuant to Code section 3121(v), as a condition of participation hereunder, each such Participant shall direct AT&T Capital to withhold from his current salary amounts thereby due and payable. ARTICLE XII INDEMNIFICATION 12.1 Indemnification. To the extent permitted by law, the Plan Administrator and all agents and representatives of the Plan Administrator, shall be indemnified by AT&T Capital against any claims, and the expenses of defending against such claims, resulting from any action or conduct relating to the administration of the Plan. ARTICLE XIII CLAIMS PROCEDURE 13.1 Claims Procedure. (a) Submission of Claims. Claims for benefits under the Plan shall be submitted in writing to the Plan Administrator. (b) Denial of Claim. If any claim for benefits is wholly or partially denied, the claimant shall be -44- given written notice within 90 days following the date on which the claim is filed, which notice shall set forth-- (1) the specific reason or reasons for the denial; (2) specific references to pertinent Plan provisions upon which the denial is based; (3) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (4) an explanation of the Plan's claim review procedure. If special circumstances require an extension of time for processing the claim, written notice of an extension shall be furnished to the claimant prior to the end of the initial period of 90 days following the date on which the claim is filed. Such an extension may not exceed a period of 90 days beyond the end of said initial period. If the claim has not been granted, and if written notice of the denial of the claim is not furnished within 90 days following the date on which the claim is filed, the claim shall be deemed denied for the purpose of proceeding to the claim review procedure. -45- (c) Claim Review Procedure. The claimant or his authorized representative shall have 60 days after receipt of written notification of denial of a claim to request a review by the Committee of the denial by making written request to the Plan Administrator, and may review pertinent documents and submit issues and comments in writing within such 60-day period. Not later than 60 days after receipt of the request for review, the Plan Administrator shall render and furnish to the claimant a written decision of the Committee which shall include specific reasons for the decision, and shall make specific references to pertinent Plan provisions upon which it is based. If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. -46- ARTICLE XIV AMENDMENT AND TERMINATION 14.1 Amendment and Termination. (a) This Plan, as amended and restated, shall be in effect as of December 4, 1995 and shall continue until terminated by AT&T Capital as provided in paragraph (b) of this Section 14.1. (b) AT&T Capital shall have the right prior to a Change in Control, in its sole discretion, pursuant to action by the Board or the Committee, to approve the termination or amendment of this Plan; provided, however, that no such action which would adversely affect the rights or potential rights of Participants shall be taken by the Board or the Committee (i) during any period of time when the Board or the Committee, as the case may be, has knowledge that any person (including AT&T Capital) has taken steps reasonably calculated to effect a Change in Control (a "Possible Change in Control") until, in the opinion of the Board or the Committee, such Change in Control is no longer a reasonable possibility, or (ii) within twelve (12) months following the date that such Possible Change in Control ceases to exist; provided, further, that in no event shall this Plan be terminated or amended (i) within the two-year period following a Change in -47- Control in any manner which would adversely affect the rights or potential rights of Tier 1 Participants; or (ii) at any time, in any manner which would adversely affect the Accrued Retirement Benefit (including if applicable the vesting thereof) of either a Tier 1 Participant or a Vested Participant, as of the date of such termination or amendment. -48- APPENDIX A Tier 1 Participants Wajnert, T.* Dwyer, E. McCarthy D. Morey, R. Rothman, I. Van Sickle, C. Andrews, E. * Effective Date CEO. A-1 APPENDIX B AT&T Unisex Retiree Mortality
Unisex Unisex Age Rate Age Rate 45 0.0056 78 0.0502 46 0.0058 79 0.0550 47 0.0060 80 0.0602 48 0.0063 81 0.0658 49 0.0065 82 0.0718 50 0.0068 83 0.0780 51 0.0071 84 0.0847 52 0.0074 85 0.0916 53 0.0077 86 0.0990 54 0.0081 87 0.1069 55 0.0084 88 0.1152 56 0.0088 89 0.1241 57 0.0093 90 0.1339 58 0.0097 91 0.1448 59 0.0103 92 0.1568 60 0.0109 93 0.1697 61 0.0116 94 0.1839 62 0.0123 95 0.1999 63 0.0132 96 0.2167 64 0.0143 97 0.2340 65 0.0155 98 0.2527 66 0.0169 99 0.2730 67 0.0185 100 0.2954 68 0.0203 101 0.3202 69 0.0224 102 0.3476 70 0.0247 103 0.3782 71 0.0270 104 0.4136 72 0.0293 105 0.4557 73 0.0320 106 0.5063 74 0.0348 107 0.5672 75 0.0381 108 0.6402 76 0.0417 109 0.7275 77 0.0458 110 0.8874
B-1 APPENDIX C AT&T ACTIVE MORTALITY
Male Female Annual Rate Annual Rate Age of Mortality Age of Mortality 22 0.0009 22 0.0004 23 0.0008 23 0.0004 24 0.0008 24 0.0004 25 0.0008 25 0.0004 26 0.0008 26 0.0004 27 0.0008 27 0.0004 28 0.0007 28 0.0005 29 0.0007 29 0.0005 30 0.0007 30 0.0006 31 0.0007 31 0.0006 32 0.0007 32 0.0007 33 0.0007 33 0.0007 34 0.0008 34 0.0008 35 0.0008 35 0.0008 36 0.0009 36 0.0008 37 0.0011 37 0.0009 38 0.0012 38 0.0009 39 0.0013 39 0.0010 40 0.0015 40 0.0010 41 0.0016 41 0.0011 42 0.0018 42 0.0012 43 0.0021 43 0.0013 44 0.0024 44 0.0015 45 0.0027 45 0.0017 46 0.0030 46 0.0019 47 0.0034 47 0.0021 48 0.0038 48 0.0022 49 0.0041 49 0.0024 50 0.0045 50 0.0025 51 0.0050 51 0.0026 52 0.0055 52 0.0027 53 0.0061 53 0.0030 54 0.0068 54 0.0033 55 0.0075 55 0.0037 56 0.0083 56 0.0040 57 0.0092 57 0.0044 58 0.0102 58 0.0049 59 0.0111 59 0.0053 60 0.0121 60 0.0058 61 0.0132 61 0.0063 62 0.0143 62 0.0068 63 0.0154 63 0.0074 64 0.0165 64 0.0080 65 0.0177 65 0.0086 66 0.0190 66 0.0093 67 0.0202 67 0.0101 68 0.0215 68 0.0110 69 0.0228 69 0.0119
C-1 EX-10 8 EXHIBIT 10(Z) EXHIBIT 10(z) Form 10-K for 1995 File No. 1-11237 AT&T CAPITAL CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1. Purpose. The Plan is designed to provide supplemental retirement benefits on termination of employment for a select group of management or highly compensated employees of the Company. The Plan is intended to ease the transition for eligible employees from coverage under a Frozen Plan to coverage under the RSP. 2. Definitions. The following words and phrases as used herein shall have the following meanings: (a) "Accumulated Value" means the value of the Hypothetical Company Account as of the Participant's Date of Termination. (b) "Actuarial Equivalent" means, with respect to a stated benefit or amount, a benefit or amount which has the same present value on the date payment commences as such stated benefit. (c) "Actuarial Equivalent Factor" means the applicable factor based on a discount rate of 8% and the Unisex AT&T Retiree Mortality Table. (d) "Administrative Committee" means the Administrative Committee of AT&T Capital Corporation. (e) "Assumed Retirement Benefit" means the benefit which would have been payable to the Participant under the applicable Frozen Plan (converted, if necessary, from the normal form of benefit payable under such Frozen Plan to an Actuarial Equivalent single life annuity benefit, payable monthly, using the method of actuarial equivalence used in the applicable Frozen Plan) had the Participant remained covered by such Frozen Plan from December 31, 1993 through the Participant's Date of Termination; provided, however, that the Assumed Retirement Benefit shall not reflect any special enhancements (e.g., early retirement window programs) to the benefit formula under such Frozen Plan. (f) "AT&T" means AT&T Corp. (g) "Company" means AT&T Capital Corporation and its subsidiaries. (h) "Company Benefit" means the sum of the Frozen Benefit and the RSP/EBP Benefit. (i) "Date of Termination" means the date on which a Participant leaves the employ of the Company. (j) "Frozen Benefit" means the benefit payable to the Participant as of the Participant's Date of Termination (or at the earliest possible date of -2- commencement, if later than such Participant's Date of Termination) under the terms of the applicable Frozen Plan, converted (if necessary) from the normal form of benefit payable under such Frozen Plan to an Actuarial Equivalent single life annuity benefit, payable monthly, using the method of actuarial equivalence used in the applicable Frozen Plan. (k) "Frozen Plan" means the AT&T Management Pension Plan (the "AT&T MPP"), the AT&T Pension Plan, or the NCR Corporation Pension Plan, as applicable. (l) "Hypothetical Company Account" means a hypothetical account consisting solely of the sum of the Company contributions (excluding any matching contributions) credited to the Participant's accounts through the Participant's Date of Termination, under the RSP, the AT&T Capital Corporation Excess Benefit Plan, and the AT&T Capital Corporation Compensation Limit Benefit Plan, assuming that for each calendar year interest is credited to the Hypothetical Company Account at a rate equal to the annual yield as of the last day of the prior calendar year on the 10-year U.S. Treasury Bond. (m) "Participant" means a member of the Company who has met the requirements of Section 3. (n) "Pay" means cash compensation from the Company before reductions for taxes or pre-tax -3- contributions to any of the Company's employee benefit plans, including base salary, commissions, short term bonuses, and awards and payments under the Company's 1993 Annual Incentive Plan (or any successor plan) to the extent includible in taxable income, but excludes awards or payments under the Company's long term incentive award programs such as the Share Performance Incentive Plan. (o) "Plan" means this AT&T Capital Corporation Supplemental Executive Retirement Plan. (p) "Plan Administrator" means AT&T Capital Corporation. (q) "RSP" means the AT&T Capital Corporation Retirement and Savings Plan. (r) "RSP/EBP Benefit" means the benefit payable to the Participant from the Accumulated Value of the Hypothetical Company Account, expressed in the form of an Actuarial Equivalent single life annuity, payable monthly. The conversion of such Accumulated Value into an Actuarial Equivalent single life annuity shall be determined by using the same method of actuarial equivalence used in the RSP for the purpose of converting a Participant's account balance into a benefit payable in the form of a single life annuity. -4- (s) "Social Security Wage Base" means the contribution and benefit base under Section 230 of the Social Security Act. 3. Eligibility to Participate. A member shall be a Participant in the Plan if such member was a participant in a Frozen Plan as of December 31, 1993, and either: (a) was a member of the Capital Corporate Leadership Forum as of December 31, 1993, or (b) (i) as of December 31, 1993, was employed by the Company and either (x) had at least ten (10) years of AT&T, AT&T Capital Corporation, or NCR Corporation service, or (y) was within ten (10) years of service pension eligibility under the terms of the AT&T MPP (for this purpose, service with a company acquired by AT&T or AT&T Capital Corporation is included); and (ii) either (x) had 1993 Pay of at least $115,200, or (y) had average Pay for the thirty-six (36) months immediately prior to the member's Date of Termination of at least two times the Social Security Wage Base in effect for the year of termination. 4. SERP Benefit. A Participant shall be eligible to receive a Supplemental Executive Retirement Plan Benefit ("SERP Benefit") if the Participant meets the requirements for service pension eligibility under the AT&T MPP, under the terms of the AT&T MPP as in effect in the year of the Participant's Date of Termination (provided, however, that if the AT&T MPP is terminated prior to the Participant's Date of Termination, the requirements for service pension eligibility under the AT&T MPP -5- shall refer to the terms of the AT&T MPP in effect immediately prior to its termination), assuming for such purpose that the Participant had been covered by the AT&T MPP for the Participant's entire period of employment with the Company. The amount of a Participant's SERP Benefit payable under the Plan, if any, shall be determined as a monthly amount equal to the excess of: (a) 95% of the Assumed Retirement Benefit, over (b) the Company Benefit. If the Participant terminates employment with the Company prior to attaining age 60, the Participant's SERP Benefit shall be reduced to reflect the early commencement of benefits under Section 5 by multiplying the SERP Benefit by the appropriate Actuarial Equivalent Factor (such reduced amount shall for any affected Participant hereafter be considered the SERP Benefit for all purposes under the Plan). In the event that the Frozen Benefit is not immediately payable to the Participant as of the Participant's Date of Termination, the calculation of the SERP Benefit shall assume that the amount of the Frozen Benefit is $0. In such event, the Participant's SERP Benefit shall be later reduced (by the amount of the Frozen Benefit so payable) as of the date on which the Frozen Benefit is in fact payable to the Participant. 5. Payment of SERP Benefit. The SERP Benefit shall be payable monthly, commencing as of the first day of -6- the month following the month in which the Date of Termination occurs. 6. Source of Payments. The benefits provided under the Plan shall be paid by the Company from a grantor trust established by the Company for the purpose of paying the benefits under the Plan, at the time and in the manner provided herein. To the extent that there are insufficient assets in such trust to pay benefits under the Plan, then the Company shall pay the benefits out of the general assets of the Company. 7. Nontransferability of Benefits. Benefits payable under the Plan shall not be subject to any manner of assignment, pledge, alienation or anticipation by a Participant. 8. Administration. The Plan shall be administered on behalf of the Plan Administrator by the Vice President of Human Resources ("VPHR"). The VPHR may from time to time establish rules for the administration of the Plan that are consistent with the intent and purposes of the Plan, and which will aid in the prompt and efficient administration of the Plan. The VPHR and the Administrative Committee shall have complete discretionary authority to determine conclusively for all parties, and in accordance with the terms of the documents or instruments governing the Plan, any and all questions arising from administration of the Plan and interpretation of all plan provisions, -7- determination of all questions relating to participation of eligible members and eligibility for benefits, determination of all relevant facts, the amount and type of benefits payable to any participant, and construction of all terms of the Plan. To the extent permitted by law, the Plan Administrator, the VPHR, and all agents and representatives of either of the foregoing shall be indemnified by the Company against any claims, and the expenses of defending against such claims, resulting from any action or conduct relating to the administration of the Plan. 9. Amendment and Termination. AT&T Capital Corporation reserves the right to modify, suspend, change, or amend the Plan from time to time, prospectively or retroactively, and may terminate the Plan in its entirety at any time. AT&T Capital Corporation does not guarantee the continuation of any benefits during employment, nor does it guarantee any specific level of benefits. Nothing in the Plan shall interfere with or limit in any way the right of AT&T Capital Corporation to terminate any Participant's employment at any time, or confer upon any Participant any right to continue in the employ of the Company. 10. Withholding. The Company shall have the right to deduct from any payment under the Plan any amount required to satisfy its obligation to withhold federal, state and local taxes. -8- 11. Governing Law. The Plan shall be governed and construed in accordance with the laws of the State of New Jersey. 12. Effective Date. The Plan shall be effective as of January 1, 1994. -9- Exhibit A AT&T Unisex Retiree Mortality
Unisex Unisex Age Rate Age Rate 45 0.0056 78 0.0502 46 0.0058 79 0.0550 47 0.0060 80 0.0602 48 0.0063 81 0.0658 49 0.0065 82 0.0718 50 0.0068 83 0.0780 51 0.0071 84 0.0847 52 0.0074 85 0.0916 53 0.0077 86 0.0990 54 0.0081 87 0.1069 55 0.0084 88 0.1152 56 0.0088 89 0.1241 57 0.0093 90 0.1339 58 0.0097 91 0.1448 59 0.0103 92 0.1568 60 0.0109 93 0.1697 61 0.0116 94 0.1839 62 0.0123 95 0.1999 63 0.0132 96 0.2167 64 0.0143 97 0.2340 65 0.0155 98 0.2527 66 0.0169 99 0.2730 67 0.0185 100 0.2954 68 0.0203 101 0.3202 69 0.0224 102 0.3476 70 0.0247 103 0.3782 71 0.0270 104 0.4136 72 0.0293 105 0.4557 73 0.0320 106 0.5063 74 0.0348 107 0.5672 75 0.0381 108 0.6402 76 0.0417 109 0.7275 77 0.0458 110 0.8874
EX-10 9 EXHIBIT 10(AA) EXHIBIT 10(aa) Form 10-K for 1995 File No. 1-11237 AT&T CAPITAL CORPORATION COMPENSATION LIMIT EXCESS PLAN 1. Purpose. The Plan is designed to provide additional benefits to certain Members of the Company whose compensation is in excess of the limitations imposed by Section 401(a)(17) of the Code, and who otherwise would not be able to receive benefits under the retirement program of the Company which are based on their total compensation. 2. Definitions. The following words and phrases as used herein shall have the following meanings: (a) "Account" shall have the meaning set forth in Section 6(a). (b) "Administrative Committee" means the committee described in Section 10. (c) "AT&T" means AT&T Corp. (d) "AT&T Capital" means AT&T Capital Corporation. (e) "Board" means the Board of Directors of AT&T Capital. (f) "Break in Service" means a continuous period of at least 12 consecutive months during which a Member is not employed by an Employer. In the case of an individual who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a Break in Service. An absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the individual, (ii) by reason of the birth of a child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by the individual, or (iv) for purposes of caring for such child for a period immediately following such birth or placement. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Committee" means the Compensation Committee of the Board. -2- (i) "Company" means AT&T Capital and its subsidiaries. (j) "Compensation" means cash compensation, as defined in the RSP, from the Company. (k) "Date of Termination" means the date on which a Participant leaves the employ of the Company. (l) "Determination Year" shall have the meaning set forth in Section 3(b). (m) "Employer" means any corporation which is included in a controlled group of corporations which includes the Company, any trade or business (whether or not incorporated) which is under common control with the Company, and any organization (whether or not incorporated) included in the same affiliated service group as the Company, and any other entity required to be aggregated with the Company, pursuant to Code Sections 414(b), (c), (m), and (o) respectively. (n) "Excess Compensation" means Compensation in excess of the limitations imposed by Section 401(a)(17) of the Code. -3- (o) "Excess Deferral" shall have the meaning set forth in Section 4(b). (p) "Fiscal Year" means the 12-month period ending on the last day of February. For example, the 1995 Fiscal Year means the period beginning on March 1, 1994 and ending on February 28, 1995. (q) "Hour of Service" means each hour for which a Member is paid or entitled to payment for the performance of duties for the Employer. (r) "Interest" shall have the meaning set forth in Section 6(a). (s) "Matching Contribution" shall have the meaning set forth in Section 4(b). (t) "Member" means any individual employed by an Employer and any individual treated as an employee of the Employer under Code Section 414(n). (u) "Participant" means a Member of the Company who has at any time met the requirements of Section 3. (v) "Participation Year" shall have the meaning set forth in Section 3(a). -4- (w) "Plan" means this AT&T Capital Corporation Compensation Limit Excess Plan. (x) "Plan Administrator" means AT&T Capital. (y) "Recordkeeper" means Merrill Lynch Group Employee Services. (z) "RSP" means the AT&T Capital Corporation Retirement and Savings Plan. (aa) "Spouse" means any person who is legally recognized under applicable law as the spouse of a participant, provided that such person has been the participant's spouse for the continuous one-year period ending on the earlier of the Participant's (i) benefit commencement date, or (ii) date of death. (ab) "Vested Account" shall have the meaning set forth in Section 5. (ac) "Year of Service" means the completion of 12 consecutive months of service. For purposes of determining a Year of Service, a Member shall receive credit for the aggregate of all time periods commencing with the Member's first day of employment or reemployment and ending on the date a Break in Service -5- begins, and shall include service with the following: (A) the Company (including service at Encore International, Inc., Eaton Financial Corporation, United States Leasing International, Inc., and U.S. Instrument Rental prior to their acquisition by the Company), (B) AT&T, or any other entity while it was considered as a single employer with AT&T under Code Sections 414(b), (c), (m), or (o), before 1994, (C) AT&T Global Information Solutions Company before it was acquired by AT&T, and (D) any Employer after 1993. The first day of employment or reemployment is the first day the Member performs an Hour of Service for the Employer. 3. Eligibility to Participate. (a) Uniform Points Participant. A Member shall become a "Uniform Points Participant", and shall be entitled to receive an "Excess UPA Contribution" for any calendar year (a "Participation Year") in which such Member (i) is eligible to receive a uniform points contribution under the RSP, and (ii) has Excess -6- Compensation during the Fiscal Year ending in such Participation Year. (b) Matching Participant. A Member shall become a "Matching Participant", and shall be entitled to make Excess Deferrals and receive Matching Contributions in respect of any calendar year (a "Determination Year") in which such Member (i) is eligible to contribute to the RSP, (ii) has Excess Compensation, and (iii) had Excess Compensation during the calendar year immediately preceding such Determination Year. 4. Determination of Benefits. (a) Excess UPA Contributions. A Uniform Points Participant shall be eligible to receive a Company Uniform Points Allocation Contribution (an "Excess UPA") for any Participation Year in an amount equal to the product of (i) the Uniform Points Participant's uniform points percentage under the RSP for such Participation Year, and (ii) the Uniform Points Participant's Excess Compensation for the Fiscal Year ending in such Participation Year. -7- (b) Excess Deferrals and Matching Contributions. In any Determination Year, a Matching Participant may elect (on a form provided by the Plan Administrator for this purpose) to defer a portion of his Excess Compensation received during such Determination Year (an "Excess Deferral"). The amount of the Excess Deferral for any Determination Year shall be an integral percentage of such Excess Compensation, provided that the amount is no less than one (1%) percent and no more than six (6%) percent of such Excess Compensation. For any Determination Year in which a Matching Participant makes an Excess Deferral, the Company shall also contribute to the Account of the Participant an amount (a "Matching Contribution") equal to 66-2/3 cents for every dollar of such Excess Deferral. 5. Vesting. Participant shall be entitled to receive a distribution of the vested value of his Account ("Vested Account") as set forth in Section 6 above. If a Participant leaves the employ of the Company before he -8- becomes fully vested, such Participant will forfeit the value of the non-vested portion of his Account. (a) Excess Deferrals. A Participant is at all times 100% vested in the value of a Participant's Excess Deferrals (and related Interest). (b) Matching Contributions. Every Participant who was a Member of the Company as of December 31, 1993 shall be 100% vested at all times in the value of the Matching Contributions (and related Interest) credited to his Account. Every other Participant shall become 100% vested in the value of the Matching Contributions (and related Interest) credited to his Account as follows: (1) If the Participant became a Member of the Company before July 1 of the year in which he became a Member, then he shall be 100% vested on December 31 of such year (provided he is a Member on such date); (2) If the Participant became a Member of the Company on or after July 1 of the year in which he became a Member, he -9- shall be 100% vested on December 31 of the following year, (provided that he is a Member on such date). (c) Excess UPAs. Every Participant shall become vested in the value of the Excess UPAs (and related Interest) credited to his Account as follows: (1) If the Participant became a Member of the Company before July 1 of the year in which he became a Member, then he shall be 20% vested on December 31 of such year (provided he is a Member on such date); (2) If the Participant became a Member of the Company on or after July 1 of the year in which he became a Member, he shall be 20% vested on December 31 of the following year, (provided that he is a Member on such date); (3) Thereafter, the Participant shall become vested in an additional 20% on the December 31 following the completion of each additional Year of Service. -10- (d) Special Events. Notwithstanding paragraphs (a), (b), and (c) of this Section 5, a Participant shall become 100% vested in the value of his Account if the Plan is terminated, if there is a partial termination affecting such Participant, or if the Company permanently ceases contributions to the Plan, or upon a Change in Control of the Company as defined in the RSP. 6. Payment of Benefits. (a) Establishment of Account. The Recordkeeper shall establish an notional account on the books of the Company (the "Account") for each Participant under the Plan, and shall value each Account, in U.S. dollars, on a daily basis. All Excess UPAs, Excess Deferrals, and Matching Contributions made under the Plan shall be credited to the Participant's Account. Each Account shall be credited by the Administrative -11- Committee with interest at a rate equal to the rate of return on investments in the Merrill Lynch Government Fund, or any similar fund as determined by the Administrative Committee ("Interest"); provided, however, that upon a Participant's payment commencement date, Interest shall be fixed during any installment payment period. (b) Method of Payment. The value of the Participant's Vested Account shall be paid in cash to the Participant in 60 equal monthly installments, commencing on the first day of the month following the later of (i) the date on which the Participant attains age 65, and (ii) the Participant's Date of Termination. Notwithstanding the previous sentence, AT&T Capital may, in its sole discretion, distribute the value of a Participant's Vested Account in any form available under the RSP. In addition, if a Participant's Date of Termination precedes the date on which the Participant attains age 65, AT&T Capital may, in its sole discretion, commence distribution of the value of such Participant's Vested Account as of the first day of any month after the Participant's Date of Termination. 7. Death Benefits. Notwithstanding the provisions of Section 5, a Participant who dies while employed by the Company shall become automatically 100% -12- vested in the value of his Account. If a Participant dies before he has received the full value of his Vested Account, the balance of the Vested Account shall be paid in cash in a single lump sum payment to the Participant's Spouse, or if the Participant does not have a Spouse, to the Participant's beneficiary under the RSP. 8. Source of Payments. The benefits provided under the Plan shall be paid by the Company from a grantor trust established by the Company for the purpose of paying the benefits under the Plan, at the time and in the manner provided herein. To the extent that there are insufficient assets in such trust to pay benefits under the Plan, then the Company shall pay the benefits out of the general assets of the Company. 9. Nontransferability of Benefits. Benefits payable under the Plan shall not be subject to any manner of assignment, pledge, alienation or anticipation by a Participant, Spouse, or any other beneficiary. 10. Administration. Except where powers are specifically conferred in the Board or the Committee in the Plan, the Plan shall be administered on behalf of the Plan -13- Administrator by the Administrative Committee. The Administrative Committee may from time to time establish rules for the administration of the Plan that are consistent with the intent and purposes of the Plan, and which will aid in the prompt and efficient administration of the Plan. The Administrative Committee shall have complete discretionary authority to determine conclusively for all parties, and in accordance with the terms of the documents or instruments governing the Plan, any and all questions arising from administration of the Plan and interpretation of all plan provisions, determination of all questions relating to participation of eligible members and eligibility for benefits, determination of all relevant facts, the amount and type of benefits payable to any participant, and construction of all terms of the Plan. To the extent permitted by law, the Plan Administrator, the Administrative Committee and all agents and representatives of either of the foregoing shall be indemnified by the Company against any claims, and the expenses of defending against such claims, resulting from any action or conduct (not taken in bad faith) relating to the administration of the Plan. -14- 11. Amendment and Termination. The Committee reserves the right to modify, suspend, change, amend or terminate the Plan at any time. Subject to Section 5 with respect to Vested Accounts, AT&T Capital does not guarantee the continuation of any benefits during employment, nor does it guarantee any specific level of benefits. Nothing in the Plan shall interfere with or limit in any way the right of AT&T Capital to terminate any Participant's employment at any time, or confer upon any Participant any right to continue in the employ of the Company. 12. Withholding. The Company shall have the right to deduct from any payment under the Plan any amount required to satisfy its obligation to withhold federal, state and local taxes. 13. Governing Law. The Plan shall be governed and construed in accordance with the laws of the State of New Jersey. 14. Effective Date. The Plan shall be effective as of January 1, 1995. -15- EX-10 10 EXHIBIT 10(AB) EXHIBIT 10(ab) Form 10-k for 1995 File 1-11237 FIRST AMENDMENT TO THE AT&T CAPITAL CORPORATION COMPENSATION LIMIT EXCESS PLAN WHEREAS, AT&T Capital Corporation (the "Company") adopted the AT&T Capital Corporation Compensation Limit Excess Plan (the "Plan"), effective as of January 1, 1995; WHEREAS, Section 11 of the Plan provides that the Compensation Committee of the Board (the "Committee") may amend the Plan at any time and from time to time; and WHEREAS, the Committee has approved this amendment to the Plan; NOW, THEREFORE, the Plan is hereby amended in the following respects, effective as of October 2, 1995; 1. Section 5 of the Plan is amended by adding the following new paragraph (e): "(e) Notwithstanding anything to the contrary in this Section 5, upon a Change in Control (as defined below) a Participant shall have a fully vested interest in the Matching Contributions (and related Interest) and Excess UPAs credited to his or her Account. For purposes of this paragraph (e), the following terms shall be defined as follows: "AT&T Capital" means AT&T Capital Corporation and its successors and assigns. "Change in Control" means any of the following events: (1) An acquisition (other than in a "non-control transaction", as defined in clause (3) below) of any Voting Securities by any "person" or "group" of persons (as such terms are used in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than AT&T Capital, any Subsidiary or any employee benefit plan (or a trust forming a part thereof) maintained by AT&T Capital or any Subsidiary, as a result of which such person or group becomes, directly or indirectly, the "beneficial owner" (as such term is used in Section 13 of the Exchange Act) of Voting Securities representing fifteen percent (15%) or more of the combined voting power of all Voting Securities then outstanding; provided that no such acquisition shall be deemed to give rise to a Change in Control so long as, after giving effect to such acquisition, AT&T Corp. remains the beneficial owner of Voting Securities representing a greater percentage of the combined voting power of all Voting Securities then outstanding than is represented by the Voting Securities beneficially owned by such person or group; provided, however, that an acquisition of Voting Securities directly from AT&T Capital or any Subsidiary shall not be deemed to give rise to a Change in Control if, immediately prior to such acquisition, no person or group is directly or indirectly in "control" of AT&T Capital (as such term is defined in Rule 405 under the Securities Act of 1933, as amended); (2) The individuals who, as of January 1, 1995, are members of the Board of Directors of AT&T Capital (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board of the Directors of AT&T Capital; provided, however, that if the election or nomination for election by AT&T Capital's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for the purposes of this definition, be considered a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "election contest" (as described in Rule 14a-11 under the Exchange Act) or other actual or threatened solicitation of proxies or -2- consents by or on behalf of any person or group other than the Board of the Directors of AT&T Capital (a "proxy contest"), including by reason of any agreement intended to avoid or settle any election contest or proxy contest; (3) The consummation of: (i) a merger, consolidation or reorganization involving AT&T Capital, unless (A) the stockholders of AT&T Capital, immediately before such merger, consolidation or reorganization, own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation surviving such merger, consolidation or reorganization (the "surviving corporation") in substantially the same proportion as their ownership of the Voting Securities of AT&T Capital immediately prior to such merger, consolidation or reorganization, (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board of directors of the surviving corporation and (C) no person (other than AT&T Capital, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by AT&T Capital, the surviving corporation or any Subsidiary, or any person who, immediately prior to such merger, consolidation or reorganization had beneficial ownership of fifteen percent (15%) or more of the then outstanding Voting Securities of AT&T Capital) has beneficial ownership of fifteen percent (15%) or more of the combined voting power of the surviving corporation's then outstanding voting securities (a transaction meeting the criteria set forth in the foregoing clauses (A) through (C) being sometimes referred to herein as a "non-control transaction"); (ii) a complete liquidation or dissolution of AT&T Capital; or -3- (iii) an agreement for the sale or other disposition of all or substantially all of the assets of AT&T Capital to any person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred solely because any person or group becomes the beneficial owner of more than the permitted amount of the outstanding Voting Securities of AT&T Capital as a result of an acquisition of Voting Securities by AT&T Capital which, by reducing the number of Voting Securities outstanding, increases the proportional number of Voting Securities owned by such person or group; provided, that if (i) a Change in Control would have been deemed to have occurred but for the operation of this sentence as a result of such acquisition of Voting Securities by AT&T Capital and (ii) such person or group thereupon or thereafter becomes the beneficial owner of any additional Voting Securities resulting in an increase in the percentage of the then outstanding Voting Securities beneficially owned by such person or group (and which percentage is in excess of fifteen percent (15%)), then a Change in Control shall be deemed to have occurred at the time of such acquisition of beneficial ownership of such additional Voting Securities by such person or group. "Subsidiary" means (i) any person that is directly or indirectly controlled by AT&T Capital or (ii) any other person in which AT&T Capital has a significant equity interest, as determined by the Committee. "Voting Securities" means any shares of the capital stock or other securities of AT&T Capital that are generally entitled to vote in elections for directors." -4- SEPARATION AGREEMENT AND GENERAL RELEASE For purposes of this Separation Agreement and General Release, the "Company" shall mean AT&T Capital Corporation, and its respective subsidiaries and affiliated companies. In consideration of the fact that I, __________________ (the "Member") have voluntarily and of my own free will, elected to accept an enhanced payment (the "Enhanced Payment") and the Company has agreed to pay me an Enhanced Payment, I acknowledge and agree to the following: 1. I understand that as of ___________ (the "Date of Termination") my employment with the Company will terminate. 2. I have been advised by the Company that I am being terminated from the payroll pursuant to the terms of the AT&T Capital Corporation Leadership Severance Plan and that I am entitled to a severance payment, in addition to other post-employment benefits. I have also been told by the Company, and I understand, that I may elect, at my option, to receive an Enhanced Payment, but that my election to receive the Enhanced Payment is expressly conditioned upon my signing this Separation Agreement and General Release. The amount of the Enhanced Payment to be paid will be calculated by multiplying my Severance Payment by twenty percent (20%). I have elected to receive the Enhanced Payment in return for signing this Separation Agreement and General Release. I understand that the Enhanced Payment is being paid as consideration for my signing this Separation Agreement and General Release. 3. I also understand that [, PURSUANT TO THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990,] I have the right and am encouraged to consult with an attorney before signing this Separation Agreement and General Release, I have [45] [21] days to consider the General Release before signing it, and I may revoke the General Release within seven calendar days after signing it. I acknowledge that the Company has informed me of my rights set forth in the immediately preceding sentence. For revocation to be effective, written notice must be received by the Company no later than the close of business on the seventh day after I sign this Separation Agreement and General Release. I understand that this revocation can be made by delivering the written notice of revocation to the AT&T Capital Corporation, Director of Human Resources, 44 Whippany Road, Morristown, New Jersey 07960. 4. Subject to paragraph 5 below and in consideration of the Enhanced Payment provided for in this Separation Agreement and General Release, on behalf of myself, my heirs, executors, administrators, successors and assigns, I release and discharge the Company, its successors, assigns, subsidiaries, affiliates, directors, officers, representatives, agents and employees ("Releasees") from any and all debts, obligations, claims, including claims for attorney's fees and costs, charges, demands, judgments, actions and causes of action with respect to, or arising out of, my employment or termination of employment with the Company (collectively "Claims"). This includes, but is not limited to, Claims arising under federal, state, or local laws prohibiting age, color, race, gender, sexual preference/orientation, marital status, national origin, mental or physical disability, religious affiliation or veteran status or any other forms of discrimination including but not limited to Title VII of the Civil Rights Act of 1964, and the Age Discrimination in Employment Act, as amended, or Claims growing out of the Company's termination of its members. The Claims released also include all claims arising under the United States or any state constitutions; all claims arising under any Executive Order or derived from or based upon any federal regulations; all common law claims including claims for wrongful discharge, public policy claims, claims for breach of an express or implied contract, claims for breach of an implied covenant of good faith and fair dealing, whistleblower claims, claims for intentional infliction of emotional distress, negligent and/or intentional misrepresentation, defamation, and tortious interference with contract or prospective economic advantage; all claims for any compensation including back wages, front pay, fringe benefits, liquidated damages, or any other form of economic loss; and all claims for damages due to personal injury, including damages for mental anguish, emotional distress, pain and suffering, humiliation, and punitive damages. With respect to any charges that have been or may be filed concerning events or actions relating to my employment or the termination of my employment and which occurred on or before the date of this Agreement, I additionally waive and release any right I may have to recover in any lawsuit or proceeding brought by me, any administrative agency, or any other person on my behalf or which includes me in any class. I acknowledge that this Separation Agreement and General Release includes Claims that are both known and unknown, anticipated and unanticipated. If I breach this paragraph, I understand that I will be liable for all expenses, including costs and reasonable attorney's fees, incurred by any Releasee in defending the lawsuit or charge of discrimination, regardless of the outcome. I agree to pay such expenses within thirty (30) calendar days of written demand. This paragraph is not intended to limit me from instituting legal action for the sole purpose of enforcing this Agreement. [I FURTHER AGREE THAT AS PART OF THE CONSIDERATION AND INDUCEMENT FOR THE EXECUTION OF THIS AGREEMENT, I SPECIFICALLY WAIVE THE PROVISIONS OF SECTION 1542 OF THE CALIFORNIA CIVIL CODE WHICH READS AS FOLLOWS: THE GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED SETTLEMENT WITH THE DEBTOR. NOTWITHSTANDING THE PROVISIONS OF SECTION 1542, AND FOR THE PURPOSE OF IMPLEMENTING A FULL AND COMPLETE RELEASE AND DISCHARGE OF THE COMPANY, I ACKNOWLEDGE THAT THIS SEPARATION AGREEMENT AND GENERAL RELEASE IS INTENDED TO INCLUDE, WITHOUT LIMITATION, MY CLAIMS WHICH ARE KNOWN, ANTICIPATED OR DISCLOSED AS WELL AS MY CLAIMS THAT ARE UNKNOWN, UNANTICIPATED AND UNDISCLOSED.] 5. I understand that this Separation Agreement and General Release in no way affects any rights I may have for benefits under any applicable Company benefit plan. 6. In accordance with my existing and continuing obligations to the Company, I have returned or will immediately return to the Company, on or before the Date of Termination, all Company property, including, but not limited to, notes, keys, card keys or security passes, Company identification cards, credit or phone cards, files, records, computer access codes, computer programs, instruction manuals, business plans, and other property relating to the business of the Company. I understand and agree that after the Date of Termination, I will no longer be authorized to incur any expenses, obligations or liabilities on behalf of the Company. I will submit any claims or vouchers for reimbursement of business expenses on or before the Date of Termination. 7. I affirm my obligation to keep all proprietary or confidential Company information or work product confidential and not to disclose it to any third party in the future. I understand that the term "proprietary Company information" includes, but is not necessarily limited to, information which is technical, marketing (including customer lists), business, financial pricing or other information which constitutes trade secret information or information not available to competitors of the Company, the use or disclosure of which might reasonably be construed to be contrary to the interest of the Company. 8. I understand that the Company will pay to an outplacement services provider reasonable and documented fees for outplacement services rendered to me. 9. The construction, interpretation and performance of this Separation Agreement and General Release shall be governed by the laws of the state in which I am working on the Date of Termination. 10. I understand and agree that money damages are not a sufficient remedy for any actual or threatened breach of this Separation Agreement and General Release by me, and that, in addition to all other remedies, the Company will be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach. 11. In the event that any one or more of the provisions contained in this Separation Agreement and General Release shall for any reason be held to be unenforceable in any respect under the law of any state or of the United States of America, such unenforceability shall not affect any other provision but, with respect only to that jurisdiction holding the provision to be unenforceable, this Separation Agreement and General Release shall then be construed as if such unenforceable provision or provisions had never been contained herein. 12. This Separation Agreement and General Release contains the entire agreement between the Company and me and fully supersedes any and all prior agreements or understandings pertaining to the subject matter hereof. I represent and acknowledge that in executing this Separation Agreement and General Release I have not relied upon any representation or statement not set forth herein made by any of the Releasees or by any of the Releasee's agents, representatives or attorneys with regard to the subject matter hereof. BY SIGNING THIS SEPARATION AGREEMENT AND GENERAL RELEASE, I STATE THAT; I HAVE READ IT; I UNDERSTAND IT AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS; I AGREE WITH EVERYTHING IN IT; I AM AWARE OF MY RIGHT TO CONSULT AN ATTORNEY BEFORE SIGNING IT; AND I HAVE SIGNED IT KNOWINGLY AND VOLUNTARILY. - --------- -------------------------- Date: Member Signature -------------------------- Member Name Printed SEPARATION AGREEMENT AND GENERAL RELEASE-OTHER ELIGIBLE TERMINATION For purposes of this Separation Agreement and General Release, the "Company" shall mean AT&T Capital Corporation, and its respective subsidiaries and affiliated companies. In consideration of the fact that I, __________________ (the "Member") have voluntarily and of my own free will, elected to accept an enhanced payment (the "Enhanced Payment") and the Company has agreed to pay me an Enhanced Payment, I acknowledge and agree to the following: 1. I understand that as of ___________ (the "Date of Termination") my employment with the Company will terminate. 2. I have been advised by the Company that I am being terminated from the payroll pursuant to an "other eligible termination" under the terms of the AT&T Capital Corporation Leadership Severance Plan and that I am entitled to a severance payment (the "Severance Payment"), in addition to other post-employment benefits. I have also been told by the Company, and I understand, that I may elect, at my option, to receive an Enhanced Payment, but that my election to receive the Enhanced Payment is expressly conditioned upon my signing this Separation Agreement and General Release. The amount of the Enhanced Payment to be paid will be calculated by multiplying my Severance Payment by forty percent (40%). I have elected to receive the Enhanced Payment in return for signing this Separation Agreement and General Release. I understand that the Enhanced Payment is being paid as consideration for my signing this Separation Agreement and General Release. 3. I also understand that [, PURSUANT TO THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990,] I have the right and am encouraged to consult with an attorney before signing this Separation Agreement and General Release, I have 21 days to consider the General Release before signing it, and I may revoke the General Release within seven calendar days after signing it. I acknowledge that the Company has informed me of my rights set forth in the immediately preceding sentence. For revocation to be effective, written notice must be received by the Company no later than the close of business on the seventh day after I sign this Separation Agreement and General Release. I understand that this revocation can be made by delivering the written notice of revocation to the AT&T Capital Corporation, Director of Human Resources, 44 Whippany Road, Morristown, New Jersey 07960. 4. Subject to paragraph 5 below and in consideration of the Enhanced Payment provided for in this Separation Agreement and General Release, on behalf of myself, my heirs, executors, administrators, successors and assigns, I release and discharge the Company, its successors, assigns, subsidiaries, affiliates, directors, officers, representatives, agents and employees ("Releasees") from any and all debts, obligations, claims, including claims for attorney's fees and costs, charges, demands, judgments, actions and causes of action with respect to, or arising out of, my employment or termination of employment with the Company (collectively "Claims"). This includes, but is not limited to, Claims arising under federal, state, or local laws prohibiting age, color, race, gender, sexual preference/orientation, marital status, national origin, mental or physical disability, religious affiliation or veteran status or any other forms of discrimination including but not limited to Title VII of the Civil Rights Act of 1964, and the Age Discrimination in Employment Act, as amended, or Claims growing out of the Company's termination of its members. The Claims released also include all claims arising under the United States or any state constitutions; all claims arising under any Executive Order or derived from or based upon any federal regulations; all common law claims including claims for wrongful discharge, public policy claims, claims for breach of an express or implied contract, claims for breach of an implied covenant of good faith and fair dealing, whistleblower claims, claims for intentional infliction of emotional distress, negligent and/or intentional misrepresentation, defamation, and tortious interference with contract or prospective economic advantage; all claims for any compensation including back wages, front pay, fringe benefits, liquidated damages, or any other form of economic loss; and all claims for damages due to personal injury, including damages for mental anguish, emotional distress, pain and suffering, humiliation, and punitive damages. With respect to any charges that have been or may be filed concerning events or actions relating to my employment or the termination of my employment and which occurred on or before the date of this Agreement, I additionally waive and release any right I may have to recover in any lawsuit or proceeding brought by me, any administrative agency, or any other person on my behalf or which includes me in any class. I acknowledge that this Separation Agreement and General Release includes Claims that are both known and unknown, anticipated and unanticipated. If I breach this paragraph, I understand that I will be liable for all expenses, including costs and reasonable attorney's fees, incurred by any Releasee in defending the lawsuit or charge of discrimination, regardless of the outcome. I agree to pay such expenses within thirty (30) calendar days of written demand. This paragraph is not intended to limit me from instituting legal action for the sole purpose of enforcing this Agreement. [I FURTHER AGREE THAT AS PART OF THE CONSIDERATION AND INDUCEMENT FOR THE EXECUTION OF THIS AGREEMENT, I SPECIFICALLY WAIVE THE PROVISIONS OF SECTION 1542 OF THE CALIFORNIA CIVIL CODE WHICH READS AS FOLLOWS: THE GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED SETTLEMENT WITH THE DEBTOR. NOTWITHSTANDING THE PROVISIONS OF SECTION 1542, AND FOR THE PURPOSE OF IMPLEMENTING A FULL AND COMPLETE RELEASE AND DISCHARGE OF THE COMPANY, I ACKNOWLEDGE THAT THIS SEPARATION AGREEMENT AND GENERAL RELEASE IS INTENDED TO INCLUDE, WITHOUT LIMITATION, MY CLAIMS WHICH ARE KNOWN, ANTICIPATED OR DISCLOSED AS WELL AS MY CLAIMS THAT ARE UNKNOWN, UNANTICIPATED AND UNDISCLOSED.] 5. I understand that this Separation Agreement and General Release in no way affects any rights I may have for benefits under any applicable Company benefit plan. 6. In accordance with my existing and continuing obligations to the Company, I have returned or will immediately return to the Company, on or before the Date of Termination, all Company property, including, but not limited to, notes, keys, card keys or security passes, Company identification cards, credit or phone cards, files, records, computer access codes, computer programs, instruction manuals, business plans, and other property relating to the business of the Company. I understand and agree that after the Date of Termination, I will no longer be authorized to incur any expenses, obligations or liabilities on behalf of the Company. I will submit any claims or vouchers for reimbursement of business expenses on or before the Date of Termination. 7. I affirm my obligation to keep all proprietary or confidential Company information or work product confidential and not to disclose it to any third party in the future. I understand that the term "proprietary Company information" includes, but is not necessarily limited to, information which is technical, marketing (including customer lists), business, financial pricing or other information which constitutes trade secret information or information not available to competitors of the Company, the use or disclosure of which might reasonably be construed to be contrary to the interest of the Company. 8. I understand that the Company will pay to an outplacement services provider reasonable and documented fees for outplacement services rendered to me. 9. The construction, interpretation and performance of this Separation Agreement and General Release shall be governed by the laws of the state in which I am working on the Date of Termination. 10. I understand and agree that money damages are not a sufficient remedy for any actual or threatened breach of this Separation Agreement and General Release by me, and that, in addition to all other remedies, the Company will be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach. 11. In the event that any one or more of the provisions contained in this Separation Agreement and General Release shall for any reason be held to be unenforceable in any respect under the law of any state or of the United States of America, such unenforceability shall not affect any other provision but, with respect only to that jurisdiction holding the provision to be unenforceable, this Separation Agreement and General Release shall then be construed as if such unenforceable provision or provisions had never been contained herein. 12. This Separation Agreement and General Release contains the entire agreement between the Company and me and fully supersedes any and all prior agreements or understandings pertaining to the subject matter hereof. I represent and acknowledge that in executing this Separation Agreement and General Release I have not relied upon any representation or statement not set forth herein made by any of the Releasees or by any of the Releasee's agents, representatives or attorneys with regard to the subject matter hereof. BY SIGNING THIS SEPARATION AGREEMENT AND GENERAL RELEASE, I STATE THAT; I HAVE READ IT; I UNDERSTAND IT AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS; I AGREE WITH EVERYTHING IN IT; I AM AWARE OF MY RIGHT TO CONSULT AN ATTORNEY BEFORE SIGNING IT; AND I HAVE SIGNED IT KNOWINGLY AND VOLUNTARILY. - --------- -------------------------- Date: Member Signature -------------------------- Member Name Printed EX-10 11 EXHIBIT 10(AC) EXHIBIT 10(ac) Form 10-K for 1995 File No. 1-11237 AT&T CAPITAL CORPORATION LEADERSHIP SEVERANCE PLAN The purpose of the AT&T Capital Corporation Leadership Severance Plan is to provide severance benefits to certain of the management employees of AT&T Capital Corporation (the "Company") and its Subsidiaries. The Compensation Committee of the Board of Directors of the Company has also determined that it is in the best interests of the Company and its stockholders to secure the continued services and dedication and objectivity of its management employees in light of the potential occurrence of a Change in Control (as defined in Section 1(d)) of the Company, without concern as to whether such employees might be hindered or distracted by personal uncertainties and risks created by any such potential Change in Control. 1. Definitions. As used in this Plan, the following terms shall have respective meanings set forth below: -1- (a) "AT&T" means AT&T Corp., a New York corporation. (b) "Board" means the Board of Directors of the Company. (c) "Cause" means (i) a Participant's commission or conviction of a felony (or guilty or nolo contendere plea in connection therewith); (ii) a determination by the Board or the Committee that a Participant has defrauded the Company; or (iii) a determination by the Board or the Committee that a Participant has committed a material breach of the duties and responsibilities of the Participant that has caused significant adverse harm to the Company, which breach is (A) demonstrably willful and deliberate, (B) committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and (C) not remedied within a reasonable period of time after receipt of written notice from the Company specifying such breach. (d) "Change in Control" means any of the following: -2- (i) An acquisition (other than in a non-control transaction, as defined in clause (iii) below) of any Voting Securities by any "person" or "group" of persons (as such terms are used in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than the Company, any Subsidiary or any employee benefit plan (or a trust forming a part thereof) maintained by the Company or any Subsidiary, as a result of which such person or group becomes, directly or indirectly, the "beneficial owner" (as such term is used in Section 13 of the Exchange Act) of Voting Securities representing fifteen percent (15%) or more of the combined voting power of all Voting Securities then outstanding; provided that no such acquisition shall be deemed to give rise to a Change in Control so long as, after giving effect to such acquisition, AT&T remains the beneficial owner of Voting Securities representing a greater percentage of the combined voting power of all Voting Securities then outstanding than is represented by the Voting -3- Securities beneficially owned by such person or group; and provided, further, that an acquisition of Voting Securities directly from the Company or any Subsidiary shall not be deemed to give rise to a Change in Control if, immediately prior to such acquisition, no person or group is directly or indirectly in "control" of the Company (as such term is defined in Rule 405 under the Securities Act of 1933, as amended). -4- (ii) The individuals who, as of the Effective Date, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for the purposes of this definition, be considered a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "election contest" (as described in Rule 14a-11 under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of any person or group other than the Board (a "proxy contest"), including by reason of any agreement intended to avoid or settle any election contest or proxy contest; -5- (iii) The approval by the requisite vote of the Company's stockholders of: -6- (A) a merger, consolidation or reorganization involving the Company, unless (1) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation surviving such merger, consolidation or reorganization (the "surviving corporation") in substantially the same proportion as their ownership of the Voting Securities of the Company immediately prior to such merger, consolidation or reorganization, (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members -7- of the board of directors of the surviving corporation and (3) no person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the surviving corporation or any Subsidiary, or any person who, immediately prior to such merger, consolidation or reorganization had beneficial ownership of fifteen percent (15%) or more of the then outstanding Voting Securities of the Company) has beneficial ownership of fifteen percent (15%) or more of the combined voting power of the surviving corporation's then outstanding voting securities (a transaction meeting the criteria set forth in the foregoing clauses (1) through (3) being sometimes referred to herein as a "non-control transaction"); (B) a complete liquidation or dissolution of the Company; or -8- (C) an agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred solely because any person or group becomes the beneficial owner of more than the permitted amount of the outstanding Voting Securities of the Company as a result of an acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of Voting Securities owned by such person or group, provided that if (i) a Change in Control would have been deemed to have occurred but for the operation of this sentence as a result of such acquisition of Voting Securities by the Company and (ii) such person or group thereupon or thereafter becomes the beneficial owner of any additional Voting Securities resulting in an increase in the percentage of the then outstanding Voting Securities beneficially owned by such person or group (and which percentage is in excess of -9- fifteen percent (15%)), then a Change in Control shall be deemed to have occurred at the time of such acquisition of beneficial ownership of such additional Voting Securities by such person or group. (e) "Committee" means the Compensation Committee of the Board. (f) "Company" means AT&T Capital Corporation, a Delaware corporation. (g) "Compensation" means a Participant's then current annual rate of base salary as of his Date of Termination and his target annual incentive award for the year in which his Date of Termination occurs (not taking into account any reductions that would constitute a reason for a Qualifying Termination) and commissions actually paid during the twelve (12) months immediately preceding the Date of Termination. (h) "Continuous Service" means the Participant's continuous service with the Company (and any of its Subsidiaries), plus any periods of continuous service with AT&T or NCR Corporation (or AT&T Global Information Solutions, Inc.) -10- prior to January 1, 1994 and any periods of prior service that have been designated as "vesting service" under the AT&T Capital Corporation Retirement and Savings Plan. For purposes of the Plan, Continuous Service shall be measured as of a Participant's Date of Termination, including any notice period provided for in Section 8 of the Plan. (i) "Date of Termination" means the date on which a Participant's employment with the Company terminates. (j) "Disability" means, with respect to a Participant, a determination by the Committee that such Participant has become "disabled" within the meaning of the Company's long-term disability plan as in effect at the time. (k) "Effective Date" means October 2, 1995. (l) "Final Annual Pay" means the higher of (i) the sum of a Participant's then current rate of annual base salary as of his Date of Termination and 110% of target annual incentive for the year in which a Date of Termination occurs (not taking into account any reduction that would constitute a basis for a Qualifying Termination) and -11- commissions actually paid during the twelve (12) months immediately preceding the Date of Termination and (ii) the quotient equal to (A) the sum of a Participant's (1) annual rate of base salary (not taking into account any reduction that would constitute a basis for a Qualifying Termination), (2) actual annual incentive payment earned and (3) commissions actually paid during the three (3) consecutive calendar years preceding the Participant's Date of Termination in which he had the greatest aggregate earnings, divided by (B) three (3) ("Average Earnings"). If a Participant has less than three (3) calendar years of employment with the Company, his Average Earnings shall be the average amount of his annual rate of base salary (prorated for any partial calendar year) and actual annual incentive payment earned and commissions actually paid for the relevant employment period. (m) "Other Eligible Termination" means a termination of a Participant's employment by the Company (other than for Cause, Disability or Retirement), that is not an RIF Termination. -12- (n) "Participant" means each employee of the Company or any Subsidiary who is classified as a "strategic system" member (other than a Corporate Leadership Team member or a Leadership Forum member) or any equivalent classification as determined from time to time by the Corporate Leadership Team (or any successor organization) of the Company (a "Strategic Member"), a Leadership Forum member or a Corporate Leadership Team member (or any successor classifications to such classifications) who has not been given a written notice of termination prior to the Effective Date. Payments and benefits under the Plan will be determined based upon such classification as of the Participant's Date of Termination (not taking into account any reduction of classification at any time following the Effective Date which, if such reduction occurred during the two (2) year period following a Change in Control, would constitute a reason for a Qualifying Termination under the Plan). Attached as Exhibit A is a list of Participants as of the Effective Date. -13- (o) "Plan" means the AT&T Capital Corporation Leadership Severance Plan. (p) "Qualifying Termination" of the employment of a Participant with the Company and any relevant Subsidiaries in connection with a Change in Control means any of the following: (i) A termination of a Participant's employment by the Company and its Subsidiaries within two (2) years after a Change in Control, other than a termination for Cause; (ii) A termination of employment by a Participant within two (2) years after such Change in Control for one or more of the following reasons: (A) The assignment to such Participant of any duties inconsistent, in a way significantly adverse to such Participant, with such Participant's positions, duties, responsibilities and status with the Company and its Subsidiaries immediately prior to such Change in Control, or a significant reduction in the duties and responsibilities held by such Participant -14- immediately prior to such Change in Control; a change in such Participant's reporting responsibilities, title or offices as in effect immediately prior to such Change in Control that is significantly adverse to the Participant; or any removal of such Participant from or any failure to re-elect such Participant to any position with the Company or any such Subsidiary that such Participant held immediately prior to such Change in Control except in connection with such Participant's promotion or a termination of employment for Cause (or in the case of Retirement, death or Disability); or (B) A reduction by the Company or its Subsidiaries in such Participant's annual base salary or target annual incentive as in effect immediately prior to such Change in Control, or as the same may be increased from time to time thereafter; the failure by the Company and such Subsidiaries to continue in effect any employee benefit plan or compensation plan in which such Participant was participating immediately prior to such Change in Control unless such Participant is -15- permitted to participate in other plans providing substantially comparable benefits to such Participant; or the taking of any action by the Company or its Subsidiaries that which would adversely affect such Participant's participation in or materially reduce such Participant's benefits under any such plan; or (C) The Company or its Subsidiaries requiring such Participant to be based anywhere other than such Participant's present work location or a location within twenty-five (25) miles from such present location; or the Company or its Subsidiaries requiring such Participant to travel on company business to an extent substantially more burdensome than such Participant's travel obligations immediately prior to such Change in Control; provided that, in the case of any such termination of employment by the Participant pursuant to paragraphs (A), (B) or (C), above, such termination shall not be deemed to be a Qualifying Termination unless notice of such termination occurs within ninety (90) days after the -16- Participant receives notice of the occurrence of the events constituting the reason for such termination; or (iii) A termination of a Participant's employment by the Company or its Subsidiaries or by the Participant pursuant to one of the reasons for termination set forth in paragraph (ii) above within one (1) year prior to such Change in Control, other than a termination for Cause, if the Participant can demonstrate that such termination or reason for termination (A) was at the request of a third party with which AT&T or its subsidiaries (other than the Company and its Subsidiaries to the extent that they are not directly or indirectly controlled by AT&T at the time) had entered into negotiations or an agreement with regard to such Change in Control or (B) otherwise occurred in connection with, or in anticipation of, such Change in Control, provided that, in either such case, such Change in Control actually occurs, and provided, further, that the reason for termination set forth in paragraph (ii) above occurred on or subsequent to the Effective Date. -17- In the event that upon a Change in Control the Company ceases to be a publicly traded corporation, such event will not, in and of itself, constitute a reason for a Qualifying Termination under paragraph (ii) above unless one of the reasons set forth in paragraphs (A), (B) or (C), above occurs. For purposes of this Plan, a termination of a Participant's employment by the Company or the Participant on account of the Participant's death, Disability or Retirement shall not constitute a Qualifying Termination. (q) "Retirement" means the voluntary retirement of a Participant pursuant to a retirement plan of the Company or any relevant Subsidiary. (r) "RIF Termination" means the termination of a Participant's employment (i) by the Company as a result of a reduction in force, change in operations, facility relocation or closing, or other job elimination, whether or not related to a Change in Control, or (ii) pursuant to a Qualifying Termination. (s) "Subsidiary" means (i) any person that is directly or indirectly controlled by the Company or (ii) any -18- other person in which the Company has a significant equity interest, as determined by the Committee. (t) "Voting Securities" means any shares of the capital stock or other securities of the Company that are generally entitled to vote in elections for directors. 2. Payments and Benefits Upon an RIF Termination. In the event a Participant's employment is terminated as a result of an RIF Termination, the Company will provide to such Participant the following payments and benefits: -19- (a) Within five (5) days following the Participant's Date of Termination, the Company will pay to such Participant a lump sum cash payment equal to the greater of (i) two (2) weeks' Compensation for each full year of Continuous Service and (ii) the percentage of such Participant's Final Annual Pay set forth below (the "Severance Payments"): (A) for Strategic Members (other than Leadership Forum members), 100% of Final Annual Pay; (B) for Leadership Forum members (other than Corporate Leadership Team members), 150% of Final Annual Pay; and (C) for Corporate Leadership Team members, 200% of Final Annual Pay. (b) (i) Within five (5) days following the Participant's Date of Termination, the Company shall provide to the Participant a lump sum cash payment (the "Benefits Payments") in an amount equal to 135% of the Participant's premium (determined as of the Date of Termination) required to obtain "COBRA" continued health and dental coverage -20- (under Section 4980B of the Internal Revenue Code of 1986, as amended (the "Code")) for the "continuation periods" set forth below (each continuation period shall begin on the first day of the calendar month following the month in which such Participant's Date of Termination occurs); provided, however, that if such continuation period exceeds the period of continuation coverage provided pursuant to COBRA, the Participant shall receive as part of such lump sum payment the cost of the remaining months' coverage as it would be calculated had COBRA applied: ============================================== ================ Strategic Members 12 months ============================================== ================ Leadership Forum Members 18 months ============================================== ================ Corporate Leadership Team Members 24 months ============================================== ================
(ii) In addition, during the continuation periods indicated above, (A) the Company shall provide life insurance coverage in the amount of one (1) times Pay (as such term is defined in the Company's Life and Accidental Loss Insurance Plan, or any comparable definition contained in a replacement or successor plan (the "Life Insurance -21- Plan")) to the Participant ("Basic Life Insurance"), and (B) if a Participant was receiving prior to his Date of Termination supplemental life insurance coverage under the Life Insurance Plan in addition to Basic Life Insurance ("Supplemental Life Insurance"), such Participant may elect to continue such Supplemental Life Insurance by paying the difference between the cost of providing Supplemental Life Insurance and the cost of providing Basic Life Insurance. If a Participant elects to continue Supplemental Life Insurance, the cost will be deducted from such Participant's Benefits Payments hereunder. All benefits granted, payable or otherwise available to Leadership Forum members and Corporate Leadership Team members under the Company's Financial Counseling Plan and Executive Car Plan shall continue for a period of one (1) year from the Participant's Date of Termination. -22- (c) Within five (5) days following the Participant's Date of Termination, the Company will pay to such Participant a lump sum cash payment equal to the sum of (i) the Participant's base salary to the extent earned but not theretofore paid, (ii) any earned, but unpaid, bonus, (iii) the value of such Participant's accrued, but unused, vacation, personal days and floating holidays (including days permitted to be carried forward from the prior year) and (iv) any other amounts due and owing to the Participant by the Company. 3. Payments and Benefits Upon an Other Eligible Termination. In the event a Participant's employment is terminated as a result of an Other Eligible Termination, the Company will provide to such Participant the following payments and benefits: (a) Within five (5) days following the Participant's Date of Termination, the Company will pay to such Participant a lump sum cash payment equal to the greater of (i) one (1) week's Compensation for each full year of Continuous Service and (ii) the percentage of such -23- Participant's Final Annual Pay set forth below (the "Severance Payments"): (A) for Strategic Members (other than Leadership Forum members), 50% of Final Annual Pay; (B) for Leadership Forum members (other than Corporate Leadership Team members), 100% of Final Annual Pay; and (C) for Corporate Leadership Team members, 150% of Final Annual Pay. (b) (i) Within five (5) days following the Participant's date of Termination, the Company shall provide to the Participant a lump sum cash payment (the "Benefits Payments") in an amount equal to 135% of the Participant's premium (determined as of the Date of Termination) required to obtain "COBRA" continued health and dental coverage (under Section 4980B of the Code) for the following "continuation periods" (each continuation period shall begin on the first day of the calendar month following the month in which such Participant's Date of Termination occurs): -24- ================================================ ============== Strategic Members 6 months ================================================ ============== Leadership Forum Members 12 months ================================================ ============== Corporate Leadership Team Members 18 months ================================================ ==============
(ii) In addition, during the continuation periods indicated above, (A) the Company shall provide Basic Life Insurance to the Participant and (B) if a Participant was receiving Supplemental Life Insurance coverage prior to his Date of Termination, such Participant may elect to continue such Supplemental Life Insurance by paying the difference between the cost of providing Basic Life Insurance and the cost of providing Supplemental Life Insurance. If a Participant elects to continue Supplemental Life Insurance, the cost will be deducted from such Participant's Benefits Payments hereunder. (c) Within five (5) days following the Participant's Date of Termination, the Company will pay to such Participant a lump sum cash payment equal to the sum of (i) the Participant's base salary to the extent earned but not theretofore paid, (ii) any earned, but unpaid, bonus, -25- (iii) the value of such Participant's accrued, but unused, vacation, personal days and floating holidays (including days permitted to be carried forward from the prior year) and (iv) any other amounts due and owing to the Participant by the Company. 4. Events Prior to and Unrelated to a Change in Control. Notwithstanding anything contained herein to the contrary, in the event of a sale of a division or unit of the Company prior to a Change in Control, provided that such sale is not made at the request of a third party with which AT&T or its subsidiaries (other than the Company and its Subsidiaries to the extent that they are not directly or indirectly controlled by AT&T at the time) had entered into negotiations or an agreement with regard to a Change in Control, or has not otherwise occurred in connection with, or in anticipation of, a Change in Control, such sale shall not result in an RIF Termination or an Other Eligible Termination with respect to any affected Participant, and no such Participant shall be eligible to receive the Severance Payments or benefits provided under Section 2 or 3 of -26- the Plan if such Participant is offered another reasonably comparable position with reasonably comparable compensation with the acquiring or resulting company in the same general geographic area as such Participant's then current position ("Comparable Employment"). Notwithstanding the foregoing, if such Participant's Comparable Employment with the acquiring or resulting company is terminated by such company (other than pursuant to a reason which would constitute Cause, Disability or Retirement hereunder) within six (6) months from his Date of Termination with respect to the Company, the Company will provide (a) any Severance Payments (less the amount of salary, bonuses, commissions and severance payments paid by the acquiring or resulting company) and (b) Benefits Payments and continued Basic Life Insurance (less the number of months he was provided with such benefits by the acquiring or resulting company) that the Participant would have been entitled to on his Date of Termination. 5. Certain Additional Payments by the Company and Payment Limitations. (a) Anything in this Plan to the -27- contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or any of its affiliates to or for the benefit of a Participant who is a Corporate Leadership Team member or Leadership Forum member (whether paid or payable or distributed or distributable pursuant to the terms of this Plan, any of the Company's other compensation, severance, share ownership or benefit plans or otherwise, but determined without regard to any additional payments required under this Section 5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or imposed by any other taxing authority, or any interest or penalties are incurred by the Participant with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Participant shall be entitled to receive an additional payment (a "Gross-Up Payment"), no later than twenty (20) days following such Payment in an amount such that after payment by the Participant of all taxes (and any interest and penalties imposed with respect -28- thereto) including, without limitation, any income and employment taxes and Excise Tax, imposed upon the Gross-Up Payment, the Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All federal, state and local income and employment tax calculations shall be based upon the maximum marginal rates then in effect. (b) All determinations required to be made under this Section 5 shall be made by the Company's public accounting firm that is performing such services immediately prior to a Change in Control. Such determination shall be made no later than fifteen (15) days following any Payment. Such accounting firm shall provide its determination to the Participant and the Company. If the accounting firm determines that no Excise Tax is payable by the Participant, it shall furnish the Participant with a written opinion to such effect. (c) Notwithstanding the foregoing, in the event that the amount of the Participant's Excise Tax liability is subsequently determined to be greater than the Excise Tax -29- liability with respect to which the Gross-Up Payment under Section 5(a) was made, the Company shall pay to the Participant an additional Gross-Up Payment with respect to such additional Excise Tax (and any interest and penalties thereon) at the time that the amount of the actual Excise Tax liability is finally determined. (d) The Participant and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax and the expenses of any such proceedings shall be borne solely by the Company. (e) While the foregoing provisions of Section 5(a)-(d) do not apply to Strategic Members, all payments made under this Plan to Strategic Members shall be subject to the provisions of the AT&T Capital Corporation Employee Compensation Adjustment Plan, as in effect from time to time. 6. Enhanced Payments. Any Participant who signs a Separation Agreement and General Release prepared by the -30- Company (substantially in the form attached hereto as Annex A) in connection with a termination of employment under this Plan shall receive an additional lump sum payment, within thirty (30) days following such Participant's execution of a Separation Agreement and General Release, equal to (a) in the event of an RIF Termination, 20% of the Severance Payment to which such Participant is entitled or (b) in the event of an Other Eligible Termination, 40% of the Severance Payment to which such Participant is entitled. 7. Outplacement Services. The Company will provide Participants with reasonable outplacement services commensurate with such Participant's position in the event of an RIF Termination or an Other Eligible Termination. 8. Notice of Termination. (a) RIF Termination. Each Participant who is entitled to a Severance Payment in connection with an RIF Termination shall receive written notice of termination from the Company at least ninety (90) days prior to the Participant's Date of Termination. -31- (b) Other Eligible Termination. Each Participant who is entitled to a Severance Payment pursuant to an Other Eligible Termination shall receive written notice of termination from the Company at least four (4) weeks prior to the Date of Termination. (c) Certain Terminations by Participants. A Participant who is terminating employment pursuant to one of the reasons set forth in Section 1(p)(ii) shall provide the Company with written notice of termination of at least fifteen (15), but no more than ninety (90), days. Such notice shall be provided at any time during the 90-day period set forth in Section 1(p)(ii). (d) Termination by the Company Following a Change in Control. Notwithstanding anything to the contrary contained in paragraphs (a) and (b) above, following a Change in Control, the minimum applicable notice period for termination of employment by the Company or any of its Subsidiaries for any reason (or without reason) for (i) Corporate Leadership Team members, (ii) Leadership Forum members as of the Effective Date and (iii) any other person -32- who becomes a Leadership Forum member after the Effective Date but prior to the date of the Change in Control, shall be the greater of (A) 90 days prior to such Participant's Date of Termination or (B) the number of days from such notice through September 2, 1996. (e) Payment in Lieu of Notice. Notwithstanding the foregoing, the Company may, in its sole discretion, remove the Participant from the Company's payroll (and such date of removal shall be the Participant's Date of Termination) and provide the following payments in lieu of providing notice hereunder or receiving the Participant's notice: (i) an amount equal to the sum of (A) the Participant's base salary as of his Date of Termination (not taking into account any reductions that would constitute a reason for a Qualifying Termination) for the remaining applicable notice period and (B) (1) commissions actually earned by the Participant for the twelve (12) months immediately preceding the Participant's Date of Termination, divided by (2) 52.2, and (3) multiplied by the applicable number of weeks of notice, and (ii) in addition to any -33- Benefits Payments owed hereunder, 100% of such Participant's COBRA premiums (determined as of the Date of Termination) for the applicable period of notice. Notwithstanding anything to the contrary set forth in this Section 8(e) above, this provision shall not apply prior to September 3, 1996 to any termination of employment of any of the Participants described in Section 8(d)(i), (ii) or (iii) following a Change in Control. (f) General. Each notice of termination under the Plan shall specify the category of such termination (i.e., an RIF Termination or an Other Eligible Termination) and shall be provided (by mail, hand delivery or facsimile) to the Participant at his last known address in the Company's records or at his place of employment or to the Company at its corporate headquarters (attention Vice President, Human Resources), as the case may be. Each Participant on a leave of absence or on disability leave during the applicable notice period will remain on the Company's payroll for a minimum of thirty (30) days following such Participant's return from such leave. In the event -34- that, following the delivery of a notice of termination by a Participant or the Company, the Participant's employment terminates for a reason other than that specified in the applicable notice of termination, the Participant's right to receive any applicable Severance Payment or Benefits Payment described in Section 2 or 3 of the Plan shall be based upon the reason specified in the original notice of termination of employment, and the Company shall have no obligation to continue the Participant on its payroll after such Participant's Date of Termination. 9. Transfers. If a Participant accepts a transfer to a position within the Company or any Subsidiary within the notification period of Section 8, such Participant will not be treated as being terminated pursuant to an RIF Termination or Other Eligible Termination. 10. Withholding Taxes. The Company may withhold from all payments due to a Participant (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. -35- 11. Reimbursement of Expenses. If any contest or dispute shall arise under this Plan involving termination of a Participant's employment with the Company, and it is finally determined by a court of competent jurisdiction that the Company failed or refused to perform fully in accordance with the terms hereof, the Company shall reimburse the Participant for all reasonable legal fees and expenses incurred by the Participant in connection with such contest or dispute, together with interest in an amount equal to the prime rate of Citibank, N.A. from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law. Such interest shall accrue from the date the Company receives the Participant's statement for such fees and expenses through the date of payment therefor. 12. Termination or Amendment of Plan. (a) This Plan shall be in effect as of the Effective Date and shall continue until terminated by the Company as provided in paragraph (b) of this Section 12. -36- (b) The Company shall have the right prior to a Change in Control, in its sole discretion, pursuant to action by the Board or the Committee, to approve the termination or amendment of this Plan; provided, however, that no such action which would adversely affect the rights or potential rights of Participants shall be taken by the Board or the Committee (i) during any period of time when the Board or the Committee, as the case may be, has knowledge that any person (including AT&T) has taken steps reasonably calculated to effect a Change in Control of the Company (a "Possible Change in Control") until in the opinion of the Board or the Committee such Possible Change in Control is no longer a reasonable possibility or (ii) within twelve (12) months following the date that such Change in Control ceases to exist; and provided, further, that in no event shall this Plan be terminated or amended within the twenty-seven (27) month period following a Change in Control in any manner which would adversely affect the rights or potential rights of Participants. -37- 13. Scope of Plan. Nothing in this Plan shall be deemed to entitle any Participant to continued employment with the Company or its Subsidiaries. 14. Successors; Binding Obligation. (a) This Plan shall not be terminated by any merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company or a purchase of the securities of the Company. In the event of any such merger, consolidation, transfer of assets or purchase, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation, transfer of assets or purchase of the securities of the Company referred to in paragraph (a) of this Section 14, it will cause any successor or transferee unconditionally to assume all of the obligations of the Company hereunder. -38- (c) This Plan shall inure to the benefit of and be enforceable by each Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If a Participant shall die while any amounts would be payable to the Participant hereunder had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant's estate. 15. Full Settlement; Resolution of Disputes. -39- (a) The Company's obligation to make any payments provided for by this Plan to a Participant and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Participant or others. In no event shall a Participant be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and such amounts shall not be reduced whether or not the Participant obtains other employment. (b) If there shall be any dispute between the Company and a Participant in the event of any termination of the Participant's employment then unless and until there is a judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the determination by the Participant of the existence of a basis for a Qualifying Termination was not made in good faith, or that the Company was not otherwise obligated to pay any amount or provide any benefit to the Participant and his dependents or -40- other beneficiaries, as the case may be, as a result of an RIF Termination or Other Eligible Termination, the Company shall pay all amounts, and provide all benefits, to the Participant and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide under the Plan as though such termination were by the Company without Cause, or by the Participant pursuant to a Qualifying Termination and/or as a result of an RIF Termination or Other Eligible Termination, as the case may be. The Company shall not, however, be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking by or on behalf of the Participant to repay all such amounts to which the Participant is ultimately adjudged by such court not to be entitled. 16. Employment with Subsidiaries. Employment with the Company for purposes of this Plan shall include employment with any of its Subsidiaries. 17. Other Severance Payments. All Severance Payments due under the Plan (whether related to an RIF Termination or an Other Eligible Termination) shall be in -41- addition to any other amounts payable under any other plan of the Company, but shall be reduced by the present value of any severance payments required to be paid to a member whose work location is outside the United States pursuant to any non-U.S. statute, regulation, law or plan. 18. Governing Law; Validity. The interpretation, construction and performance of this Plan shall be governed by and construed and enforced in accordance with the internal laws of the State of New Jersey without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provisions shall remain in full force and effect. 19. Administration. The Company shall be the "Plan Administrator" of the Plan, but the Plan shall be administered on the Company's behalf by the Company's Vice President--Human Resources and General Counsel. The Plan Administrator shall make the rules and regulations necessary to administer the Plan and shall have the responsibility and -42- discretionary authority to interpret the terms of the Plan, determine eligibility for benefits and to determine the amounts of such benefits. Appeals of decisions and interpretations by the Plan Administrator may be made by Participants to the Company's Corporate Leadership Team (the "Committee") or any designated subcommittee thereof. In the event a decision must be made with respect to a specific claim or benefit of either the Vice President-Human Resources or the General Counsel, such person shall not be involved in any such decision. No member of the Committee shall participate in any appeal with respect to his benefits hereunder. To the extent permitted by law, all agents and representatives of the Plan Administrator shall be indemnified by the Company against any claims, and the expenses of defending against such claims, resulting from by action or conduct (not taken in bad faith) relating to the administration of the Plan. -43- AT&T Capital Corporation EXHIBIT A Leadership Severance Plan Participants Page 1 of 4
- ---------------------------------------------------------------- UNIT TITLE/DEPT. GROUP NAME - ---------------------------------------------------------------- - ---------------------------------------------------------------- Capital CEO CLT Wajnert, Tom --------------------------------------------- --------------------------------------------- CBL CLT Rothman, Irv --------------------------------------------- --------------------------------------------- CBL CLT Van Sickle, Charles --------------------------------------------- --------------------------------------------- CSL CLT Dwyer, Ed --------------------------------------------- --------------------------------------------- CSL CLT Morey, Ruth --------------------------------------------- --------------------------------------------- CSL CLT McCarthy, Dan --------------------------------------------- --------------------------------------------- - ---------------------------------------------------------------- --------------------------------------------- CSUs Corp. Comm. LF Zachary, Carolyn --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- Corp. Dev. LF Sadeghi, Mani --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- Finance LF Gerard, Valerie --------------------------------------------- --------------------------------------------- Finance LF Hesselink, Ann --------------------------------------------- --------------------------------------------- Finance LF Oliu, Ray --------------------------------------------- --------------------------------------------- Finance LF Pfister, Judy --------------------------------------------- --------------------------------------------- Finance LF Votek, Glenn --------------------------------------------- --------------------------------------------- Finance Cornelison, Rich --------------------------------------------- --------------------------------------------- Finance Doomany, Rich --------------------------------------------- --------------------------------------------- Finance Greco, George --------------------------------------------- --------------------------------------------- Finance Kettenstock, Liz --------------------------------------------- --------------------------------------------- --------------------------------------------- HR LF McAuley, Sara --------------------------------------------- --------------------------------------------- HR Hays, Jake --------------------------------------------- --------------------------------------------- HR Smith, Janet --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- IMM Dell, Brent --------------------------------------------- --------------------------------------------- IMM LF Miltenberger, Ken --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- OD LF Henry, Ann --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- Risk Management LF DeBernardi, Mike --------------------------------------------- --------------------------------------------- Risk Management LF Ingato, Bob --------------------------------------------- --------------------------------------------- Risk Management LF Law, Lyn --------------------------------------------- --------------------------------------------- Risk Management LF Lucas, Bill --------------------------------------------- --------------------------------------------- Risk Management Nosofsky, Joe --------------------------------------------- --------------------------------------------- Risk Management Storrs, Dave --------------------------------------------- --------------------------------------------- - ---------------------------------------------------------------- - ---------------------------------------------------------------- Automotive LF Chadwick, Skeet --------------------------------------------- --------------------------------------------- Hare, Greg --------------------------------------------- --------------------------------------------- Kagan, Eric --------------------------------------------- --------------------------------------------- Laleker, Bill --------------------------------------------- --------------------------------------------- Noonan, Jim --------------------------------------------- --------------------------------------------- Steger, Pete --------------------------------------------- --------------------------------------------- Taibi, Charlie --------------------------------------------- ---------------------------------------------
AT&T Capital Corporation EXHIBIT A Leadership Severance Plan Participants Page 2 of 4
- ---------------------------------------------------------------- UNIT TITLE/DEPT. GROUP NAME - ---------------------------------------------------------------- - ---------------------------------------------------------------- Business Finance LF Canning, John --------------------------------------------- --------------------------------------------- Bennett, Joe --------------------------------------------- --------------------------------------------- Chobot, John --------------------------------------------- --------------------------------------------- Huston, Julie --------------------------------------------- --------------------------------------------- Lam, Danny --------------------------------------------- --------------------------------------------- Langworthy, Rich --------------------------------------------- --------------------------------------------- Neagle, Bob --------------------------------------------- --------------------------------------------- Rumpolo, Joe --------------------------------------------- --------------------------------------------- Seidenwar, Paul --------------------------------------------- --------------------------------------------- Taylor, Gary --------------------------------------------- --------------------------------------------- Wilkinson, Judy --------------------------------------------- --------------------------------------------- - ---------------------------------------------------------------- - ---------------------------------------------------------------- Capital Markets LF Andrews, Ed --------------------------------------------- --------------------------------------------- Brown, Charlie --------------------------------------------- --------------------------------------------- Fontana, Louis --------------------------------------------- --------------------------------------------- Geraghty, John --------------------------------------------- --------------------------------------------- Golding, Rob --------------------------------------------- --------------------------------------------- Gromek, Ed --------------------------------------------- --------------------------------------------- Miller, Jeff --------------------------------------------- --------------------------------------------- Olson, Rich --------------------------------------------- --------------------------------------------- --------------------------------------------- - ---------------------------------------------------------------- Credit - CS LF Gold, Gerri --------------------------------------------- --------------------------------------------- Adams, Tom --------------------------------------------- --------------------------------------------- Darensbourg, Rodney --------------------------------------------- --------------------------------------------- Delacruz, Carol --------------------------------------------- --------------------------------------------- Hadicke, Bill --------------------------------------------- --------------------------------------------- Haggerty, Marybeth --------------------------------------------- --------------------------------------------- Kendall, Keith --------------------------------------------- --------------------------------------------- Martin, Gail --------------------------------------------- --------------------------------------------- Sena, Arlene --------------------------------------------- --------------------------------------------- Teucke, Jeff --------------------------------------------- --------------------------------------------- Thomas, Bret --------------------------------------------- --------------------------------------------- Trump, Doug --------------------------------------------- --------------------------------------------- Vukas, Chris --------------------------------------------- --------------------------------------------- - ---------------------------------------------------------------- - ---------------------------------------------------------------- Credit - GIS LF Deehan, George --------------------------------------------- --------------------------------------------- Boone, Gary --------------------------------------------- --------------------------------------------- Carroll, Jim --------------------------------------------- --------------------------------------------- Kammerer, Gerry --------------------------------------------- --------------------------------------------- Miller, Earl --------------------------------------------- ---------------------------------------------
AT&T Capital Corporation EXHIBIT A Leadership Severance Plan Participants Page 3 of 4
- ---------------------------------------------------------------- UNIT TITLE/DEPT. GROUP NAME - ---------------------------------------------------------------- - ---------------------------------------------------------------- Leasing Services LF Tenner, Jim --------------------------------------------- --------------------------------------------- Burke, Bill --------------------------------------------- --------------------------------------------- Driscoll, Donna --------------------------------------------- --------------------------------------------- Fikse, Sheryl --------------------------------------------- --------------------------------------------- Herlihy, Thomas --------------------------------------------- --------------------------------------------- Kelly, Mark --------------------------------------------- --------------------------------------------- Langstaff, Michele --------------------------------------------- --------------------------------------------- Larson, Karen --------------------------------------------- --------------------------------------------- McCarthy, Rob --------------------------------------------- --------------------------------------------- Pfeiffenberger, John --------------------------------------------- --------------------------------------------- Roose, Tom --------------------------------------------- --------------------------------------------- Viscomi, Ralph --------------------------------------------- --------------------------------------------- Wilton, Keith --------------------------------------------- --------------------------------------------- - ---------------------------------------------------------------- --------------------------------------------- Systems Leasing LF Cherney, Ed --------------------------------------------- --------------------------------------------- Baker, Ron --------------------------------------------- --------------------------------------------- Bruchanski, Ken --------------------------------------------- --------------------------------------------- Callaghan, Pat --------------------------------------------- --------------------------------------------- Callahan, Pat --------------------------------------------- --------------------------------------------- Cowan, Ken --------------------------------------------- --------------------------------------------- Lochow, Harold --------------------------------------------- --------------------------------------------- Marks, Lloyd --------------------------------------------- --------------------------------------------- Ostroski, John --------------------------------------------- --------------------------------------------- Pinkerton, Bill --------------------------------------------- --------------------------------------------- Recker, Jim --------------------------------------------- --------------------------------------------- Schultz, George --------------------------------------------- --------------------------------------------- Stroscheim, Jim --------------------------------------------- --------------------------------------------- --------------------------------------------- - ---------------------------------------------------------------- Asia Pacific LF Soper, Derek, --------------------------------------------- --------------------------------------------- Chan, Don --------------------------------------------- --------------------------------------------- Cain, Jim --------------------------------------------- --------------------------------------------- Leach, Adrian --------------------------------------------- --------------------------------------------- Li, Daniel --------------------------------------------- --------------------------------------------- - ---------------------------------------------------------------- --------------------------------------------- Canada LF Hammill, Tim --------------------------------------------- --------------------------------------------- Bartley, Ken --------------------------------------------- --------------------------------------------- Dionne, J. Harold --------------------------------------------- --------------------------------------------- Goldstein, Tammi --------------------------------------------- --------------------------------------------- Harding, Richard --------------------------------------------- --------------------------------------------- Howe, Rob --------------------------------------------- --------------------------------------------- Kidd, Peter --------------------------------------------- --------------------------------------------- Korylak, John --------------------------------------------- --------------------------------------------- LaLeggia, Joe --------------------------------------------- --------------------------------------------- Parkinson, Alan --------------------------------------------- --------------------------------------------- Traunero, Ezio --------------------------------------------- ---------------------------------------------
AT&T Capital Corporation EXHIBIT A Leadership Severance Plan Participants Page 4 of 4
- ---------------------------------------------------------------- UNIT TITLE/DEPT. GROUP NAME - ---------------------------------------------------------------- - ---------------------------------------------------------------- Europe LF Fatum, Arthur --------------------------------------------- --------------------------------------------- Grice, Dennis --------------------------------------------- --------------------------------------------- Guichard, Antoine --------------------------------------------- --------------------------------------------- Harrison, Ian --------------------------------------------- --------------------------------------------- Hughes, Michael --------------------------------------------- --------------------------------------------- Jansen, Frans --------------------------------------------- --------------------------------------------- Jones, Rick --------------------------------------------- --------------------------------------------- Kainradl, Peter --------------------------------------------- --------------------------------------------- Murray, Stuart --------------------------------------------- --------------------------------------------- Paganelli, Federico --------------------------------------------- --------------------------------------------- Reilly, Julie --------------------------------------------- --------------------------------------------- Spendeck, Horst --------------------------------------------- --------------------------------------------- White, Mark --------------------------------------------- --------------------------------------------- --------------------------------------------- - ---------------------------------------------------------------- Latin America LF Bridges, Bill --------------------------------------------- --------------------------------------------- Guerrero, Arturo --------------------------------------------- --------------------------------------------- - ----------------------------------------------------------------
EX-10 12 EXHIBIT 10(AD) EXHIBIT 10(ad) Form 10-k for 1995 File No. 1-11237 Execution Copy AGREEMENT AGREEMENT, dated as of January 5, 1996 (this "Agreement"), between AT&T CORP., a New York corporation ("AT&T"), and AT&T CAPITAL CORPORATION, a Delaware corporation ("Capital"). WHEREAS, the Board of Directors of AT&T has determined that it is in the best interest of AT&T to separate AT&T's existing businesses into three independent businesses; WHEREAS, as part of the foregoing, AT&T Global Information Solutions, Inc., ("GIS") and NS-MPG Inc. ("NS-MPG") will enter into a Separation and Distribution Agreement with AT&T which provides, among other things, for the separation of the assets and liabilities of such companies, and the distribution and the execution and the delivery of certain other agreements in order to facilitate and provide for the foregoing; WHEREAS, to consummate the spin-off of NS-MPG, AT&T will (i) contribute or otherwise convey or cause to be conveyed certain of its assets to NS-MPG, (ii) NS-MPG will sell to the public, pursuant to an initial public offering (the "NS-MPG IPO"), approximately 15% of its common equity and (iii) in a separate transaction following the NS-MPG IPO, AT&T will spin-off its entire interest in NS-MPG to its shareholders (such transactions or any other transaction or series of transactions (including a sale of stock or assets of NS-MPG to an unrelated Person or Persons or a merger of NS-MPG into another Person) which result in the businesses and assets of the Divisions being owned by a Person or Persons (other than AT&T) that is not a Subsidiary of AT&T, are collectively referred to as the "NS-MPG Spin-Off Transactions"); WHEREAS, to consummate the spin-off of GIS, AT&T will spin-off GIS to its shareholders (such transaction or any other transaction or series of transactions (including an initial public offering, a sale of stock or assets of GIS and its Subsidiaries to an unrelated Person or Persons or a merger of GIS into another Person) which result in the businesses and assets of GIS and its Subsidiaries being owned by a Person or Persons (other than AT&T) that is not a Subsidiary of AT&T, are collectively referred to as the "GIS Spin-Off Transactions" and together with the NS-MPG Spin-Off Transactions, the "Spin-Off Transactions"); WHEREAS, Capital entered into an Operating Agreement dated as of June 25, 1993 (as amended from time to time, the "AT&T Operating Agreement") with AT&T; WHEREAS, pursuant to Section 8.3 of the AT&T Operating Agreement, Capital has requested AT&T to cause (i) NS-MPG to enter into a Comparable Operating Agreement (as contemplated by Section 8.3 of the AT&T Operating Agreement) that is substantially similar in scope and terms to the AT&T Operating Agreement (the "NS-MPG Operating Agreement") and (ii) GIS or such other Person acquiring the business of GIS and its Subsidiaries in the GIS Spin-Off Transactions (GIS or such Person being referred to herein as "GIS") to enter into a Comparable Operating that is substantially similar in scope and terms to the AT&T Operating Agreement (the "GIS Operating Agreement" and together with the NS-MPG Operating Agreement, the "New Operating Agreements"); WHEREAS, it is the intention of the parties hereto that AT&T shall be obligated under the terms of this Agreement to cause (i) GIS to enter into the GIS Operating Agreement in the form of Exhibit A hereto (ii) NS-MPG to enter into the NS-MPG Operating Agreement in the form of Exhibit B hereto; and (iii) use its best efforts to have NS-MPG and GIS, as applicable, execute such New Operating Agreements by January 31, 1996; but in no event later than as provided for in Section 8.3 of the AT&T Operating Agreement (I.E., no later than the day prior to the date of consummation of any of the Spin-Off Transactions). NOW, THEREFORE, in consideration of the mutual promises herein set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the conditions and upon the terms hereof, the parties hereto hereby agree as follows: Section 1. Definitions. Unless the context indicates otherwise, references to Articles, Sections, Exhibits and Schedules will refer to the corresponding articles and sections in and exhibits and schedules to this Agreement and references to the parties shall mean the parties to this Agreement. Capitalized terms used herein without definition will have a meaning correlative to the defined term in either or both of the New Operating Agreements, as applicable. Section 2. Execution by GIS. (a) AT&T agrees to (i) cause GIS to enter into the GIS Operating Agreement, in the form of Exhibit A hereto; and (ii) use its best efforts to have GIS execute such GIS Operating Agreement by January 31, 1996, but in no event later than as provided for in Section 8.3 of the AT&T Operating Agreement (I.E., no later than the day prior to the date of consummation of any of the Spin-Off Transactions.) -2- (b) Until GIS becomes a party to the GIS Operating Agreement and the Spin-Off Date has occurred, Capital shall have no obligation under the GIS Operating Agreement to GIS or any other AT&T Entity, it being understood that the relationship between the Capital Entities and GIS and any other AT&T Entity with respect to the subject matter of such agreement shall continue to be governed by the AT&T Operating Agreement prior to the consummation of the GIS Spin-Off Transactions. Section 3. Execution by NS-MPG. (a) AT&T agrees to (i) cause NS-MPG to enter into the NS-MPG Operating Agreement, substantially in the form of Exhibit B hereto; and (ii) use its best efforts to have NS-MPG execute such NS-MPG Operating Agreement by January 31, 1996, but in no event later than as provided for in Section 8.3 of the AT&T Operating Agreement (I.E., no later than the day prior to the date of consummation of any of the Spin-Off Transactions.) (b) Until NS-MPG becomes a party to the NS-MPG Operating Agreement and the Spin-Off Date has occurred, Capital shall have no obligation under the NS-MPG Operating Agreement to NS-MPG, the Divisions or any other AT&T Entity, it being understood that the relationship between the Capital Entities and NS-MPG, the Divisions and any other AT&T Entity with respect to the subject matter of such agreement shall continue to be governed by the AT&T Operating Agreement prior to the consummation of the NS-MPG Spin-Off Transactions. Section 4. Miscellaneous. Section 4.1. Variation of Terms; Amendments. This Agreement cannot be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties hereto. Section 4.2. Successors and Assigns; Third Parties. (a) This Agreement will be binding upon and inure to the benefit of the parties hereto and their Affiliates and their respective successors and assigns. (b) Nothing in this Agreement, expressed or implied, is intended or will be construed to confer upon any Person other than the parties hereto and their successors and assigns any right, remedy or claim under or by reason of this Agreement. Section 4.3. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction or duly authorized arbitration tribunal to be invalid, illegal or unenforceable to any extent, the remainder of this Agreement or such provision or the application of such provision to such party or circumstances, other than those to which it is so determined to be invalid, illegal or unenforceable, will remain in -3- full force and effect to the fullest extent permitted by law and will not be affected thereby, unless such a construction would be unreasonable. Section 4.4. Notices. All notices, consents, deliveries, demands, requests, approvals and other communications which are required or may be given hereunder shall be made in accordance with Section 13.5 of the AT&T Operating Agreement. Section 4.5. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York, without giving effect to the choice of law provisions of its conflicts of law rules. Section 4.6. Headings. The article headings and the section headings and subheadings contained in this Agreement are intended solely for the convenience of reference and will not affect in any manner the meaning or interpretation of this Agreement. Section 4.7. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original instrument, but all of which together will constitute one and the same agreement, and will become binding when one or more counterparts have been executed and delivered by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. AT&T CAPITAL CORPORATION AT&T CORP. BY: G. Daniel McCarthy BY: S. Lawrence Prendergast --------------------------- -------------------------------- NAME: G. Daniel McCarthy NAME: S. Lawrence Prendergast Senior Vice President Vice President and Treasurer TITLE: General Counsel, TITLE: Secretary -4- Exhibit A NCR OPERATING AGREEMENT Dated as of _________________, 1996 Between NCR CORPORATION, a Maryland corporation, And AT&T CAPITAL CORPORATION, a Delaware corporation TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS .............................................. 2 ARTICLE II FINANCING RELATED SERVICES TO BE PROVIDED BY CAPITAL......................... 10 2.1. Financing Related Services - Objectives and Commitments....................... 10 2.2. Training of Company Personnel................................................. 12 2.3. Providing Company with Information as to Financings and Finance Markets..................................................................... 13 2.4. Subsidized and Guaranteed Financings and Ancillary Services................... 13 2.5. Advisory Services............................................................. 14 2.6. No Obligation or Commitment................................................... 14 2.7. Alternative Financing and Recourse Arrangements............................... 15 ARTICLE III PREFERRED PROVIDER STATUS ...................................... 17 3.1. Support of the Capital Entities............................................... 17 3.2. Preferred Provider Status..................................................... 18 3.3. Right to Choose Alternative Providers......................................... 20 3.4. Finance Marketing Support..................................................... 21 3.5. Personnel Support............................................................. 21 3.6. Information Support........................................................... 22 3.7. Activities of the Company Entities............................................ 22 ARTICLE IV NON-COMPETITION ............................................ 22 4.1. Covenant Not to Compete....................................................... 22 4.2. Use of a Permitted Captive Financing Source................................... 25 4.3. Financing Operations of Acquired Entities..................................... 26 ARTICLE V PROTOCOLS AND PROCEDURES AND RELATED MATTERS .............................. 27 5.1. Protocols and Procedures; Pilot Programs...................................... 27 5.2. Systems Interface............................................................. 28
-i-
Page ---- ARTICLE VI REMARKETING OF PRODUCTS ......................................... 29 6.1. In General ................................................................... 29 6.2. Deinstallation, Refurbishment and Re-Certification of Remarketed Products..... 30 6.3. Rights to Use Software........................................................ 30 ARTICLE VII CERTAIN ALLOCATIONS OF RISK; LITIGATION AND REPOSSESSION........................ 31 7.1. Representations, Warranties and Covenants..................................... 31 7.2. Allocation of Certain Risks................................................... 33 7.3. Collection and Repossession Actions........................................... 34 7.4. Actions Against Significant Accounts.......................................... 35 ARTICLE VIII SCOPE OF APPLICATION OF AGREEMENT .................................... 35 8.1. Attribution of Actions of Subsidiaries to Their Parents....................... 35 8.2. Application of Agreement to Certain Joint Ventures and Other Minority Investments of the Company.................................................. 36 8.3. Sale, Public Offering or Spin-Off of a Significant Products Entity ........... 37 8.4. New Products and Company Entities............................................. 38 8.5. Geographic Scope of Agreement................................................. 38 ARTICLE IX INDEMNIFICATION ............................................. 39 9.1. Capital Indemnity............................................................. 39 9.2. Company Indemnity............................................................. 40 9.3. Procedure .................................................................... 41 ARTICLE X DISPUTE RESOLUTION ........................................... 42 10.1. Resolution of Disputes....................................................... 42 10.2. Resolution of Disputes Using Best Efforts.................................... 42 10.3. Arbitration ................................................................. 43 10.4. Continuity of Service and Performance........................................ 45 10.5. Disputes as to Sales Site Protocols and Procedures........................... 45
-ii-
Page ---- ARTICLE XI TERM AND TERMINATION .......................................... 45 11.1. Initial Term and Renewal..................................................... 45 11.2. Termination ................................................................. 46 11.3. Effect of Termination........................................................ 47 ARTICLE XII CONFIDENTIALITY ........................................... 47 ARTICLE XIII MISCELLANEOUS ............................................. 48 13.1. Variation of Terms; Amendments............................................... 48 13.2. No Partnership............................................................... 49 13.3. Successors and Assigns; Third Parties........................................ 49 13.4. Severability ................................................................ 49 13.5. Notices ..................................................................... 49 13.6. Governing Law................................................................ 50 13.7. Headings .................................................................... 50 13.8. Counterparts ................................................................ 51 SCHEDULES AND EXHIBITS Schedule A--Location Support Agreement Schedule B--Description of Certain Past Practices of the Company Relating to Interim Financings Schedule C--General Allocation of Responsibilities
-iii- NCR OPERATING AGREEMENT NCR OPERATING AGREEMENT dated as of ________________, 1996 (this "Agreement") between NCR CORPORATION, a Maryland corporation (the "Company"), and AT&T CAPITAL CORPORATION, a Delaware corporation ("Capital"). W I T N E S S E T H : WHEREAS, the Board of Directors of AT&T Corp.("AT&T") has determined that it is in the best interest of AT&T to separate AT&T's existing businesses into three independent businesses; WHEREAS, as part of the foregoing, NS-MPG Inc. and the Company will enter into a Separation and Distribution Agreement with AT&T which provides, among other things, for the separation of the Company assets and the Company liabilities; WHEREAS, in connection with such reorganization, AT&T intends to spin-off its entire interest in the Company to its shareholders (such transaction, including any initial public offering of the capital stock of the Company prior to a spin-off, a sale of stock or assets of the Company and its Subsidiaries to an unrelated Person or a merger of the Company into another Person is referred to as the "Spin-Off Transaction"); WHEREAS, Capital entered into an Operating Agreement dated as of June 25, 1993 (as amended from time to time, the "AT&T Operating Agreement") with AT&T; WHEREAS, pursuant to Section 8.3 of the AT&T Operating Agreement, Capital has requested AT&T to cause the Company to enter into a Comparable Operating Agreement (as defined in Section 8.3 of the AT&T Operating Agreement) relating to the businesses of the Company that is substantially similar in scope and terms to the AT&T Operating Agreement; WHEREAS, AT&T and Capital have entered into an Agreement dated as of January 5, 1996 pursuant to which AT&T has agreed to use its best efforts to cause NCR Corporation to enter into this Agreement by January 31, 1996 (but in any event no later than the date required pursuant to Section 8.3 of the AT&T Operating Agreement); WHEREAS, it is the intention of the parties hereto that (i) this Agreement constitute a Comparable Operating Agreement relating to the businesses of the Company and (ii) this Agreement shall govern the relationship between the Company and its Subsidiaries, on the one hand, and Capital and its Subsidiaries, on the other hand, after the consummation of the Spin-Off Transaction as to the matters set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises herein set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the conditions and upon the terms hereof, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms will have the following meanings, applicable both to the singular and the plural forms of the terms defined: "AAA" has the meaning ascribed thereto in Section 10.3(g). "Acquired Entity" has the meaning ascribed thereto in Section 4.3. "Acquired Entity Financing Source" has the meaning ascribed thereto in Section 4.3. "Active Service Area" has the meaning ascribed thereto in Section 8.5. "Adjusted Financeable Product Sales" means, with respect to any calendar year, the aggregate purchase price (net of any discounts) paid by Customers, Authorized Dealers or the Capital Entities (or, with respect to periods prior to March 31, 1993, Capital Holdings and its Subsidiaries) to the Company Entities, together with any related sales taxes and installation and similar costs, for Financeable Products sold by the Company Entities during such calendar year and each of the two preceding calendar years. In the event that during any three-year period for which Adjusted Financeable Product Sales is calculated, there has occurred a disposition, termination or phase-out by any Company Entity of any significant Financeable Product line, the Adjusted Financeable Product Sales amount with respect to such three-year period shall be reduced by the amounts attributable to sales of such Financeable Products during such three-year period and any related sales taxes and installation and similar costs. In the event that during any three-year period for which Adjusted Financeable Products Sales is calculated, there has been introduced or has occurred a phase-in or an acquisition by any Company Entity of any significant Financeable Product line, the Adjusted Financeable Product Sales amount with respect to such three-year period shall be adjusted such that the aggregate purchase price (net of discounts) of and any related sales taxes and installation and similar costs for such significant Financeable Product line shall be (x) with respect to each full calendar year within such three-year period during which such -2- Financeable Product line has been sold by the Company Entities (each such year, a "Full Sales Year"), the actual aggregate purchase price (net of discounts) of and any related sales taxes and installation and similar costs for Financeable Products constituting part of such Financeable Products line that are sold within such Full Sales Year and (y) with respect to each calendar year within such three-year period during or prior to which such Financeable Product line was introduced, phased-in or acquired (each such year, a "Partial Sales Year"), an assumed amount equal to the amount calculated pursuant to clause (x) above for the first Full Sales Year following such Partial Sales Year. Notwithstanding the foregoing, there shall be excluded from the foregoing calculations Financeable Product lines the introduction, phase-in or acquisition of which was effected in the calendar year with respect to which Adjusted Financeable Products Sales is being calculated together with, in each case, any related sales taxes and installation and similar costs. The foregoing adjustments to Adjusted Financeable Product Sales for any period shall be calculated on a basis that is consistent with the basis on which adjustments to Adjusted Financing Amount for such period are calculated. "Adjusted Financing Amount" means, with respect to any calendar year, the aggregate amount of Financings provided by the Capital Entities (or, with respect to periods prior to March 31, 1993, Capital Holdings and its Subsidiaries) for Financeable Products sold by the Company Entities during such calendar year and each of the two preceding calendar years, together with the aggregate amount of Financings of any related sales taxes and installation and similar costs. In the event that during any three-year period for which Adjusted Financing Amount is calculated, there has occurred a disposition, termination or phase-out by any Company Entity of any significant Financeable Product line, the Adjusted Financing Amount with respect to such three-year period shall be reduced by the amount attributable to Financings of Financeable Products constituting part of such Financeable Product line during such three-year period or to Financings of any related sales taxes and installation and similar costs. In the event that during any three-year period for which Adjusted Financing Amount is calculated, there has been introduced or has occurred a phase-in or an acquisition by any Company Entity of any significant Financeable Product line, the Adjusted Financing Amount with respect to such three year period shall be adjusted such that the amount of Financings for such significant Financeable Product line shall be (x) with respect to each Full Sales Year (as defined in the definition of "Adjusted Financeable Product Sales"), the aggregate amount of such Financings (together with the aggregate amount of Financings of any related sales tax and installation and similar costs) for Financeable Products constituting part of such Financeable Product line that are sold within such Full Sales Year and (y) with respect to any Partial Sales Year (as defined in the definition of "Adjusted Financeable Product Sales"), an assumed amount equal to the amount calculated pursuant to clause (x) -3- above for the first Full Sales Year following such Partial Sales Year. Notwithstanding the foregoing, there shall be excluded from the foregoing calculations Financings provided by the Capital Entities for Financeable Products lines the introduction, phase-in or acquisition of which was effected in the calendar year with respect to which Adjusted Financing Amount is being calculated together with, in each case, Financings of any related sales taxes and installation and similar costs. "Advisory Services" has the meaning ascribed thereto in Section 2.5. "Affiliate" means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote a majority of the securities having voting power for the election of directors (or other Persons acting in similar capacities) of such Person or otherwise to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "After-Tax Basis" means, with respect to any payment to be received or accrued by any Person, the amount of such payment supplemented by a further payment or payments (which shall be payable either simultaneously with the initial payment or, in the event that taxes resulting from the receipt or accrual of such initial payment are not payable in the year of receipt or accrual, at the time or times such taxes become payable) so that the sum of all such initial and supplemental payments, after deduction of all taxes imposed by any taxing authority (after taking into account any credits or deductions or other tax benefits arising therefrom to the extent such are currently utilized) resulting from the receipt or accrual of such payments (whether or not such taxes are payable in the year of receipt or accrual) will be equal to the initial payment to be so received or accrued. "Agreement" has the meaning ascribed thereto in the preamble hereto, as such agreement is amended and supplemented from time to time in accordance with its terms. "Alternative Ancillary Services" means Ancillary Services offered or provided to the Company Entities, Customers or Authorized Dealers by an Alternative Provider. "Alternative Financing Program" means a Financing program offered or provided to the Company Entities, Customers or Authorized Dealers by an Alternative Provider. -4- "Alternative Provider" means a Person (other than an Affiliate of the Company or Capital) that offers financings or other services competitive with Financings or Ancillary Services offered by the Capital Entities hereunder. "Ancillary Services" means (i) the provision of property, casualty or similar types of insurance with respect to Products, (ii) asset monitoring, recovery and remarketing services of a type provided by the Capital Entities to the Company Entities or their Customers or Authorized Dealers on or prior to the date hereof and (iii) any other value-added services relating to Products or Financings offered by the Capital Entities from time to time and agreed to by the parties to be treated as Ancillary Services for purposes of this Agreement. "AT&T" has the meaning ascribed thereto in the preamble. "AT&T Entities" means AT&T and all Persons that constitute Subsidiaries of AT&T (other than Subsidiaries that constitute Capital Entities) from time to time. "AT&T Operating Agreement" has the meaning ascribed thereto in the preamble. "Authorized Dealer" means any Person that is authorized or permitted by any Company Entity to acquire Products directly from such Company Entity for resale on a wholesale or retail basis. "Business Day" means any day other than a Saturday, Sunday or other day on which banking institutions in New Jersey are authorized or required by law to be closed. "Capital" means AT&T Capital Corporation, a Delaware corporation, and its successors and permitted assigns. "Capital Entities" means Capital and all Persons that constitute Subsidiaries of Capital from time to time. "Capital Entities' Financing Penetration Rate" means, as of the end of any calendar year, the Adjusted Financing Amount for such year and the two preceding calendar years expressed as a percentage of the Adjusted Financeable Product Sales for such year and the two preceding calendar years. "Capital Holdings" means AT&T Capital Holdings, Inc., a Delaware corporation. "Captive Financing Trigger Event" has the meaning ascribed thereto in Section 4.2. "Company" has the meaning ascribed thereto in the preamble. -5- "Company Entities" means the Company and all Persons that constitute Subsidiaries of the Company from time to time. "Company Receivables Agreement" means the Operating Agreement dated as of November 7, 1983 between the Company and NCR Credit, as such agreement is amended and supplemented from time to time in accordance with its terms. "Company Responsibility" has the meaning ascribed thereto in Section 7.2(b). "Comparable Operating Agreement" has the meaning ascribed thereto in Section 8.3. "Credit" means AT&T Credit Corporation, a Delaware corporation that is a wholly-owned Subsidiary of Capital and was previously named "AT&T Captive Finance, Inc.". "Credit Holdings" means AT&T Credit Holdings, Inc., a Delaware corporation that is a wholly-owned Subsidiary of Capital Holdings and was previously named "AT&T Credit Corporation". "Credit Receivables Agreement" means the Operating Agreement dated as of January 1, 1985, among AT&T and Credit Holdings and certain of their Affiliates, as such agreement is amended and supplemented from time to time in accordance with its terms. "Customer" means any Person that is an actual (or, if the context so indicates, potential) acquirer or user of Products, other than an Authorized Dealer. "Customer Financing" means any direct or indirect financing of the sale, lease or other furnishing of Products by any Company Entity (or Authorized Dealer) to Customers, and will include, without limitation, (i) entering into leases, secured loans, installment sales contracts or conditional sales contracts directly with such Customers, (ii) the purchase or financing of receivables arising from such sales, leases or other furnishings of Products by any Company Entity (or Authorized Dealer), and (iii) the issuance of charge or credit cards (such as Capital's Products Plus Card) primarily intended for the financing of purchases of Products. "Customer Outsourcing Program" means any program of the Company Entities for the acquisition, maintenance and/or operation by the Company Entities of telecommunications, computer, data and/or information networks or operations for Customers under what is generally referred to in the industry as an outsourcing or network management contract ("Outsourcing Contract") between the applicable Customer and the applicable Company Entities, under which program financing of the products and other equipment and software (which may include, but are not necessarily limited to, Products) used in connection with the -6- Outsourcing Contract is provided by a financing source other than the internal or budgeted funds of the Company Entities offering such program. "Dealer Financing" means any direct or indirect (i) financing of the purchase or lease by Authorized Dealers of Products from the Company Entities for resale or re-lease to Customers, including, without limitation, floor planning loans and other forms of inventory financing and (ii) provision of other types of secured loans to such Authorized Dealers. "Dollars" and "$" mean the lawful money of the United States. "Financeable Products" means all Products (other than Products constituting consumables or maintenance, service or similar contracts) sold by the Company Entities to Customers or Authorized Dealers within the Active Service Areas that (i) have been Financed by the Capital Entities or (ii) are types of Products for which it is customary in the equipment finance industry within the Active Service Areas for third-party, "non-captive" equipment financing companies to provide Financing. "Financed Products" means Products with respect to which Financing has been provided. "Finance Marketing Support" has the meaning ascribed thereto in Section 3.1(i). "Financing" means Customer Financing, Dealer Financing or Outsource Financing. "First Tier Transfer of Control" means a transaction or series of transactions that has the effect of reducing AT&T's direct or indirect ownership interest of Capital's voting securities, such that Capital is no longer a Subsidiary of AT&T. "Information Support" has the meaning ascribed thereto in Section 3.1(v). "Initial Term" has the meaning ascribed thereto in Section 11.1. "Intercompany Agreement" means the Intercompany Agreement dated as of the date hereof between the Company and Capital, as such agreement is amended and supplemented from time to time in accordance with its terms. "Location Support" has the meaning ascribed thereto in Section 3.1(iii). "Location Support Agreement" has the meaning ascribed thereto in Section 3.1(iii). -7- "NCR Credit" means NCR Credit Corp., a Delaware corporation that is a wholly-owned Subsidiary of Capital. "NCR Portfolio" has the meaning ascribed thereto in Section 4.1(b). "Outsource Financing" means any direct or indirect financing (including, without limitation, through secured loans and leases) of or with respect to any Customer Outsourcing Program. "Person" means any individual, partnership, joint venture, corporation, trust, unincorporated organization, government (and any department or agency thereof) or other entity. "Personnel Support" has the meaning ascribed thereto in Section 3.1(ii). "Products" means any products (including, without limitation, Software, but not including any real estate) and related installation and maintenance services provided, furnished, manufactured, sold or marketed, as the case may be, by the Company Entities from time to time. "Products Capacity" means the capacity of a Significant Products Entity to manufacture, market or provide Products (including, to the extent appropriate, the related manufacturing capacity, distribution and marketing capacity and Product development and support systems). "Protocols and Procedures" has the meaning ascribed thereto in Section 5.1(a). "Protocol Standards" has the meaning ascribed thereto in Section 5.1(a). "Renewal Period" has the meaning ascribed thereto in Section 11.1. "Sales Site" means any site, office or location from which any Company Entity or SBU conducts the sale or marketing of Products. "SBU" means a division of a Company Entity involved in the manufacture, sale, provision or marketing of Products. "Significant Account" means a customer (which may be an Authorized Dealer or a Customer) of a Company Entity (i) which has acquired Products with an aggregate purchase price exceeding $10,000,000 in the most recent calendar year or which can reasonably be expected to acquire Products with an aggregate purchase price exceeding such amount in the current calendar year -8- and (ii) has been designated by such Company Entity as a "Significant Account" by written notice to Capital. "Significant Products Entity" means a Company Entity or SBU (x) which is in the business of manufacturing, marketing or providing Products and (y) which has annual sales revenues in excess of $200,000,000 for the calendar year immediately preceding the calendar year during which the applicable transaction referred to in Section 8.3 is proposed or effected. "Software" means any intellectual property commonly or generically known as software, together with related storage disks and instructional and other documents, the acquisition or use of which by any Person is customarily financed by the Capital Entities or relates to or is used in connection with equipment financed by the Capital Entities. "Spin-Off Date" means the date of the consummation of the Spin-Off Transaction. "Spin-Off Transaction" has the meaning ascribed thereto in the preamble. "Standard Documents" means standardized forms of documents prepared (and from time to time revised) by the Capital Entities in connection with the offering of various types of Financings and Ancillary Services, including forms of leases, loan agreements, security agreements, guarantees, financing statements and other documents necessary or appropriate for the conducting of the Capital Entities' business of providing Financing and Ancillary Services. "Subsequent Transfers of Control" means any transaction or series of events or transactions, in which Capital becomes a Subsidiary of any Person other than the Person (or an Affiliate of the Person) which acquired Capital in the First Tier Transfer of Control. "Subsidiary" means, with respect to any Person, any other Person which is directly or indirectly controlled by such Person. For purposes of this definition, "control", as applied to any Person, means the possession, directly or indirectly, of the power to vote a majority of the securities having voting power for the election of directors (or other Persons acting in similar capacities) of such Person or otherwise to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Systems Support" has the meaning ascribed thereto in Section 3.1(iv). Unless the context indicates otherwise, references to Articles, Sections and Schedule will refer to the corresponding -9- articles and sections in and schedule to this Agreement and references to the parties shall mean the parties to this Agreement. Capitalized terms used herein without definition (such as "Financed") that have correlative defined terms (such as "Financing") will have a meaning correlative to the defined term. References to "consistent with past practice" shall refer to the past practices of the Capital Entities and the businesses of the Company and its Subsidiaries prior to June 25, 1995. ARTICLE II FINANCING RELATED SERVICES TO BE PROVIDED BY CAPITAL Section 2.1. Financing Related Services -- Objectives and Commitments. (a) It is the mutual objective of the parties to this Agreement that Capital will, during the term of this Agreement and within the Active Service Areas, either directly or through its Subsidiaries: (i) make available to Customers of the Company Entities and Authorized Dealers appropriate forms of Customer Financings for the purchase, lease or other acquisition of Products (such as, but not necessarily including with respect to each type of Product, leases, secured loans, installment sales contracts and conditional sales contracts), and otherwise provide the Company Entities and Authorized Dealers with Customer Financing in the form of purchases or financings of receivables arising from the sale, lease or other furnishing by the Company Entities or Authorized Dealers of Products to Customers; (ii) make available to Authorized Dealers appropriate forms of Dealer Financing and make available to the Company Entities appropriate forms of Outsource Financing; and (iii) make available to the Company Entities, Customers and Authorized Dealers, where appropriate, various types of Ancillary Services offered from time to time by Capital and its Subsidiaries. (b) In furtherance of the objectives described in paragraph (a) above, Capital shall, during the term of this Agreement and within the Active Service Areas, either directly or through its Subsidiaries: (i) generally continue the Financing and Ancillary Services programs under which Capital Holdings and its Subsidiaries (and, as successors to the "captive" financing businesses thereof, Capital and its Subsidiaries) have heretofore been providing Financings and Ancillary Services to the Company Entities, Customers and Authorized Dealers (subject to Capital's right to modify, revise or terminate particular programs as appropriate to accommodate changes in market conditions or the marketing requirements of the -10- Company Entities, Customers and Authorized Dealers and other relevant developments); (ii) as the Company Entities introduce new Products, use its good faith efforts, in cooperation with the Company, to modify existing or devise new Financing and Ancillary Service programs, where appropriate, to support the sale, lease or other furnishings of such Products; (iii) make any new Ancillary Services offered by the Capital Entities available to the Company Entities, Customers and Authorized Dealers, as appropriate; (iv) cooperate with the Company Entities and Authorized Dealers in promoting and advertising the availability of the Financings and Ancillary Services to Customers, including providing their sales and marketing personnel with information with respect to such Financings and Ancillary Services and by generally responding to inquiries made by Customers or the employees of such Company Entities or Authorized Dealers with respect to such Financings and Ancillary Services; (v) jointly with the Company, establish and implement and, where appropriate, revise from time to time Protocols and Procedures for the furnishing of such Financings and Ancillary Services in accordance with the provisions of Section 5.1; (vi) prepare Standard Documents for use in connection with standardized types of Financings and maintain the capacity to (A) modify such Standard Documents in order to document particular Financings and Ancillary Services and (B) prepare appropriate documentation for any customized Financings and Ancillary Services that Capital may offer to particular Customers or Authorized Dealers pursuant to this Agreement; (vii) cooperate with the Company Entities and Authorized Dealers to facilitate Financings (including, where appropriate, extensions, renewals or modifications of existing Financings) of replacements or upgrades of Financed Products or additions of Products to previously Financed Products (subject to adequate protection of the interests of the Capital Entities in any Financings that would be affected thereby); (viii) maintain the capacity to, and employ (or have ready access to) personnel having the requisite financial, legal and other skills to, respond to requests of Customers or Authorized Dealers with respect to unusual, specialized or complex Financings and Ancillary Services; -11- (ix) endeavor to maintain good relations with Customers and Authorized Dealers and, by offering courteous, efficient and informed Financing services and Ancillary Services, promote and support the efforts of the Company Entities and Authorized Dealers to sell, distribute and market the Products; (x) keep appropriate employees of the Capital Entities informed of business developments at the Company Entities, the characteristics of Products and their usages, developments of new Products, Product migration and marketing strategies and the Product-related business plans of the Company Entities by disseminating the information provided to the Capital Entities by the Company Entities pursuant to Section 3.6; (xi) generally keep informed of developments in the equipment financing industry and of the development of new types of financings; and (xii) at appropriate intervals, review the types of Financings and Ancillary Services offered and provided for the Products, the types of Financings and Ancillary Services requested by the Company Entities, Customers and Authorized Dealers and other available information so as to assess the responsiveness of the Financings and Ancillary Services offered by the Capital Entities to the financing and related needs of such Company Entities, Customers and Authorized Dealers, and use its good faith efforts to develop new Financing techniques or products and new types of Ancillary Services that would enhance or facilitate the sale, lease or other furnishings of Products to Customers and Authorized Dealers. (c) In connection with the activities described in paragraph (b) above, Capital shall, during the term of this Agreement and within the Active Service Areas, either directly or through its Subsidiaries: (i) employ and train appropriate personnel and maintain, adapt and upgrade its telecommunications, information-processing and record-keeping systems as it deems necessary or appropriate for the purpose of carrying out such activities; and (ii) obtain and maintain such franchises, licenses and permits as it deems necessary or appropriate for the purpose of carrying out such activities. Section 2.2. Training of Company Personnel . The Capital Entities shall, consistent with past practice, conduct training programs for attendance by appropriate sales personnel employed by the Company Entities and Authorized Dealers at which such individuals shall be trained in the proper documentation of -12- Financings, the techniques of using Financings and Ancillary Services offered by the Capital Entities as sales tools and the particulars of such Financings and Ancillary Services. The Capital Entities shall also provide appropriate training and assistance, consistent with past practice, to the Company Entities' operational and office support personnel with respect to the implementation of the Protocols and Procedures (including, without limitation, processing of applications for and documentation of Financings and Ancillary Services), the electronic systems interfaces between the Company Entities' and Capital Entities' computer systems and related matters. Section 2.3. Providing the Company with Information as to Financings and Finance Markets . The Capital Entities shall, consistent with past practice, provide to the appropriate Company Entities on a periodic basis information concerning levels of applications for and approvals of Financings and Ancillary Services, turn-around times for processing applications for Financings and Ancillary Services, levels of completed and outstanding Financings and, where requested, payment and delinquency histories with respect to Financings and Ancillary Services, and other appropriate information with respect to Financings and Ancillary Services provided under this Agreement. Upon request and to the extent permitted by applicable law, the Capital Entities shall also provide to the Company Entities appropriate information within the possession or control of such Capital Entities that is relevant to an analysis of the credit standing of any Customer or Authorized Dealer that has directly or indirectly received or applied for Financing or Ancillary Services from the Capital Entities. The Capital Entities shall also provide to the Company Entities, (i) on a periodic basis, appropriate information concerning competitive lease and other financing products and market conditions for financing products and (ii) on a regular and timely basis, the development and marketing plans and strategies of the Capital Entities with regard to Financings and Ancillary Services. The Capital Entities shall, in a manner consistent with past practice, comply with all reasonable requests of the Company Entities for information with respect to the Capital Entities' business plans and results and programs for financings and ancillary services that are relevant to the activities contemplated under this Agreement (whether or not relating to the Active Service Areas). Section 2.4. Subsidized and Guaranteed Financings and Ancillary Services . In the event that any Company Entity at any time desires that a Capital Entity provide a proposed Financing or Ancillary Service that has previously been rejected by or is otherwise unacceptable to such Capital Entity because of the level of credit, residual or other risk proposed to be borne by such Capital Entity in the provision of such Financing or Ancillary Service, or if any Company Entity at any time desires that a Capital Entity provide Financing or an Ancillary Service to a Customer or Authorized Dealer at a yield rate or price that is more favorable to such Customer or Authorized Dealer than the -13- rate or price such Capital Entity is otherwise willing to offer, Capital shall use its best efforts to work out arrangements with such Company Entity such that the Company might, directly or indirectly, (x) subsidize such Financing or Ancillary Service (for instance, by agreeing to pay supplemental rent, premiums or interest or accepting a greater than usual discount) and/or (y) provide credit support with respect to such Financing or Ancillary Service (for instance, by guaranteeing payments due and/or the residual under a lease) so as to permit such Capital Entity to offer such Financing or Ancillary Service to the Customer or Authorized Dealer on the terms contemplated by such Company Entity. Capital shall use its best efforts to (x) respond in a timely manner to any proposal by any Company Entity with respect to the subsidization or guarantee of any such Financing or Ancillary Service and (y) identify to the Company Entities in advance, where it is reasonably practicable to do so, the types of Financings and Ancillary Services that Capital would be willing to provide on a subsidized or guaranteed basis. It is understood by Capital that the provision by the Company of any guarantee or subsidy with respect to any Financing or Ancillary Service is in the sole discretion of the Company. Section 2.5. Advisory Services . Capital shall (to the extent it is permitted to do so under applicable laws without the requirement of obtaining regulatory approvals or licenses in addition to those the Capital Entities may possess at the relevant time) use its good faith best efforts to provide, either directly or through its Subsidiaries, the Company Entities with financial advisory and syndication services ("Advisory Services") upon request in areas in which the Capital Entities have expertise, such as the structuring of Financings for certain Products not covered by the Capital Entities' general Financing programs and the arranging of securitizations of financial assets (other than financial assets subject to Financings by Capital). Such Advisory Services shall be provided by Capital pursuant to commercially reasonable arrangements to be agreed upon by the Company and Capital and will involve the payment to the relevant Capital Entities of advisory fees in an amount to be agreed upon. The utilization by the Company Entities of the Capital Entities for provision of such Advisory Services shall be in the sole discretion of the Company Entities. Section 2.6. No Obligation or Commitment. (a) The Capital Entities shall use their good faith efforts to provide Financings and Ancillary Services for sales, leases and other furnishings of Products by the Company Entities within the Active Service Areas, subject to compliance with Capital's credit and documentation standards and the availability of funding sources. However, the provisions of this Agreement are not intended to and will not be interpreted so as to obligate or commit the Capital Entities to provide Financings or Ancillary Services with respect to any particular Company Entity, Customer, Authorized Dealer or Product, and the Capital Entities will retain full discretion -14- with respect to the circumstances in which it will provide, and the terms of, such Financings and Ancillary Services. (b) Although the Capital Entities are entitled, in their discretion, to modify or discontinue programs for Financings and Ancillary Services, the Capital Entities shall, consistent with past practice, prior to discontinuing or making a significant modification of any such program, inform the SBUs that would be affected by such discontinuance or modification and use reasonable efforts, in consultation with such SBUs, to minimize, as far as practicably possible, any disruptive effect of such discontinuance or modification on such SBU's sale, lease or other furnishings of Products. Section 2.7. Alternative Financing and Recourse Arrangements . (a) The Company Entities and Capital Entities may, in their discretion, choose to enter into arrangements or programs from time to time with respect to Financings and Ancillary Services that have terms and conditions that vary from those contemplated in this Agreement. Any such alternative arrangements and programs will not be construed to amend this Agreement, which may be amended solely in accordance with the terms of Section 13.1. The parties further acknowledge and agree that, except to the extent otherwise provided herein, (i) any recourse or other similar arrangements with respect to Financings or Ancillary Services (whether written or oral) in effect on the date of this Agreement between any Capital Entity (as successor to Capital Holdings or any Subsidiary thereof or otherwise), on the one hand, and any AT&T Entity, on the other hand, will remain in effect in accordance with their terms and (ii) on the Spin-Off Date the Company will succeed to the rights and assume the obligations of the AT&T Entities in accordance with Section 8.1(a) (it being understood that no AT&T Entity shall be released from its obligations under any such recourse or similar arrangements entered into prior to the Spin-Off Date). (b) The Company acknowledges and agrees, on behalf of the Company Entities that are parties to the Company Receivables Agreement, and Capital acknowledges and agrees, on behalf of the Capital Entities (including NCR Credit) that are parties to the Company Receivables Agreement, that (i) the Company Receivables Agreement is in full force and effect and shall remain in full force and effect with respect to all "receivables", "goods" and "services" (as such terms are used therein) purchased or deemed to have been purchased according to the terms thereof by NCR Credit on or prior to the date hereof and all other obligations under the Company Receivables Agreement of the parties thereto incurred thereunder prior to the date hereof, (ii) the obligations of the parties thereto under the Company Receivables Agreement with respect to the purchase and sale of "receivables", "goods" and "services" (as such terms are used therein) and all other obligations of the parties thereto under the Company Receivables Agreement (other than the receivables, goods and services and other obligations referred to in clause (i) above) -15- shall be and hereby are terminated and of no force and effect, (iii) to the extent of the survival and effectiveness of the Company Receivables Agreement, the terms and conditions of this Agreement shall apply to the transactions contemplated in or effected pursuant to the Company Receivables Agreement to the extent that such terms and conditions are not inconsistent with the terms and conditions of the Company Receivables Agreement and, to the extent of any such inconsistency, the terms and conditions set forth in the Company Receivables Agreement shall apply and be controlling with respect to the transactions contemplated in or effected pursuant to the Company Receivables Agreement and (iv) after the obligations under the Company Receivables Agreement of the parties thereto with respect to the receivables, goods and services referred to in clause (i) above and all other obligations of the parties thereto incurred thereunder prior to the date hereof shall have been satisfied and discharged, the Company Receivables Agreement shall terminate and be of no force and effect. Notwithstanding any of the foregoing, the provisions of Article VII shall apply with respect to the receivables, goods and services to which the Company Receivables Agreement shall continue to apply as provided in this paragraph (b) and, to the extent of any inconsistency between the terms and conditions of Article VII and the terms and conditions of the Company Receivables Agreement, the terms and conditions set forth in Article VII shall apply and be controlling. Any disputes arising under the Company Receivables Agreement shall be resolved pursuant to the provisions of Article X. (c) The Company acknowledges and agrees, on behalf of itself and the other Company Entities that are parties to the Credit Receivables Agreement, and Capital acknowledges and agrees, on behalf of the Capital Entities that are parties to the Credit Receivables Agreement, that (i) Credit has succeeded to the rights and assumed the obligations of Credit Holdings in and under the Credit Receivables Agreement, (ii) the Credit Receivables Agreement shall continue in full force and effect except that (A) the term "Affiliates" (as such term is used therein), as it applies to affiliates of the Company, shall include all the Company Entities but shall not include the Capital Entities and (B) the rights and obligations of Credit thereunder may be exercised or performed by any Capital Entity (including NCR Credit) and (iii) the terms and conditions of this Agreement shall apply to the transactions contemplated in or effected pursuant to the Credit Receivables Agreement to the extent that such terms and conditions are not inconsistent with the terms and conditions of the Credit Receivables Agreement and, to the extent of any such inconsistency, the terms and conditions set forth in the Credit Receivables Agreement shall apply and be controlling with respect to the transactions contemplated in or effected pursuant to the Credit Receivables Agreement. Any disputes arising under the Credit Receivables Agreement shall be resolved pursuant to the provisions of Article X. -16- ARTICLE III PREFERRED PROVIDER STATUS Section 3.1. Support of the Capital Entities . The Company agrees that during the term of this Agreement the Company Entities shall, within the Active Service Areas, in connection with the offering or provision of Financings or Ancillary Services by the Capital Entities: (i) promote the utilization by Customers and Authorized Dealers of Customer Financings and Dealer Financings, as appropriate, and Ancillary Services made available by the Capital Entities (which type of support is described more fully in Section 3.4 and is referred to herein as "Finance Marketing Support"); (ii) (A) support the efforts of the Capital Entities to make available Customer Financings and Dealer Financings, as appropriate, and Ancillary Services to Customers and Authorized Dealers and (B) consistent with past practice, provide training to appropriate personnel employed by the Capital Entities with respect to the Products and the sales and marketing thereof (which type of support is described more fully in Section 3.5 and is referred to herein as "Personnel Support"); (iii) provide appropriate personnel of the Capital Entities with office space at Sales Sites and appropriate office support services on the terms and conditions set forth in Schedule A attached hereto and made a part hereof (the "Location Support Agreement") (which type of support is referred to herein as "Location Support"); (iv) permit and facilitate linkages between the Capital Entities' and the Company Entities' computer and telecommunications systems for the purpose of retrieving and transmitting between the systems information and documentation in connection with the offering, documentation and monitoring of Financings and Ancillary Services and otherwise facilitating the efficient implementation of the relationships and activities contemplated in this Agreement (which type of support is described more fully in Section 5.2 and is referred to herein as "Systems Support"); and (v) provide to the Capital Entities information with respect to the Company Entities' product development and marketing plans, consistent with past practice, for the purposes of permitting the Capital Entities to more effectively design appropriate programs for Financings and Ancillary Services and to determine the likely residual values of Products (which type of support is described more fully in Section 3.6 and is referred to herein as "Information Support"). -17- In addition to the foregoing, the Company Entities shall provide to the Capital Entities such assistance as the Capital Entities may reasonably request in order to facilitate the Capital Entities' financing activities relating to the provision of Financings and Ancillary Services. Such assistance may include matters such as structuring and documenting arrangements (including purchase, payment and invoicing arrangements) between the Company Entities and the Capital Entities or between the Company Entities and Customers and Authorized Dealers for purposes of facilitating receivables financings, leases and other financing transactions effected by the Capital Entities. Section 3.2. Preferred Provider Status. (a) The Company Entities shall provide the Capital Entities with an opportunity to propose a Financing program or Financings and, where applicable, Ancillary Services, with respect to all sales, leases or other furnishings of Products directly by Company Entities to Customers and Authorized Dealers and all Customer Outsourcing Programs within the Active Service Areas. However, the Company Entities shall have the right to utilize or promote an Alternative Financing Program or Alternative Ancillary Services with respect to particular sales, leases or other furnishings of Products or Customer Outsourcing Programs subject to the following conditions: (i) the Company Entities shall not utilize any Alternative Financing Program or Alternative Ancillary Services if the Capital Entities have offered to provide Financings or Ancillary Services on the same or better terms, conditions and standards of service overall as those offered by the Alternative Provider (it being understood, however, that the Company Entities will not be obligated to provide the Capital Entities with a "last look" with respect to the terms, conditions and standards of service offered by such Alternative Provider, provided that they do not provide any such Alternative Provider with information concerning the terms, conditions and standards of service offered by the Capital Entities); (ii) the Company Entities shall not provide to any such Alternative Provider any benefits, inducements or information in connection with any proposed Alternative Financing Program or Alternative Ancillary Services unless the same or comparable benefits, inducements or information have been offered or provided to the Capital Entities, and shall not give any Alternative Provider preferential treatment in any respect with respect to any Alternative Financing Program or Alternative Ancillary Services; and (iii) the Company Entities shall not provide to any such Alternative Provider, for purposes of facilitating or promoting any Alternative Financing Program or Alternative Ancillary Services: (A) any confidential information with -18- respect to any Products (including, without limitation, information relating to Product development and marketing plans, but excluding any specific technical information with respect to the Products being financed necessary for the implementation of the Alternative Financing Program), (B) any commitments to repurchase or remarket Products, (C) the right to directly or indirectly provide incentive compensation to any sales or other personnel employed by the Company Entities, (D) any computer or other technological systems interfaces between the Company Entities (on the one hand) and such Alternative Provider (on the other hand) or (E) the opportunity or right to base or locate any Alternative Provider personnel at any Sales Site. (b) Except as provided in this Section 3.2, the Company Entities shall not provide any support similar to the Finance Marketing Support, Location Support or Systems Support to any Alternative Provider that provides or proposes to provide, in any Active Service Area, Alternative Financing Programs or Alternative Ancillary Services to the Company Entities, Customers or Authorized Dealers. (c) In the event that (i) the Capital Entities decline (or do not bid) to provide, in any Active Service Area, any particular type of Financings or Ancillary Services or Financings or Ancillary Services for any particular line of new Products or Products for which the Capital Entities do not have programs for the provision of Financings or Ancillary Services, in each such case on such conditions and specifications as are communicated by a Company Entity to the Capital Entities and any Alternative Provider, and (ii) such Company Entity makes an arrangement with any such Alternative Provider to provide an Alternative Financing Program or Alternative Ancillary Services with respect to such particular type of Financings or Ancillary Services or Financings or Ancillary Services for such particular line of Products on the conditions and specifications so communicated to the Capital Entities and such Alternative Provider, the provisions of paragraphs (a) and (b) above shall not apply solely with respect to such Alternative Financing Program or Alternative Ancillary Services. It is understood by the parties that the provisions of this paragraph (c) are intended solely to permit the Company to extend the benefits set forth in paragraphs (a) and (b) above to Alternative Providers in circumstances in which the Capital Entities do not provide or offer to provide certain Financings or Ancillary Services. (d) Notwithstanding the other provisions of this Article III, the Company Entities may but shall not be required to provide to the Capital Entities any (i) Finance Marketing Support in connection with any Customer Outsourcing Program, (ii) Location Support or Systems Support in connection with any Customer Outsourcing Program in addition to that currently provided by the Company Entities, and (iii) Information Support in connection with any Customer Outsourcing Program except that -19- the Company Entities shall provide information to the Capital Entities relating to the specific Products being Financed by the Capital Entities in connection with any Customer Outsourcing Program. In addition to the foregoing, the Company Entities may, in connection with any Customer Outsourcing Program with any Customer, without providing a right to bid thereon to the Capital Entities, (x) guarantee or assume the payment obligations of such Customer under financings for products provided to such Customer by any financing source that is unaffiliated to the Company Entities or Capital Entities to the extent that such financings are in effect at the time that the Company Entities enter into such Customer Outsourcing Program with such Customer and (y) finance, through the financing program or arrangement in effect with such alternative financing source, upgrades or add-ons to the products that have been so financed through such alternative financing program or arrangement. (e) In the event that a Company Entity reasonably believes that any Financings and Ancillary Services provided by the Capital Entities at any Sales Site are not being provided substantially and generally in accordance with the applicable Protocols and Procedures, such Company Entity shall provide notice thereof to the appropriate Capital Entities (which notice shall set forth in reasonable detail the basis of such belief of the Company Entity). The Capital Entities shall have 60 days after receipt of such notice to cure such deficiencies and provide Financing and Ancillary Services substantially and generally in accordance with the applicable Protocols and Procedures. If the Capital Entities fail to cure such deficiencies within such 60 day period, the Company Entities may, notwithstanding the provisions of Section 3.1 and this Section 3.2, make arrangements with an Alternative Provider to provide at such Sales Site Alternative Financing Programs and/or Alternative Ancillary Programs of the type not being provided by the Capital Entities at such Sales Site substantially and generally in accordance with the applicable Protocols and Procedures. Section 3.3. Right to Choose Alternative Providers . Capital acknowledges that Customers and Authorized Dealers are entitled to choose not to Finance the acquisition or use of Products or to choose to make arrangements for obtaining Financings for the acquisition or use of Products or Ancillary Services from Alternative Providers. Capital further acknowledges that the provisions of this Agreement (including the Company's commitment in Section 3.2 to promote the use of Financings and Ancillary Services offered by the Capital Entities) do not require the Company Entities to condition the sale or furnishing of Products on the choice by Customers or Authorized Dealers of Financings or Ancillary Services offered by the Capital Entities or otherwise require Customers or Authorized Dealers to utilize such Financings or Ancillary Services. Nothing set forth in this Agreement will be construed so as to prohibit any sales representative of any Company Entity from cooperating with a Customer or Authorized Dealer in obtaining -20- Financing or Ancillary Services from an Alternative Provider where the Customer or Authorized Dealer has independently decided not to obtain such Financing or Ancillary Services from Capital; provided, however, that the ability of such Company Entities to cooperate with such Alternative Provider will be subject to the limitations set forth in Section 3.2(a) and Section 3.2(b). Section 3.4. Finance Marketing Support . The Company Entities' sales representatives engaged in the sale or marketing of Products of a type for which the Capital Entities offer Customer Financings or Dealer Financings or Ancillary Services shall be provided by the Company Entities with promotional and informational literature concerning such Financings and Ancillary Services and, where appropriate, Standard Documents that are in each case provided by the Capital Entities to the Company Entities. Such sales representatives shall make the Financing options offered by the Capital Entities known to Customers and Authorized Dealers interested in Financing the purchase, lease or other acquisition of Products and, where appropriate, shall make the Ancillary Services offered by the Capital Entities known to such Customers and Authorized Dealers. In addition, such sales representatives shall generally use their good faith best efforts to promote the use of such Financings and Ancillary Services by such Customers and Authorized Dealers. Section 3.5. Personnel Support. (a) Consistent with past practice, the Company Entities shall, in a manner deemed appropriate by the Company in its discretion, make available employees of such Company Entities with the requisite position, knowledge, skill and experience to coordinate the Company Entities' marketing and sales strategies with the Capital Entities' marketing and Financing and Ancillary Services strategies, to coordinate the actual marketing and sale of Products by such Company Entities with the offering and documentation of Financings and Ancillary Services by the Capital Entities, to receive and disseminate within each SBU within each such Company Entity and provide timely responses to communications, requests and information from the Capital Entities to such SBU, to coordinate cash management, accounting and systems interfaces between the Company Entities and the Capital Entities and to otherwise comply with such Company Entities' obligations to Capital hereunder. (b) The Company Entities shall provide training to appropriate personnel of the Capital Entities with respect to Products and their characteristics and usages, the interrelationships among Product lines, the potential for Product upgrades and add-ons, the products of other manufacturers competitive with the Products, Product marketing and sales strategies and similar technical or marketing matters that could be of use to such personnel in designing and pricing appropriate types of Financings and Ancillary Services, including the determination of appropriate residual values. -21- Section 3.6. Information Support . The Company Entities shall, in a manner consistent with past practice, comply with all reasonable requests of the Capital Entities for information with respect to the Company Entities' business plans and results and Products that are relevant to the activities contemplated under this Agreement (whether or not relating to the Active Service Areas). Without limiting the foregoing, the Company Entities shall keep the Capital Entities informed on a regular and timely basis of their Product development and marketing plans and results to the extent relevant to the activities contemplated under this Agreement. The Company Entities shall also provide the Capital Entities appropriate information within the possession or control of such Company Entities that is relevant to an analysis of the credit standing of any Customer or Authorized Dealer proposed to directly or indirectly receive Financing or Ancillary Services from the Capital Entities, and shall provide the Capital Entities such Product information as may be useful in connection with the pricing of Financings and Ancillary Services and the determination of appropriate residual values (such as information as to Product remarketing prices, Product pricing analyses, Product aging and replacement reports and analyses and Product migration strategies). Section 3.7. Activities of the Company Entities . The "preferred provider" rights and benefits conferred on the Capital Entities and the obligations of the Company Entities under this Article III shall not be applicable to or restrict or limit the rights of the Company Entities to engage in Financing and Ancillary Service activities to the extent the Company Entities are expressly permitted to engage in such activities pursuant to Article IV; provided, however, that the Company Entities shall not transfer or assign (except to other Company Entities) such rights to any other Person. ARTICLE IV NON-COMPETITION Section 4. Covenant Not to Compete. (a) In furtherance of the "preferred provider" status accorded by the Company to the Capital Entities under Section 3.2, the Company covenants and agrees that the Company shall not, and shall not permit the other Company Entities to, directly or indirectly, at any time during the term of this Agreement (whether as stockholder, principal, agent, independent contractor, partner or otherwise) maintain an ownership interest in, manage, operate, control or participate in a business involving (i) the Financing of Products or the offering of Ancillary Services anywhere within any Active Service Area (which activities the parties agree shall be deemed to be in direct competition with the Capital Entities), or (ii) the financing of products or services manufactured, sold, furnished provided or marketed by Persons that are not Company Entities, or the offering of ancillary services similar to the -22- Ancillary Services with respect to such products or services, or the providing of secured financing to any Person (whether or not such competition relates to the services offered by the Capital Entities under this Agreement) anywhere within any Active Service Area (it being acknowledged that the prohibited activities are not limited to any particular region within the Active Service Areas because the prohibited activities may be engaged in effectively in competition with the Capital Entities' business from any location within the United States or within any other Active Service Area), except as provided in paragraph (b) below and Section 4.2. (b) Notwithstanding the provisions of paragraph (a) above: (i) the Company Entities may acquire and own, individually or collectively, in the aggregate, (A) except as provided in clause (ii) below, not in excess of 5% of any class of stock of any financial institution if such stock is publicly traded and listed on any national or regional stock exchange or reported on the National Association of Securities Dealers Automated Quotation System (NASDAQ) and (B) ownership interests in any company that has an equipment leasing subsidiary or division to the extent that by ownership of such equity interests or otherwise the Company Entities do not "control" (as described in the definition of Subsidiary) such company, provided that the Company Entities shall not assist such equipment leasing subsidiary or division in competing with the Capital Entities and shall not provide such subsidiary or division with any "preferred provider" rights of the type set forth in Section 3.2; (ii) the Company Entities may acquire or establish and own a bank, insurance company, savings and loan association or similar financial institution that does not (or, following such acquisition, ceases to) offer programs for equipment leasing or other types of equipment Financing with respect to Products, asset remarketing or Finance-related equipment insurance in connection with Products that compete with programs for such services offered by the Capital Entities; (iii) the Company Entities may issue credit cards; provided that the Company Entities shall not use such credit cards to offer programs for equipment leasing or other types of equipment Financing with respect to Products, asset remarketing or Finance-related equipment insurance in connection with Products that compete with programs for such services offered by the Capital Entities (it being understood that for purposes of this clause (iii) "Products" shall include Products (as defined in the AT&T Operating Agreement or any Comparable Operating Agreement entered into pursuant to, and as defined in, the AT&T Operating Agreement); -23- (iv) the Company Entities may, in a manner consistent with past practice (such past practice being more fully described on Schedule B attached hereto and made a part hereof) or as otherwise agreed by the Company and Capital from time to time, provide interim Financings for Products in the form of sales-type leases, installment sales contracts or conditional sales contracts to Customers or Authorized Dealers to Finance the acquisition by them of Products; provided that the Company Entities shall offer to the Capital Entities an opportunity to purchase the receivables resulting from such Financings on terms consistent with past practice and, where applicable, subject to the terms of the Credit Receivables Agreement or the Company Receivables Agreement; (v) the Company and its Subsidiaries may, pursuant to the terms of the agreement of the parties with respect to the NCR Portfolio (as such term is defined in the Intercompany Agreement) contemplated in the Intercompany Agreement, provide Financings for Products manufactured or provided by the Company or its Subsidiaries that are marketed in the United Kingdom, France or Germany to Customers located in the United Kingdom, France or Germany, which Financings shall be managed and administered by Capital pursuant to the terms of such agreement of the parties with respect to the NCR Portfolio; (vi) the Company Entities may finance the sale or other disposition of real estate owned by the Company Entities from time to time; (vii) Acquired Entity Financing Sources may conduct the financing activities that such entities are permitted to conduct under Section 4.3; (viii) the Company Entities may provide short-term trade credits to Customers and Authorized Dealers in connection with the acquisition of Products by such Customers and Authorized Dealers; and (ix) the Company Entities may provide services to lessees involving (A) inspection of leased equipment and analysis of related leases with a view towards reducing ongoing lease expenses, (B) provision of recommendations to reduce current and future costs related to equipment and the related leases or (C) negotiation with lessors with respect to matters such as credits for returned equipment, purchase by lessees of equipment and consolidation of equipment leases. It is the intent and understanding of the parties hereto that if, in any action before any court, agency or tribunal legally empowered to enforce this Section 4.1, any term, restriction, covenant or promise in this Section 4.1 is found to -24- be invalid, illegal or unenforceable, then such term, restriction, covenant or promise will be deemed modified to the extent necessary to make it valid, legal or enforceable by such court, agency or tribunal. Section 4.2. Use of a Permitted Captive Financing Source . If at any time a Captive Financing Trigger Event (as defined below) occurs, the Company may, upon at least 120 days' prior notice to Capital given not later than 30 days after the date of the determination that such Captive Financing Trigger Event exists, elect to (i) provide, or to cause another Company Entity to provide Financings with respect to future sales, leases or other furnishings of Products and related Ancillary Services and (ii) terminate the "preferred provider" rights and benefits provided to the Capital Entities pursuant to Section 3.2. A "Captive Financing Trigger Event" shall be deemed to have occurred if, and only if, the Capital Entities' Financing Penetration Rate as of the end of any calendar year declines by ten (10) percentage points or more relative to the Capital Entities' Financing Penetration Rate as of the end of the preceding calendar year (for instance, the requirements of this clause (ii) shall be satisfied for calendar year 1997 in the event that the Capital Entities' Financing Penetration Rate for calendar year 1997 were 44% and the Capital Entities' Financing Penetration Rate for calendar year 1996 were 55% since such 1996 Financing Penetration Rate would have exceeded such 1997 Financing Penetration Rate by 11 percentage points); provided that any decline in such Financing Penetration Rate as of the end of any calendar year that is attributable to a breach or violation by a Company Entity or an employee of a Company Entity of this Agreement (whether or not such breach or violation gives rise to a right of termination of this Agreement) shall be excluded from the calculation of such Capital Entities' Financing Penetration Rate. In comparing the Capital Entities' Financing Penetration Rate for any two three-year periods, the adjustments to the Adjusted Financing Amount and Adjusted Financeable Product Sales contemplated in the definitions thereof for calculation of such Capital Entities' Financing Penetration Rates shall be effected on a consistent basis (for instance, if the Adjusted Financing Amount and Adjusted Financeable Product Sales for calendar year 1997 are adjusted downwards to reflect a phase-out in calendar year 1997 of a significant Products line, the Adjusted Financing Amount and Adjusted Financeable Products Sales for calendar year 1996 shall also be correspondingly adjusted downwards as if the phase-out of the significant Products line occurred in calendar year 1996). The Company and Capital shall, as part of the Protocols and Procedures, establish procedures and parameters for determining whether or not a Captive Financing Trigger Event has occurred as of the end of any calendar year. -25- Section 4.3. Financing Operations of Acquired Entities. (a) In the event that the Company Entities at any time acquire equity interests in or the assets of any Person or business (such entity or the entity holding such acquired assets being sometimes referred to herein as an "Acquired Entity") that thereby becomes a Subsidiary of the Company or a division of any Company Entity and which engages, directly or through an Affiliate, in the financing of products or services manufactured, marketed or provided by such Acquired Entity (the division or Affiliate that provides such financing being sometimes referred to herein as an "Acquired Entity Financing Source"), the Company shall use reasonable efforts to facilitate one or more of the following transactions by Capital, in Capital's discretion: (i) acquisition by Capital of the capital stock or substantially all the assets of such Acquired Entity Financing Source for an amount equal to the fair market value thereof (not to exceed the portion of the total consideration paid by the Company Entities for the acquired equity interests or assets that is allocable to such assets or stock of such Acquired Entity Financing Source); (ii) acquisition by Capital of the capital stock or substantially all of the assets of such Acquired Entity Financing Source, other than its portfolio of existing financings, for an amount equal to the fair market value of such acquired assets (subject to the same limiting principle as in the preceding clause (i)) and execution by Capital of an exclusive agreement with such Acquired Entity Financing Source for Capital to service such existing portfolio (including any future additions to such portfolio) for a reasonable, market-based fee; or (iii) without the acquisition of such capital stock or assets or portfolio, the execution by Capital of an exclusive agreement with such Acquired Entity Financing Source for Capital to service such portfolio (including any future additions to such portfolio) for a reasonable, market-based fee. (b) In the event that Capital does not acquire the capital stock or substantially all the assets of any such Acquired Entity Financing Source as provided in paragraph (a) above, such Acquired Entity Financing Source may, so long as it continues to be, or continues to be a division or unit of, a direct or indirect Subsidiary of the Company, continue to provide financing for: (A) products or related services manufactured, marketed, furnished or provided by the related Acquired Entity as of the date of the acquisition thereof by the Company Entities, together with any new generations of such products or services; provided, that such products and services will nonetheless be deemed to be "Products" for the purposes of this Agreement and Capital will also have a right to offer Financings and Ancillary Services with respect to such Products in accordance with the terms of Article III (except that the "preferred provider" provisions of Section 3.2 shall not restrict the Company Entities from providing any rights or benefits to such Acquired Entity Financing Source with respect to such Products); and (B) products or related services manufactured, marketed or provided by Persons that do not constitute Company Entities so long as the scope and -26- nature of such financing activities are restricted to the scope and nature of such financing activities of such Acquired Entity Financing Source as of the date of the acquisition thereof by the Company Entities (it being understood and agreed that such Acquired Entity Financing Source shall not provide Financings for Products (other than the Products permitted to be Financed pursuant to clause (A) above) except to the extent that such other Products are incorporated in or integral to the products and services permitted to be financed pursuant to this clause (B) and which do not constitute more than 40% of the value of such products or services and such Financings of Products do not occur as a course of dealing with respect to any Customer or Customer segment). At the request of either party, the parties shall set forth in writing the specific scope, nature and extent of the financing activities of any such Acquired Entity Financing Source that are permitted under the terms of this Section 4.3. ARTICLE V PROTOCOLS AND PROCEDURES AND RELATED MATTERS Section 5.1. Protocols and Procedures; Pilot Programs . (a) The Company and Capital acknowledge that there are presently in effect certain protocols and procedures governing certain aspects of the business relationship between the Capital Entities (or their predecessors) and the Company Entities (collectively, "Protocols and Procedures") that were agreed to between such Company Entities and Capital Entities (or their predecessors) for the purposes of (A) on the one hand, promoting efficiency in the identification, communication and processing of requirements of Customers and Authorized Dealers for Financings and Ancillary Services and the provision and monitoring of such Financings and Ancillary Services and (B) on the other hand, improving the Capital Entities' Financing Penetration Rate while maintaining the profitability to the Capital Entities of the provision of Financings and Ancillary Services (the "Protocol Standards"). Such Protocols and Procedures will continue to remain in effect between the appropriate Company Entities and Capital Entities, and the Company Entities and Capital Entities shall conduct the activities contemplated in the Protocols and Procedures to be conducted by the Company Entities and Capital Entities, as the case may be, substantially and generally in accordance with the terms thereof (it being understood that complete and consistent compliance by the parties with the Protocols and Procedures is not practical). It is the intention of the parties that the Protocols and Procedures will not supersede or modify the agreements of the parties set forth in the Location Support Agreement or other written agreements between the parties relating to the provision of products or services by one party to the other party. (b) The appropriate Company Entities and Capital Entities shall review the Protocols and Procedures on a periodic basis to determine if it would be appropriate or necessary to -27- modify or supplement the Protocols and Procedures in order for the Protocols and Procedures to comport more closely with the Protocol Standards or for the Protocols and Procedures to take into account new types of Financings or Ancillary Services or other changes in circumstances in a manner consistent with the Protocol Standards. The appropriate Company Entities and Capital Entities may also suggest modifications or supplements to the Protocols and Procedures at any time and from time to time that are consistent with the Protocol Standards. The Company Entities may, consistent with past practice, in determining whether the Protocols and Procedures are to be modified or updated, take into account relevant benchmarking and other methods of evaluating the Financing programs offered by the Capital Entities whereunder such programs would be compared to substantially similar (as to scope and nature) financing programs offered by other financing sources for equipment and products that do not constitute Products. Where applicable, the appropriate Company Entities and Capital Entities shall, in any such circumstances, negotiate in good faith to appropriately modify or supplement the Protocols and Procedures. (c) The Capital Entities and the Company Entities shall, consistent with past practice, cooperate with each other to institute pilot Financing programs by the Capital Entities which are mutually satisfactory to the Company Entities and the Capital Entities. Section 5.2. Systems Interface . (a) The Company and Capital agree to maintain in effect the existing telecommunications and computer linkages (including, without limitation, telecommunications and computer linkages relating to voice messaging, electronic written messaging, remote terminal document retrieval, and data storage and retrieval) between the Company Entities and Capital Entities that facilitate (x) the accessing by the Capital Entities of information with respect to Customer and Authorized Dealer locations, Product delivery, location, installation and servicing, SBU sales force performance and related matters, (y) the accessing by the Company Entities and the SBUs of information with respect to terms of or rates for Financings and Ancillary Services, acceptance, billing and payment status and credit and collection information and, to the extent such information is available to the Capital Entities, information with respect to Customer and Authorized Dealer locations and Product delivery, location, installation and servicing, and (z) the integration of funds transfers between the Company Entities and Capital Entities with their respective invoicing and accounting systems in connection with the provision by the Capital Entities of Financings and Ancillary Services with respect to Products. -28- (b) The appropriate Company Entities and Capital Entities shall review the foregoing telecommunications and computer linkages on a periodic basis to determine if it would be appropriate or necessary to improve, expand, modify or supplement such linkages in order to comply with the Protocols and Procedures, integrate more efficient technology, improve and expand data retrieval and usage and improve the sales of Products and the utilization of Financings and Ancillary Services offered by the Capital Entities or to take into account new types of Financings or Ancillary Services or other changes in circumstances. The appropriate Company Entities and Capital Entities may also suggest improvements, expansions, modifications or supplements to such telecommunications and computer linkages at any time and from time to time that are consistent with the foregoing standards. If necessary or appropriate, the appropriate Company Entities and Capital Entities shall, in any such circumstances, take appropriate actions to effect such improvements, expansions, modifications or supplements to such telecommunications and computer linkages. (c) The Company Entities shall bear the costs of maintaining and improving, expanding, modifying or supplementing the computer and telecommunications systems owned by them and the costs of telecommunication and other services utilized by them. The Capital Entities shall bear the costs of maintaining and improving, expanding, modifying or supplementing the computer and telecommunication systems owned by them and the costs of telecommunication and other services utilized by them. The costs of designing and implementing the interfaces between the Company Entities' and Capital Entities' computer and telecommunications systems and the costs of related telecommunications and other services shall be shared equally between the Company and Capital. ARTICLE VI REMARKETING OF PRODUCTS Section 6.1. In General . (a) The Company Entities and the Capital Entities and the SBUs shall, in a manner consistent with past practice but subject to the terms hereof, coordinate their strategies with respect to the disposition or re-lease (whether by extension of the existing lease or by a new lease to a third party) of leased Products (whether at the end of the lease term or upon the return or repossession of the leased Product prior to the end of such term), with the objective of both maintaining the relevant Customers and Authorized Dealers as purchasers and users of Products, on the one hand, and protecting the Capital Entities' reasonable expectations concerning the realization of profits from end of term residuals, on the other hand. Unless otherwise agreed to by the Capital Entities in connection with particular Financings or Financing programs, Capital will not be restricted in terms of its right to sell, re-lease or otherwise dispose of returned or repossessed Products (including Products that have been leased by or subject to -29- security interests or other claims in favor of any Capital Entity). Except as otherwise agreed in writing, the Company Entities shall not be deemed to have represented or warranted to the Capital Entities that the Capital Entities will obtain any minimum proceeds or rate of return upon the resale, re-lease or other disposition of returned or repossessed Products. (b) The Company Entities and Capital Entities may from time to time enter into agreements with respect to the disposition or re-lease of Products. The Company acknowledges and agrees, on behalf of itself and the other Company Entities parties thereto, and Capital acknowledges and agrees, on behalf of itself and other Capital Entities parties thereto, that (i) Credit has succeeded to the rights and assumed the obligations of Credit Holdings under each and any agreement in effect on the date hereof between any AT&T Entity and Credit Holdings with respect to the disposition or re-lease of Products and (ii) on the Spin-Off Date the Company shall succeed to the rights and assume the obligations of the AT&T Entities in accordance with Section 8.1(a) under each and any agreement in effect on the date hereof between any AT&T Entity and any Capital Entity with respect to the disposition or re-lease of Products shall remain in full force and effect (it being understood that no AT&T Entity shall be released from its obligations under any such agreement entered into prior to the Spin-Off Date). The terms and conditions of this Agreement shall apply to the disposition or re-lease of any Products with respect to which an agreement of the type referred to in this paragraph (b) is in effect at any time to the extent that such terms and conditions are not inconsistent with the terms and conditions of any such agreement and, to the extent of any such inconsistency, the terms and conditions set forth in such agreement shall apply and be controlling. Section 6.2. Deinstallation, Refurbishment and Re-Certification of Remarketed Products . In the event that any Product subject to a Financing is returned to a Capital Entity (or the right to possession of such Product otherwise reverts to a Capital Entity), at the request of such Capital Entity, the Company shall cause the relevant Company Entity to deinstall, refurbish, recertify, store and/or redeliver such Product in accordance with the reasonable instructions of such Capital Entity. Such Capital Entity shall pay such Company Entity for such services at the most competitive rates customarily charged by such Company Entity to Authorized Dealers and other Product dealers for such services. Nothing contained herein shall be construed as limiting in any way the right of the Capital Entities to obtain any of the foregoing services from Persons other than Company Entities. Section 6.3. Rights to Use Software . The Company hereby grants, on behalf of itself and any other applicable Company Entity, a license to the Capital Entities to use any and all Software, which license shall with respect to any such -30- Software be effective automatically and immediately upon Financing by the Capital Entities of such Software or any other Products in connection with which such Software is to be used. Except as provided herein, the scope of the license granted to the Capital Entities shall be consistent with the scope of the license granted by the applicable Company Entity in its standard form of license agreement with respect to such Software. The Capital Entities shall (i) not be required to pay any license fee for such Software or otherwise comply with the terms of any applicable license agreement for so long as the Capital Entities are merely providing Financing for such Software or any related Products or have foreclosed on or otherwise repossessed or re-acquired such Software in connection with a default under or expiration or termination of the related Financing but are not using such Software (except for purposes of testing or demonstrating such Software in connection with any proposed disposition of such Software) and (ii) be entitled to assign their license to any other Person, provided that if such Person is not a Capital Entity and the applicable Company Entity's standard form of license agreement for such Software requires the prior consent of a Company Entity to assign such license, the Capital Entities shall assign such license only upon execution and delivery by the assignee of the applicable Company Entity's standard form of license agreement for such Software and agreement by such assignee to pay, at the then-prevailing rate, any fees required to be paid by a licensee of such Software to the applicable Company Entity pursuant to the terms of such license agreement. ARTICLE VII CERTAIN ALLOCATIONS OF RISK; LITIGATION AND REPOSSESSION Section 7.1. Representations, Warranties and Covenants. (a) Unless otherwise agreed with respect to particular Financings or Ancillary Services or programs with respect thereto, the Company and any other appropriate Company Entity will be deemed to make the following representations, warranties and covenants to Capital and any other appropriate Capital Entity each time that a Capital Entity provides, extends or renews a Financing or Ancillary Service with respect to a Product (to the extent such representations, warranties or covenants are applicable to the particular Financing or Ancillary Service): (i) the appropriate Capital Entity will, upon payment of the purchase price of any Product that is being Financed by such Capital Entity pursuant to a lease or other arrangement in which such Capital Entity retains title to the Product, receive (A) title to the Product (other than Products constituting Software) free and clear of any lien or charge thereon created by or through any Company Entity and (B) to the extent any portion of such Product is not manufactured or developed by a Company Entity and with -31- respect to which a Company Entity has received a warranty or indemnity from another Person, an assignment by such Company Entity of any such applicable warranty, express or implied, and indemnity rights applicable to such Product to the extent that such warranty and indemnity rights are by their terms assignable (and if any such warranty or indemnity rights are not by their terms so assignable, such Company Entity will hold any such warranty and indemnity rights for the benefit of such Capital Entity and will, at the direction and expense of such Capital Entity, take all such actions as such Capital Entity may reasonably request to enforce all or any part of such warranty and indemnity rights); (ii) neither any Company Entity nor any employees or agents of any such Company Entity will knowingly participate in, or fail to disclose to the appropriate Capital Entity any knowledge of, any fraudulent or illegal act in connection with the Financing or Ancillary Service; (iii) the Product Financed by the Capital Entity will be delivered to the Customer or Authorized Dealer named in the applicable Financing application and installed at the location indicated in the applicable Financing application in accordance with such Company Entity's normal operating practices and the terms of the contract with the Customer or Authorized Dealer, and the appropriate Company Entity will honor all express and implied warranties and agreements, representations and/or assurances made by such Company Entity to any Customer or Authorized Dealer with respect to any such Product; and (iv) the Company Entities and their employees will not, without the appropriate Capital Entity's express consent, make any representation, warranty or covenant on behalf of such Capital Entity to a Customer or Authorized Dealer with respect to the Financing, the Standard Documents or other documents provided by the Capital Entities, the Ancillary Service or the Financed Product. (b) Unless otherwise agreed with respect to particular Financings, Ancillary Services or programs with respect thereto, Capital and any other appropriate Capital Entity will be deemed to make the following representations, warranties and covenants to the Company and any other appropriate Company Entity each time that a Capital Entity resells a Financed Product to a Company Entity or a Capital Entity provides, extends or renews a Financing or Ancillary Service with respect to a Product (to the extent such representations, warranties or covenants are applicable to the particular Financing or Ancillary Service): -32- (i) the appropriate Company Entity will, upon payment of the purchase price of any Financed Product that is sold by the appropriate Capital Entity to such Company Entity, receive (A) title to the Product free and clear of any lien or charge thereon created by or through any Capital Entity and (B) to the extent any portion of such Product is not manufactured or developed by a Company Entity and with respect to which any Capital Entity has received a warranty or indemnity from a Person other than a Company Entity, an assignment by such Capital Entity of any such applicable warranty, express or implied, and indemnity rights applicable to such Product to the extent that such warranty and indemnity rights are by their terms assignable (and if any such warranty or indemnity rights are not by their terms so assignable, such Capital Entity will hold any such warranty and indemnity rights for the benefit of such Company Entity and will, at the direction and expense of such Company Entity, take all such actions as such Company Entity reasonably will request to enforce all or any part of such warranty and indemnity rights); (ii) neither any Capital Entity nor any employees or agents of such Capital Entity will knowingly participate in, or fail to disclose to the appropriate Company Entity any knowledge of, any fraudulent or illegal act in connection with the Financing or Ancillary Service; and (iii) the Capital Entities and their employees will not, without the appropriate Company Entity's express consent, make any representation, warranty or covenant on behalf of a Company Entity to a Customer or Authorized Dealer with respect to the Financing, Ancillary Service or Financed Product. Section 7.2. Allocation of Certain Risks. (a) The Capital Entities shall assume responsibility for and bear the risks of delinquency, default and non-payment under any Financings provided by them unless (i) the relevant Company Entity and the relevant Capital Entity agree or have agreed otherwise, (ii) a Company Entity has provided the relevant Capital Entity with a full or partial guaranty or indemnity pursuant to Section 2.4 or Section 2.7, (iii) Capital is entitled to indemnification for such risks pursuant to the terms of Article IX or (iv) such delinquency, default or non-payment is attributable to a Company Responsibility, as defined below (in which event such risks will be borne in accordance with this Section 7.2). (b) A "Company Responsibility" means a delinquency, default or non-payment by a Customer or an Authorized Dealer under any Financing provided by a Capital Entity of a Product in circumstances where such delinquency, default or non-payment is a result of: -33- (i) failure by any Company Entity to deliver, install or service, as the case may be, such Product in accordance with such Company Entity's contractual or legal obligation to deliver, install or service such Product; (ii) failure of such Product to comply with any contractual representation, warranty or covenant provided by any Company Entity with respect to such Product or with any warranty applicable to such Product by operation of law; (iii) any offset or counterclaim by the relevant Customer or Authorized Dealer against the amounts due by it under the Financing on the basis of disputes between such Customer or Authorized Dealer and any Company Entity (or on the basis of amounts owing by any Company Entity to such Customer or Authorized Dealer) under any business dealings between such Customer or Authorized Dealer and any Company Entity, whether or not related to such Product or such Financing; or (iv) breach or violation by any Company Entity or any employee of a Company Entity of the provisions of Section 7.1(a) (whether or not such breach or violation gives rise to a right of termination of this Agreement). In addition, a "Company Responsibility" will be deemed to exist if, as a matter of law or equity, any Company Entity is found to be responsible for the Customer's or Authorized Dealer's failure to honor its obligations under a Financing or such Customer or Authorized Dealer is able to avail itself of a defense to any claim asserted by the relevant Capital Entity with respect to such Financing based on non-performance by any Company Entity of any obligations of any such Company Entity (whether or not related to the Financed Product) or any breach by a Company Entity of any warranty (at contract or at law) with respect to any Product. The application of the term "Company Responsibility" is further described in the General Allocation of Responsibilities set forth on Schedule C. (c) The Company and Capital agree that in any situation in which there arises the potential for a delinquency, default or non-payment with respect to a Financing which may be a result of a Company Responsibility (including any such situation in which a Customer or Authorized Dealer has refused to perform its obligations thereunder based on the alleged existence of a circumstance that would constitute a Company Responsibility), the billing, collection and enforcement activities and any losses with respect to such Financing will be allocated to the relevant Capital Entities or SBUs in accordance with the General Allocation of Responsibilities set forth on Schedule C. Section 7.3. Collection and Repossession Actions . Except as provided in Sections 7.2 and 7.4, Capital will be entitled, in its discretion, to take (or determine not to take) -34- any and all actions to collect amounts due and unpaid or otherwise enforce its rights upon the occurrence and continuation of a default by a Customer or Authorized Dealer under a Financing including, without limitation, to make demand for payment or performance, institute an action for payment of amounts due or for specific performance, institute collection proceedings, effect acceleration or termination of the Financing, foreclose upon or take possession of security (which may include the Financed Product) provided by or on behalf of the Customer or Authorized Dealer or enforce remedies to take possession and control of the Product. In no event will the Capital Entities engage in unlawful collection practices or refer matters for collection to any collection agencies or attorneys who are known by the Capital Entities to engage in unlawful collection practices. Section 7.4. Actions Against Significant Accounts . (a) Capital shall, to the extent reasonable and practicable, provide advance notice to the relevant SBUs of any legal proceeding or repossession action to be initiated by any Capital Entity against a Significant Account. If circumstances require the immediate commencement of such an action in order to reasonably protect the interests of the Capital Entities under any Financing or Ancillary Service or in the related Financed Products, the Capital Entities may take such action, but shall notify the relevant SBUs of the situation as soon as practicable after initiating such action. (b) In the event that any Capital Entity initiates or proposes to initiate any legal proceeding or repossession action against a Significant Account, such Capital Entity shall delay or refrain from pursuing or initiating such action in the event that the Company either (A) agrees to purchase, without recourse or warranty (except as to title and as provided herein or otherwise agreed), all of the interest of such Capital Entity in such Financing, Ancillary Service and the related Financed Products for a purchase price calculated in accordance with the General Allocation of Responsibilities set forth on Schedule C or (B) gives such Capital Entity other legal undertakings reasonably satisfactory to such Capital Entity to induce it to delay or refrain from taking such action. ARTICLE VIII SCOPE OF APPLICATION OF AGREEMENT Section 8.1. Attribution of Actions of Subsidiaries to Their Parents . (a) The Company agrees and acknowledges that the Company shall be responsible for, and hereby guarantees, the due and punctual payment and performance, in accordance with their terms, of the obligations hereunder applicable to any Company Entity (other than the Company) or any SBU or division within any Company Entity or in any other agreement or commitment (including, without limitation, any lease agreement) of any such -35- Company Entity or SBU or division within any Company Entity entered into at any time and from time to time (whether before or after the Spin-Off Date) with or for the benefit of any Capital Entity or any strategic business unit or division within any Capital Entity (it being understood that no AT&T Entity shall be released from any of its obligations under the AT&T Operating Agreement). The Company further acknowledges and agrees that the foregoing undertaking and guarantee shall extend for the benefit of any permitted assignee of any Capital Entity's or such strategic business unit's or division's rights and benefits with respect to any such agreement or commitment and, if reasonably requested by Capital, the Company shall affirm such undertaking and guarantee for the benefit of any such assignee. Capital agrees that any obligation of the Company hereunder or thereunder that is paid or performed by a Company Entity (other than the Company) shall be deemed to be paid or performed, as the case may be, by the Company. The Company hereby represents and warrants to Capital that it has the requisite authority to commit and bind the other Company Entities to the applicable terms of this Agreement. (b) Capital agrees and acknowledges that Capital shall be responsible for, and hereby guarantees, the due and punctual payment and performance, in accordance with their terms, of the obligations hereunder applicable to any Capital Entity (other than Capital) or any strategic business unit or division of any Capital Entity or in any other agreement or commitment (including, without limitation, any lease agreement) of such Capital Entity or any strategic business unit or division within any Capital Entity entered into at any time and from time to time (whether before or after the Spin-Off Date) with or for the benefit of any Company Entity or SBU or division within any Company Entity. Capital further acknowledges and agrees that the foregoing undertaking and guarantee shall extend to the benefit of any permitted assignee of any Company Entity's, SBU's or division's rights and benefits with respect to any such agreement or commitment and, if reasonably requested by the Company, Capital shall affirm such undertaking and guarantee for the benefit of any such assignee. The Company agrees that any obligation of Capital hereunder or thereunder that is paid or performed by a Capital Entity (other than Capital) shall be deemed to be paid or performed, as the case may be, by Capital. Capital hereby represents and warrants to the Company that it has the requisite authority to commit and bind the other Capital Entities to the applicable terms of this Agreement. Section 8.2. Application of Agreement to Certain Joint Ventures and Other Minority Investments of the Company. (a) To the extent that the Company Entities presently have or hereafter acquire equity interests in any joint venture or other Person that is not deemed to be a "Subsidiary" for the purposes of this Agreement, the Company Entities shall nonetheless use reasonable efforts, upon request of Capital, to assist Capital in negotiating and entering into an agreement with such Person -36- pursuant to which Capital would become a "preferred provider" of financing for the products and services sold, marketed or distributed by such Person and its Subsidiaries (if any) in accordance with the terms and principles set forth in Section 3.2. (b) The Company agrees to provide Capital with reasonably prompt notice of any acquisition by any Company Entity of any equity interest in any joint venture or other Person to which the provisions of this Section 8.2 would apply and to provide Capital with such information concerning such Person as Capital may reasonably request. Section 8.3. Sale, Public Offering or Spin-Off of a Significant Products Entity . In the event that (x) any Company Entity at any time proposes to (i) sell in a public offering or spin-off to its shareholders a controlling block of the equity of any Significant Products Entity or (ii) sell, directly or indirectly, in an assets or stock sale or through a merger or other form of business combination, a Significant Products Entity or a major portion of the Products Capacity thereof to one or more Persons in a negotiated transaction (including a sale or transfer in connection with a transaction referred to in Section 8.2) and (y) the effect of such transaction would be that such Significant Products Entity or such major portion of the Products Capacity thereof would no longer constitute or form a part of a "Company Entity" for the purposes of this Agreement, the Company shall: (i) at the time that the Company formulates the general intention to spin-off, offer publicly or seek potential purchasers for such Significant Products Entity or portion of the Products Capacity thereof, provide Capital with notice of such intention, and in connection with any specific proposed spin-off, public offering or sale transaction, provide Capital with notice of the same as far in advance of such sale as is reasonably practicable in the circumstances; and (ii) in the case of a spin-off or public offering, as a condition precedent to the consummation of such transaction, if so requested by Capital, first cause such Significant Products Entity or the entity holding such portion of the Products Capacity thereof to be spun-off or offered publicly to enter into an agreement with Capital under which Capital would continue to provide Financing and Ancillary Services with respect to the Products of such Significant Products Entity or other entity following such spin-off or public offering that is substantially similar in scope and terms to this Agreement and that has a term substantially equivalent to the then remaining term of this Agreement (a "Comparable Operating Agreement"); -37- (iii) in the case of a negotiated sale transaction (including a sale or transfer in connection with a transaction referred to in Section 8.2), if so requested by Capital, use reasonable efforts to facilitate negotiations between Capital and the purchasers of such Significant Products Entity or major portion of the Products Capacity thereof (or an appropriate Affiliate) with respect to the execution by such parties of a Comparable Operating Agreement with respect to the Products of such Significant Products Entity or major portion of the Products Capacity thereof; and (iv) whether or not the Capital Entities obtain any rights to provide Financings or Ancillary Services in the circumstances contemplated in this Section 8.3, reimburse the Capital Entities for any reasonable costs and charges incurred by the Capital Entities in connection with any reduction in the scope or nature of the Capital Entities' operations for the provision of Financings or Ancillary Services that results from the sale or other disposition of any Significant Products Entity or any major portion of the Products Capacity thereof (including, without limitation, costs relating to severance or redeployment of employees and costs relating to unutilized or underutilized real estate or other assets); provided that to the extent that the incurrence of such costs and expenses is reasonably determinable to be under Capital's control, the Company shall be responsible for reimbursement thereof only to the extent it has consented to the incurrence of such costs and expenses, such consent not to be unreasonably withheld (an example of such costs and expenses would be severance obligations incurred by Capital in connection with a severance package specifically designed for employees that are rendered redundant as a result of the sale or other disposition of any Significant Products Entity or any major portion of the Products Capacity thereof). Section 8.4. New Products and Company Entities . Capital's commitments with respect to the provision of Financings and Ancillary Services (including those set forth in Article II), the Company's commitments to support Capital (including those set forth in Articles III and IV) and the other provisions of this Agreement shall apply to existing and future lines of Products and existing and future Company Entities (including Acquired Entities that do not, at the time of acquisition by the Company of such entities, own an Acquired Entity Financing Source), subject in each case to the requirements of Article II and Article III and the limitations and exceptions set forth in this Agreement (including, without limitation, those set forth in Article IV and this Article VIII). Section 8.5. Geographic Scope of Agreement . (a) The Capital Entities have the present capability to provide Financings and Ancillary Services with respect to sales, leases -38- or other furnishings of Products sold or marketed by the Company Entities within the United States of America, Canada, France, Germany and the United Kingdom (each an "Active Service Area"). As the Capital Entities are able to expand their capabilities to provide such Financings or Ancillary Services in other countries or regions (or specific markets therein) being served by the Company Entities, Capital may from time to time request the Company that, and the Company may, in its sole discretion, decide to agree that such countries or regions (or specific markets therein) be designated as "Active Service Areas" with respect to the Company Entities generally or with respect to one or more Company Entities or SBUs for purposes of this Agreement, in which event the obligations of the parties hereunder shall apply with respect to such countries or regions (or specific markets therein) to the same extent as they would to any other Active Service Areas with respect to sales, leases or other furnishings of Products by such Company Entities or SBUs within such Active Service Areas. (b) Without limiting the provisions of paragraph (a) above, in the event that the Company Entities desire to provide, in connection with the provision of Financings or Ancillary Services in any country or region that is not an Active Service Area, to any Alternative Provider a "preferred provider" status with respect to such Financings or Ancillary Services reasonably similar to the "preferred provider" status provided to the Capital Entities pursuant to Section 3.2, the Company Entities shall provide the Capital Entities with an opportunity to bid to provide in such country or region the Financings or Ancillary Services and any related programs proposed to be provided in such country or region by such Alternative Provider. In the event that any such bid by the Capital Entities, considered as a whole, is at least as favorable to the Company Entities as the bid of any Alternative Provider, the Company Entities shall accept the bid of the Capital Entities and the country or region in which such Financings or Ancillary Services and any related programs are to be provided shall for all purposes of this Agreement (including Article III and Article IV) be considered to be an Active Service Area. ARTICLE IX INDEMNIFICATION Section 9.1. Capital Indemnity . Capital agrees to save, protect, indemnify and hold harmless, on an After-Tax Basis, the Company Entities and the employees, officers, directors, agents and representatives of each of the foregoing from and against all liabilities, costs (including attorney's fees and disbursements), claims and charges arising from or relating to: (i) the breach by any Capital Entity of any representations, warranties or covenants of such Capital Entity contained in or delivered pursuant to this Agreement or any other agreement of any Capital Entity relating to Products, Financings -39- or Ancillary Services; or (ii) any violation by any Capital Entity or any employee or agent thereof of any law applicable to the sale, lease or other furnishing of Products or to any related Financings or Ancillary Services (including, without limitation, any law relating to the reporting of or extension or denial of credit, the collection of debt or the repossession or disposition of products); provided that in the event that a Company Entity and a Capital Entity separately agree to indemnification (or waiver thereof) with respect to a matter that would otherwise be subject to indemnification pursuant to this Section 9.1, such other agreement will apply with respect to such matter and this Section 9.1 will not so apply. The foregoing indemnity shall not apply in respect of liabilities, costs, claims or charges to the extent arising from or relating to (i) any action, sufferance or omission by a Company Entity or an employee of a Company Entity that is effected in bad faith or represents gross negligence or willful misconduct, (ii) any action, sufferance or omission by a Capital Entity or employee of a Capital Entity pursuant to the express instructions of a Company Entity or employee of a Company Entity (in the case of such employee, if such instructions are provided by such employee in his or her capacity as such) or (iii) any breach or violation by a Company Entity or any employee of a Company Entity of the provisions of this Agreement or any other applicable agreement between a Company Entity and a Capital Entity (whether or not such breach or violation gives rise to a right of termination of this Agreement or such other agreement). Section 9.2. Company Indemnity . The Company agrees to save, protect, indemnify and hold harmless, on an After-Tax Basis, the Capital Entities and the employees, officers, directors, agents and representatives of each of the foregoing from and against all liabilities, costs (including attorney's fees and disbursements), claims and charges arising from or relating to: (i) breach by any Company Entity of any representations, warranties or covenants of such Company Entity contained in or delivered pursuant to this Agreement or any other agreement of any Company Entity relating to Products, Financings or Ancillary Services; (ii) any products, environmental or other similar liability relating to the Products (such as claims for personal injury or property damage); (iii) any misrepresentation made by any employee or agent of any Company Entity to any Customer or Authorized Dealer as to the commitment of any Capital Entity to provide any Financings or Ancillary Services to such Customer or Authorized Dealer or the likely availability thereof; and (iv) any violation by any Company Entity or any employee or agent thereof of any law applicable to the sale, lease or other furnishing of Products or to any related Financings or Ancillary Services; provided that in the event that any Company Entity and a Capital Entity separately agree to indemnification (or waiver thereof) with respect to a matter that would otherwise be subject to indemnification pursuant to this Section 9.2, such other agreement will apply with respect to such matter and this Section 9.2 will not so apply. To the extent that a Company Entity performs its obligations under Section 7.2 with respect to an -40- actual or potential Company Responsibility, the Capital Entities and related indemnified parties will not be separately entitled to indemnification under this Section 9.2 with respect to any loss or cost relating to such Company Responsibility that would otherwise be indemnifiable under this Section 9.2. The foregoing indemnity shall not apply in respect of liabilities, costs, claims or charges to the extent arising from or relating to (i) any action, sufferance or omission by a Capital Entity or an employee of a Capital Entity that is effected in bad faith or represents gross negligence or willful misconduct, (ii) any action, sufferance or omission by a Company Entity or employee of a Company Entity pursuant to the express instructions of a Capital Entity or employee of a Capital Entity (in the case of such employee, if such instructions are provided by such employee in his or her capacity as such) or (iii) any breach or violation by a Capital Entity or any employee of a Capital Entity of the provisions of this Agreement or any other applicable agreement between a Company Entity and a Capital Entity (whether or not such breach or violation gives rise to a right of termination of this Agreement or such other agreement). Section 9.3. Procedure . Each indemnified party under Section 9.1 or Section 9.2 shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder notify the indemnifying party in writing of the claim or action; provided, that the failure to notify the indemnifying party will not relieve it from any liability which it may have to an indemnified party on account of the indemnity agreement contained in Section 9.1 or Section 9.2 unless, and only to the extent that, the indemnifying party was prejudiced by such failure, and in no event will such failure relieve the indemnifying party from any other liability which it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, the indemnifying party will be entitled to participate therein, and, to the extent that it wishes, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of any claim or action, the indemnifying party will not be liable to the indemnified party under Section 9.1 or Section 9.2 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, that the indemnified party will have the right to employ separate counsel to represent it if, in the reasonable judgment of such indemnified party, it is advisable for it to be represented by separate counsel, and in such event the fees and expenses of such separate counsel will be paid by such indemnified party. The indemnifying party may not without the prior written consent of the indemnified party agree to any settlement of any claim or action as the result of which any remedy or relief, other than solely for monetary damages for which the indemnifying party will be responsible hereunder, will -41- be applied to or against the indemnified party. In any action hereunder as to which the indemnifying party has assumed the defense thereof with counsel satisfactory to the indemnified party, the indemnified party will continue to be entitled to participate in the defense thereof, with counsel of its own choice, but the indemnifying party will not be obligated hereunder to reimburse the indemnified party for the costs thereof. ARTICLE X DISPUTE RESOLUTION Section 10.1. Resolution of Disputes . Except as otherwise provided in this Article X, the procedures for discussion, negotiation and arbitration set forth in this Article X will apply to all disputes solely between the parties under this Agreement; provided that arbitration will not apply or be required in the case of any dispute challenging the validity of any provision of this Agreement or any breach of the provisions of Section 4.1 unless the parties so agree in writing. Section 10.2. Resolution of Disputes Using Best Efforts . (a) The parties hereto agree and acknowledge that (i) this Agreement is intended to provide a flexible framework for a cooperative and mutually beneficial arrangement for the provision of Financings and Ancillary Services by the Capital Entities and the treatment by the Company Entities of Capital Entities as the preferred providers of Financings and Ancillary Services to Customers and Authorized Dealers and (ii) the parties shall use good faith best efforts to resolve all differences and disputes between the parties with respect to the matters covered hereby that may arise from time to time at the level of the appropriate Capital Entity and Company Entity (or the appropriate SBU within such Company Entity) and, to the extent resolution is not achieved at such level, at the level of management of the Company and Capital. Consistent with the foregoing principles, the parties shall not refer the resolution of such differences and disputes to the arbitration proceedings specified herein except to the extent that after good faith best efforts the parties cannot resolve such differences and disputes without so escalating such resolution. Any agenda, location or procedures for such discussions or negotiations between the parties may be established by the parties from time to time or as the occasion warrants. (b) The parties may, by mutual consent, retain a mediator to aid the parties in their discussions and negotiations by informally providing advice to the parties. Any opinion expressed by the mediator shall be strictly advisory and shall not be binding on the parties, nor will any opinion expressed by the mediator be admissible in any arbitration proceeding. The mediator may be chosen from a list of mediators previously selected by the parties or by other agreement of the parties. -42- Costs of mediation shall be borne one-half by the Company and one-half by Capital, except that each party shall be responsible for its own expenses. Mediation is not a prerequisite to a demand for arbitration under Section 10.3. Section 10.3. Arbitration. (a) If any dispute (other than a dispute which challenges the validity of any provision of this Agreement and other than a breach of Section 4.1) referred to the management of the Company and Capital has not been resolved within forty-five (45) days after referral to such management, either party may demand that the dispute be resolved by binding arbitration. Notice of the demand for arbitration by one party will be given in writing to the other party to this Agreement. Upon such demand, the dispute will be decided by a sole arbitrator in accordance with the rules set forth in this Section 10.3. (b) The parties shall attempt to select, within 15 days after such notice of demand for arbitration is given, a sole arbitrator satisfactory to both parties. (c) In the event that the parties are not able to jointly select a sole arbitrator within such 15 day period, the parties shall each appoint an arbitrator within 30 days after provision of the notice referred to in paragraph (a) above. If one party appoints an arbitrator within such time period and the other party fails to appoint an arbitrator within such time period, the arbitrator appointed by the one party shall be the sole arbitrator of the dispute. (d) In the event that a sole arbitrator is not selected pursuant to paragraph (b) or (c) above, and, instead, two arbitrators are selected pursuant to paragraph (c) above, the two arbitrators will, within thirty (30) days after the appointment of the later of them to be appointed, select a third arbitrator who will act as the sole arbitrator of the dispute. After selection of such sole arbitrator, the two initial arbitrators shall have no further role with respect to the dispute. In the event that the arbitrators so appointed do not, within thirty (30) days after the appointment of the later of them to be appointed, agree on the selection of the sole arbitrator, either party may apply to any court having jurisdiction over the parties and the controversy to select the sole arbitrator. (e) The sole arbitrator selected pursuant to paragraph (b), (c) or (d) above will set a time for the hearing of the dispute which will not be later than sixty (60) days after the date of appointment of the sole arbitrator pursuant to paragraph (b), (c) or (d) above, and the final decision of such arbitrator will be rendered in writing to the parties not later than sixty (60) days after the last hearing date, unless otherwise agreed by the parties in writing. -43- (f) The place of any arbitration hereunder will be New York, New York, or at such other place as agreed to by the parties. (g) Except as otherwise set forth herein, any arbitration hereunder will be conducted in accordance with the rules of the American Arbitration Association ("AAA") then prevailing, and the decision of the arbitrator will be final and binding on the parties, and will be enforceable in any court having jurisdiction over the parties. Compliance with the provisions of this Agreement concerning arbitration of disputes is a condition precedent to the commencement of any suit, action or proceeding in any federal, state or local court with respect to any controversy or dispute under this Agreement, except a suit, action or proceeding which challenges the validity of any provision of this Agreement or a breach of Section 4.1. (h) Any party may send out requests to compel document production from the other party. Disputes concerning the scope of document production and enforcement of the document production requests will be determined by written agreement of the parties or, failing such agreement, will be referred to the arbitrator for resolution. All discovery requests will be subject to the proprietary rights and rights of privilege of the parties, and the arbitrator will adopt procedures to protect such rights. Except where contrary to the provisions set forth in this Agreement, the rules of the AAA for commercial arbitration will be applied to all matters of procedure, including discovery; provided, however, that the arbitration will not be conducted under the auspices of the AAA and the fee schedule of the AAA will not apply. The arbitrator may obtain independent legal counsel to aid in his or her resolution of legal questions presented in the course of arbitration, to the extent he or she considers that such counsel is appropriate or necessary for a fair resolution of the dispute, and to the extent that it is economical to do so considering financial consequences of the dispute. The arbitrator will be limited to interpreting or construing the applicable provisions of this Agreement, and will have no authority or power to alter, amend, modify, revoke or suspend any condition or provision of this Agreement; it being understood, however, that the arbitrator will have full authority to implement the provisions of this Agreement, including provisions requiring further agreement of the parties hereunder, and to fashion appropriate remedies for breaches of this Agreement; provided that the arbitrator shall not (i) have any authority in excess of the authority a court having jurisdiction over the parties and the controversy or dispute would have absent these arbitration provisions and (ii) have any right or power to award punitive damages. (i) If a party fails or refuses to appear at and participate in an arbitration hearing after due notice, the arbitrator may hear and determine the controversy upon evidence produced by the appearing party. -44- (j) Arbitration costs will be borne one-half by the Company and one-half by Capital, except that each party will be responsible for its own expenses and the costs of witnesses selected by such party. Section 10.4. Continuity of Service and Performance . Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement during the course of dispute resolution pursuant to the provisions of this Article X. Section 10.5. Disputes as to Sales Site Protocols and Procedures. Notwithstanding the provisions of Section 10.3(c) and Section 10.3(d), if the Company Entities and the Capital Entities have a dispute under Section 3.2(f) regarding compliance by the Capital Entities with applicable Protocols and Procedures with respect to any Financings or Ancillary Services provided at a Sales Site (or whether the Capital Entities have cured any deficiencies within the applicable period set forth in Section 3.2(e)), and the parties are not able to agree upon the selection of the sole arbitrator pursuant to Section 10.3(b), either party may immediately refer the matter to the AAA and request that the AAA select an arbitrator within 15 days of such request, and such selection by the AAA shall be binding upon both parties. ARTICLE XI TERM AND TERMINATION Section 11.1. Initial Term and Renewal . (a) Subject to Section 11.2, this Agreement shall become effective on the Spin-Off Date and shall remain in effect until, and shall terminate on, August 4, 2000 (the "Initial Term"). This Agreement shall automatically be renewed and remain in effect for an indefinite number of successive periods of two years (each such period, a "Renewal Period"), the first such Renewal Period commencing upon the expiration of the Initial Term and each successive Renewal Period commencing upon the expiration of the preceding Renewal Period, unless either party elects not to extend the term of this Agreement beyond the Initial Term or any Renewal Period by giving the other party notice of such election at least one year prior to the expiration of the Initial Term or Renewal Term then in effect (it being understood that failure to give timely notice of non-renewal will be deemed to constitute an election by the parties to renew the term of this Agreement as provided herein). (b) Prior to the Spin-Off Date, Capital shall have no obligation under this Agreement to the Company or any other AT&T Entity, it being understood that the relationship between the Capital Entities and the Company and its Subsidiaries with respect to the subject matter hereof shall continue to be governed by the AT&T Operating Agreement prior to the consummation of the Spin-Off Transaction. -45- Section 11.2. Termination. (a) This Agreement may be terminated in its entirety prior to the expiration of the Initial Term or any Renewal Term in effect: (i) at any time, by the mutual written consent of Capital and the Company; (ii) at the election of the Company (after the Spin-Off Date), by at least 180 days' prior notice to Capital, in the event of a Subsequent Transfer of Control unless (a) prior to any such transfer, Capital requests the Company's approval thereof and (b) the Company consents to such transfer (it being understood that such consent shall not be unreasonably withheld or delayed); (iii) in the event one party (the "defaulting party") has materially defaulted on its obligations under this Agreement, the other party (the "non-defaulting party") may give notice of default to the defaulting party and, in the event the defaulting party does not cure the default within 60 days of such notice of default, the non-defaulting party may, within 60 days after the expiration of such 60 day period, give notice of termination to the defaulting party and specify in such notice the date of termination of this Agreement (which date shall be a date not less than 30 days following the date of such termination notice), in which event this Agreement shall terminate on the date specified in the termination notice; (iv) at the election of the Company, by notice to Capital, in the event that Capital commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy or similar law or statute or makes an assignment of its property or any substantial portion thereof for the benefit of creditors and such proceeding or assignment is continuing or in effect at the time of such notice; (v) at the election of the Company, by notice to Capital, in the event that there is commenced against Capital an involuntary proceeding seeking to have Capital declared a bankrupt or seeking to have a receiver appointed with respect to a substantial portion of its property which is not dismissed within sixty (60) days of commencement, or there is entered an order declaring Capital a bankrupt or appointing a receiver with respect to a substantial portion of its property and such proceeding or order is continuing or in effect at the time of such notice; (vi) at the election of Capital, by notice to the Company, in the event that the Company commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under -46- any bankruptcy or similar law or statute or makes an assignment of its property or any substantial portion thereof for the benefit of creditors and such proceeding or assignment is continuing or in effect at the time of such notice; or (vii) at the election of Capital, by notice to the Company, in the event that there is commenced against the Company an involuntary proceeding seeking to have the Company declared a bankrupt or seeking to have a receiver appointed with respect to a substantial portion of its property which is not dismissed within sixty (60) days of commencement, or there is entered an order declaring the Company a bankrupt or appointing a receiver with respect to a substantial portion of its property and such proceeding or order is continuing or in effect at the time of such notice. Notwithstanding anything in this Agreement to the contrary, it is specifically understood and agreed that the Company shall not have any right to terminate this Agreement because of the occurrence of a First Tier Transfer of Control. Section 11.3. Effect of Termination . Upon the termination of this Agreement as provided in this Article XI, all obligations of the parties hereto with respect to any future Financings and Ancillary Services under this Agreement will cease; provided, however, that the obligations of the parties set forth herein as they relate to completed Financings and Ancillary Services (including the obligations set forth in Articles II, III, V, VI, and VII) and the provisions herein as to indemnification, dispute resolution, confidentiality and miscellaneous matters (Articles IX, X, XII and XIII) will continue in full force and effect. ARTICLE XII CONFIDENTIALITY Capital and the Company each understand and agree that the terms of this Agreement, including the schedule hereto, may be publicly disclosed, including in any public filing made by the Company or Capital or any Affiliate thereof with the Securities and Exchange Commission. However, Capital and the Company each covenant and agree that it shall, and shall cause its Subsidiaries to, treat any information provided by any Company Entity to any Capital Entity (in the case of Capital's obligations hereunder) or by any Capital Entity to any Company Entity (in the case of the Company's obligations hereunder) pursuant to this Agreement (including, without limitation, the Protocols and Procedures) as privileged and confidential and will not, without the prior consent of the other party hereto, disclose, or cause to be disclosed, such information to any Person, except that any such information may be disclosed (a) to Capital's or the Company's agents, directors, officers, -47- employees, representatives, accountants, counsel or special counsel who have been instructed or have a duty to keep such information confidential in accordance with the terms hereof, (b) to the Affiliates of Capital and the Company, and such Affiliates' agents, directors, officers, employees, representatives, accountants, counsel or special counsel who have been instructed or have a duty to keep such information confidential in accordance with the terms hereof, (c) to such other Persons who are reasonably deemed necessary by Capital and the Company, as the case may be, in connection with the enforcement of their rights under this Agreement, (d) to the extent required pursuant to applicable law or any governmental authority (including, but not limited to, the National Association of Insurance Commissioners, Internal Revenue Service auditors, state taxing or communications authorities or federal or state judicial authorities), (e) to the extent required or appropriate to be disclosed in response to a reasonable request by rating agencies, underwriters, or creditors in connection with financing transactions undertaken by Capital or the Company or their Affiliates, who agree or are under a duty to hold such information confidential in accordance with the terms hereof, (f) to the extent that prior to such disclosure, such information is in the public domain (it being understood and agreed that any document or information that is filed as a matter of public record with any state, federal or foreign governmental authority or is generally available to the public at the time of disclosure (other than as a result of disclosure by such Person) will for the purposes hereof be deemed to be in the public domain) or (g) to Persons involved in potential acquisitions of, mergers with, or purchase of all or substantially all of the assets of Capital (or any other Capital Entity) or the Company (or any other Company Entity) who, in each case, agree in writing to hold such information confidential in accordance with the terms hereof. ARTICLE XIII MISCELLANEOUS Section 13.1. Variation of Terms; Amendments . Any Capital Entity and Company Entity may by mutual consent from time to time vary the terms of this Agreement as it applies to such Capital Entity and either such Company Entity or one or more SBUs within such Company Entity. In such event, such varied terms will be deemed to amend this Agreement as it applies to such Capital Entity and such Company Entity (or such SBUs) for such period of time as such variance is agreed to by such Capital Entity and such Company Entity. Notwithstanding any such variance, this Agreement will continue to apply to all other Capital Entities and Company Entities (or, if applicable, all SBUs within the Company Entity that consents to such variance that are not made subject to such variance) as if such variance had not been effected. Notwithstanding the foregoing, this Agreement cannot be amended or terminated orally, but only by a -48- writing duly executed by or on behalf of the parties hereto (or by the applicable Company Entity and Capital Entity). Section 13.2. No Partnership . Nothing contained in this Agreement will be construed in any manner to constitute the creation of a partnership between the Company Entities and the Capital Entities nor to characterize the Company Entities and the Capital Entities as joint venturers. The Company Entities and the Capital Entities will at all times be and remain independent contractors with respect to the subject matter of this Agreement. Section 13.3. Successors and Assigns; Third Parties . (a) This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and assigns. (b) Except as set forth in Article IX, nothing in this Agreement, expressed or implied, is intended or will be construed to confer upon any Person (including Customers and Authorized Dealers) other than the parties (and the Company Entities and Capital Entities) and their successors and assigns any right, remedy or claim under or by reason of this Agreement. Section 13.4. Severability . If any provision of this Agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction or duly authorized arbitration tribunal to be invalid, illegal or unenforceable to any extent, the remainder of this Agreement or such provision or the application of such provision to such party or circumstances, other than those to which it is so determined to be invalid, illegal or unenforceable, will remain in full force and effect to the fullest extent permitted by law and will not be affected thereby, unless such a construction would be unreasonable. Section 13.5. Notices . All notices, consents, deliveries, demands, requests, approvals and other communications which are required or may be given hereunder will be in writing and will be deemed to have been duly given if personally delivered (including courier service), telecopied or mailed certified first class mail, postage prepaid, addressed as follows: -49- (a) if to the Company, to: NCR Corporation Attn: General Counsel at such address as is specified by such General Counsel from time to time pursuant to this Section 13.5 Telecopier Number: (to be specified by such General Counsel) Confirmation Number: (to be specified by such General Counsel) (b) If to Capital, to: AT&T Capital Corporation 44 Whippany Road Morristown, New Jersey 07960 Telecopier Number: 201-397-3220 Confirmation Number: 201-397-3187 Attention: Chairman and CEO with a copy to: AT&T Capital Corporation 44 Whippany Road Morristown, New Jersey 07960 Telecopier Number: 201-397-3220 Confirmation Number: 201-397-3187 Attention: Senior Vice President, General Counsel, Secretary and Chief Risk Management Officer Section 13.6. Governing Law . This Agreement will be governed by and construed in accordance with the laws of the State of New York, without giving effect to the choice of law provisions of its conflicts of law rules. Section 13.7. Headings . The article headings and the section headings and subheadings contained in this Agreement are intended solely for the convenience of reference and will not affect in any manner the meaning or interpretation of this Agreement. -50- Section 13.8. Counterparts . This Agreement may be executed in one or more counterparts, each of which will be deemed an original instrument, but all of which together will constitute one and the same agreement, and will become binding when one or more counterparts have been executed and delivered by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. NCR CORPORATION By:_______________________ Name: Title: AT&T CAPITAL CORPORATION By:______________________ Name: Title: Schedule A LOCATION SUPPORT AGREEMENT LOCATION SUPPORT AGREEMENT dated as of , 199 to (this "Agreement") between AT&T GLOBAL INFORMATION SOLUTIONS, INC., a Maryland corporation (the "Company") and AT&T CAPITAL CORPORATION, a Delaware corporation ("Capital"). W I T N E S S E T H: WHEREAS, Capital has requested and the Company has agreed on behalf of itself and the Company Entities and SBUs (each as hereinafter defined) to permit (to the extent provided in, and subject to the terms and conditions of, this Agreement) Capital and the Capital Entities (as hereinafter defined) to base appropriate employees of the Capital Entities ("Capital Entities Employees") in designated space in any site or location (a "Sales Site") from which the sale and marketing of products and services (collectively, as defined below, "Products") is conducted by the Company or by any Company Entity or SBU; WHEREAS, in consideration of the provision of such office space within the Sales Sites, Capital and the Capital Entities have agreed to make reimbursement to the Company Entities and SBUs for the costs of providing such office space; and WHEREAS, the parties hereto mutually desire to establish certain other terms and conditions of the Capital Entities' utilization of such office space to be made available to them for such purpose; NOW, THEREFORE, in consideration of the mutual promises herein set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the conditions and upon the terms hereof, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms will have the following meanings, applicable both to the singular and the plural forms of the terms defined: "Agreement Term" has the meaning ascribed thereto in Section 3.1. "Ancillary Services" has the meaning ascribed thereto in the Operating Agreement. "Company Entities" has the meaning ascribed thereto in the Operating Agreement, subject to the provisions of Section 2.7 hereof. 1 "Capital Entities" has the meaning ascribed thereto in the Operating Agreement. "Capital Entities Personnel" has the meaning ascribed thereto in the Preamble. "Financing" has the meaning ascribed thereto in the Operating Agreement. "Letter Supplement" has the meaning ascribed thereto in Section 13.1. "Operating Agreement" means the Global Information Solutions Operating Agreement dated as of , 199 between the Company and Capital, as such agreement is amended and supplemented from time to time in accordance with its terms. "Products" has the meaning ascribed thereto in the Operating Agreement. "Sales Site" has the meaning ascribed thereto in the Operating Agreement. "Sales Site Owner" has the meaning ascribed thereto in Section 9.1. "SBU" has the meaning ascribed thereto in the Operating Agreement. "Support Space" has the meaning ascribed thereto in Section 2.1. "Support Space Term" has the meaning ascribed thereto in Section 3.2. All capitalized terms not otherwise defined herein but defined in the Operating Agreement shall have the meanings ascribed thereto in the Operating Agreement. ARTICLE II PROVISION OF SUPPORT SPACE Section 2.1. Support Space. Subject to the availability of space (including storage space) in each Sales Site (such availability of space to be determined by the affected Company Entity or SBU in its reasonable discretion), the Company agrees to cause each of the Company Entities and SBUs to provide in each Sales Site, to one or more of the appropriate Capital Entities intended under the Operating Agreement to provide various Financings and Ancillary Services to a Company Entity or SBU, (i) furnished office space (individually a "Support Space", and collectively, "Support Spaces") which Support Space may or may not have separately demised walls as the parties may agree to, or as may fit the character of the location, or as may be deemed feasible in the reasonable determination of the Company Entity or SBU, and (ii) basic office support services for such Support Space during regular business hours (namely, cleaning, relamping and, when so requested, telephone lines). Provision at any particular Sales Site of one or more additional office support services, if any, such as document duplicating, document processing, file storage, secretarial, mailroom and similar services shall be subject to separate agreement at each Sales Site to be concluded by the Company Entity or SBU and the Capital Entity in question, shall not be required by the terms of this Agreement, and shall be limited in any event to the additional office support services which are regularly available at such Sales Site. the Company further agrees, where space is available, to cause the Company Entities and SBUs to use reasonable efforts to permit the Support Space for the 2 Capital Entity in question to be located reasonably near the sales personnel of the Company Entity or SBU in question. Section 2.2. Capital Entities Employees. With respect to each Support Space the Capital Entity in question shall advise the Company Entity or SBU in question of the number and type (manager, secretary, etc.) of Capital Entities Employees reasonably believed to be required to be based at the related Sales Site in connection with the provision of Financings and Ancillary Services with respect to the Products sold or leased through such Sales Site, in order that the parties may reach agreement on the amount, availability, adequacy and suitability of the space proposed by the Company Entity or SBU to be identified and designated as Support Space for such Sales Site. Section 2.3. Sales Site Amenities. With regard to building occupant amenities and services at any Sales Site (parking, dining facilities and similar services as agreed to by the parties), it is the intention of the parties hereto that, to the extent such amenities or services are available to the Company Entity or SBU in question and/or to the employees thereof, such amenities or services shall also be available, on the same basis and at the same cost or charge, if any, to the Capital Entity and/or its employees (subject to any necessary consent of the landlord where the Company Entity or SBU is not the Sales Site Owner), provided always that the Capital Entity in question shall be liable for its proportionate share of any costs assessed or charges imposed generally in connection with such building occupant amenity or service, and shall be liable for the entirety of any costs or charges arising from services rendered solely to the Capital Entity or to the Support Space. Section 2.4. Landlord Consent. In the event that any Sales Site shall be leased, and not owned, by a Company Entity or SBU, and the lease in question does not by its terms permit the tenant thereunder to make a Support Space available to a Capital Entity in the manner contemplated by this Agreement, the Company agrees that the Company Entity or SBU in question shall use its reasonable efforts to procure any requisite consent. Capital shall cause the Capital Entity in question to reimburse the Company Entity or SBU in question for any out-of-pocket costs incurred in procuring such consent (which shall not include any payment for such consent demanded by landlord unless agreed in advance by the Capital Entity). In the event that such landlord consent is not forthcoming, the Company and the Company Entity or SBU in question shall have no further obligation to provide Support Space at such Sales Site for the Capital Entity in question, and such Capital Entity agrees that, with respect to any Sales Site in which such Capital Entity is in occupancy on the date of this Agreement, such Capital Entity shall promptly vacate such leased Sales Site as to which such landlord consent has been refused. Section 2.5. Relocation of Company Entity or SBU Sales Site. In the event that any Sales Site having a Support Space shall be voluntarily or involuntarily relocated by the Company Entity or SBU in question to another location serving the same (or new or reconfigured) geographical marketing area, or in the event a new Sales Site is established, the Company agrees to cause such Company Entity or SBU to use reasonable efforts to provide a new Support Space in the new Sales Site on the terms and conditions set forth herein, unless the Capital Entity in question shall elect not to accompany the relocation and occupy the new Sales Site. In no event (including, but not limited to, events such as a breach by any Company Entity of its obligations, if any, under this Section) shall the Capital Entity located at any Sales Site remain thereat beyond the date the Company Entity or SBU in question vacates such 3 Sales Site, and Capital agrees (i) to cause such Capital Entity to vacate the Sales Site in question on or before the date the Company Entity or SBU shall so vacate same and (ii) to indemnify and hold harmless the Company and the Company Entity or SBU at the Sales Site in question from any and all claims, costs, loss or damage arising from such holding over beyond such date. Section 2.6. Occupancy In Conformity With Rules and Regulations and Leases. Capital agrees that each Capital Entity shall occupy its respective Support Space in accordance with the rules and regulations and general office business practices for the Sales Site in question, whether such Sales Site is owned by the Company Entity or SBU in question, or whether the occupancy by same of such Sales Site shall be by way of a lease of all or a portion of the Sales Site. The Company Entity or SBU hosting the Support Space shall provide the Capital Entity with a copy of such rules and regulations, if available, and advise such Capital Entity regarding any other general office business practices to permit the Capital Entity in question to fulfil its obligations hereunder. The Capital Entities' occupancy of any leased or subleased sales sites shall be in compliance with any existing or future leases (or subleases) with third parties. ARTICLE III TERM Section 3.1. Term of Agreement. The term of this Agreement (the "Agreement Term") shall be co-terminous with the term of the Operating Agreement, subject to the provisions of Section 14.1 respecting amendment hereof. Section 3.2. Term of Occupancy of Individual Support Space. The term of occupancy (the "Support Space Term") for each Support Space identified by the parties shall commence, for those Support Spaces occupied by Capital Entities personnel on the effective date of this Agreement, on such date (subject to consent of the landlord at any leased Sales Site as required under Section 2.4 hereof), and shall commence for each Support Space hereafter identified and established pursuant to the terms of this Agreement on the date the Capital Entity in question shall first occupy such Support Space. The Support Space Term for any given Support Space shall expire and terminate on the earliest to occur of (i) the date of expiration or termination of the Operating Agreement (provided however, that the expiration or termination of the Operating Agreement shall not be deemed to prevent the continued occupancy of such Support Space by the Capital Entity in question, subject to the consent of the Company Entity or SBU in question in its sole discretion, and to any necessary consent of the landlord of such Sales Site, on the same terms and conditions as existed prior to the date of expiration or termination, or upon such other terms as may be agreed upon by the Capital Entity and the Company Entity or SBU in question), (ii) the date the Sales Site containing the Support Space is vacated for any reason by the Company Entity or SBU having the primary occupancy thereof (unless the Capital Entity shall elect to stay to provide Financing and/or Ancillary Services to another Company Entity remaining at such location, in which case the expiration date for purposes of this clause (ii) shall be such remaining Company Entity's date of vacation of such Sales Site and the Capital Entity shall have Support Space to provide said services for the remaining Company Entity in accordance with and subject to Article II), or (iii) the date which is ninety (90) days from the date of written notice of termination given by the occupying Capital Entity to the Sale Site Company Entity or SBU, or (iv) if the Sales Site is 4 leased, the day prior to the date of expiration or earlier termination of such lease in accordance with its terms. ARTICLE IV Reimbursement Section 4.1. Reimbursement for Support Space. Capital covenants and agrees to reimburse (or to cause the respective Capital Entities occupying each Support Space to reimburse) the Company Entity or SBU owning or occupying the Sales Site in question, for the proportional costs of provision of the Support Space and of such Support Space's allocable share of the costs of any common areas of the Sales Site, including, but not limited to, (i) building operating expenses (if the Sales Site in question is owned) or reasonable estimates for anticipated tax and/or operating expense escalation rent (if the Sales Site is leased, it being the intent of the parties that the Capital Entity shall be charged and paying on a current basis for tax and operating cost escalation charge increases which are reasonably anticipated by the Company Entity or SBU under the lease, but which charges will not be billed to same by landlord until some period after the period for which the Capital Entity is making payment), (ii) utility user charges (at actual cost for dedicated utilities and as appropriately apportioned or otherwise measured if not so dedicated to the Capital Entity) and (iii) fixed general charges for building amenities or services which are not charged on a per-use basis (collectively, the "Reimbursement Cost"). The Reimbursement Cost for each Support Space (i) shall be mutually agreed on an annualized basis by the Company and Capital (and/or by the applicable Company Entities or SBUs and Capital Entities with respect to the Support Space in question), such agreement on particular Support Space and Reimbursement Cost to be evidenced by letter agreement between the affected entities intended to supplement this Agreement from time to time with respect to such Support Space (a "Letter Supplement", as more fully described in Section 13.1 hereof), and (ii) shall be paid by Capital or the Capital Entity, without requiring any prior invoice or statement therefor from the Company Entity or SBU so long as the Letter Supplement shall establish a monthly or other periodic payment amount with respect to the Reimbursement Cost, in equal monthly installments in advance on the first day of each calendar month in the Support Space Term (or with such other frequency or in such other manner as may be specified in the relevant Letter Supplement) to the Company or to the Company Entity or SBU identified in the Letter Supplement. Capital further covenants and agrees to pay or reimburse (or to cause the respective Capital Entities occupying each Support Space to pay or reimburse) the Company Entity or SBU owning or occupying the Sales Site in question (i) for the basic office support services (if same have not previously been included in the Reimbursement Cost), and (ii) any additional office support services as may be agreed in accordance with the provisions of Section 2.1 hereof, and (iii) for any specially-ordered building services during normal business hours and for any overtime charges incurred at the Sales Site with respect to the use and occupancy of the Support Space by the Capital Entity outside normal business hours, where such specially-ordered and/or overtime services are charged on a per-use basis (or such other reasonable basis), for which all such payments should be due within 30 days of receipt of a periodic statement for such user and/or office service charges. The Company agrees for itself and the Company Entity or SBU at a Sales Site to render all statements for any calendar year in a Support Space Term following the close of such calendar year, and the respective Capital Entity's obligation to pay statements so rendered shall survive the Support Space Term in question. The Reimbursement Cost payable on account of any partial calendar month, if any, during a Support Space Term shall be prorated on a per diem basis. 5 ARTICLE V USE Section 5.1. Permitted Use. Capital for itself and the Capital Entities agrees that each Support Space shall be used only for the purpose for which the Sales Site is utilized by the Company Entity or SBU. ARTICLE VI DISPUTE RESOLUTION Section 6.1. Resolution of Disputes. Resolution of disputes regarding the terms or operation of this Agreement, either generally or with respect to any particular Support Space or Letter Supplement, shall be effected in accordance with the provisions of Operating Agreement Article X (Dispute Resolution). ARTICLE VII AT END OF TERM Section 7.1. At End of Support Space Term. Upon the expiration of the Support Space Term in accordance with the terms of this Agreement (as supplemented by any Letter Supplement with respect to the Support Space in question) or other termination of occupancy of any Support Space by a Capital Entity, such Capital Entity (i) shall vacate and surrender the Support Space to the Company Entity or SBU owning or controlling the Sales Site, "broom clean" and in good order, condition and repair, ordinary wear, tear and damage by the elements, fire or other casualty excepted, (ii) shall on or prior to such date, at the Capital Entity's sole cost and expense, remove from the Support Space any alterations and restore the Support Space as may be required under Section 8.1 hereof, (iii) shall also remove all of the Capital Entity's personal property, including but not limited to files and other business records and its owned furniture and business equipment, if any, (iv) shall remove and replace any hardware installed in accordance with the provisions of Section 9.3 hereof, and (v) shall repair or pay the cost of repairing all damages to the Support Space and/or the Sales Site caused by all such removals. Any personal property which shall remain in the Support Space at a date which is unreasonably beyond the date the space was vacated, may, at the option of the Company Entity or SBU, be deemed to have been abandoned and in such case may be retained or otherwise treated by the Company Entity or SBU as its property or may be disposed of, without accountability, in such manner as the Company Entity or SBU may determine, at the Capital Entity's expense, which expense shall be reimbursed to the Company Entity or SBU within ten (10) business days after demand. ARTICLE VIII ALTERATIONS; FURNISHINGS AND EQUIPMENT Section 8.1. Alterations. Alterations to any Support Space shall be made only with the prior consent of the Company Entity or SBU, and, if required, the consent of the 6 landlord of such Company Entity or SBU at a leased Sales Site. Any permitted alterations shall be made solely in conformity with the building maintenance and management requirements of the Support Space building owner or landlord, as the case may be, and shall be performed at the sole cost and expense of the Capital Entity. Any and all permitted alterations in the Support Space shall be removed, and the Support Space restored to its pre-alteration condition, at the Capital Entity's sole cost and expense, on or prior to the end of the Support Space Term, unless the Company Entity or SBU for such Support Space (and in buildings under lease thereto, the landlord under such lease) shall agree in writing that the alteration(s) in question need not be so removed. The Capital Entity's obligations to remove and restore hereunder shall survive the expiration or earlier termination of the Support Space Term, provided that, in the event the Capital Entity shall default in any obligation to effect such removal and restoration, the Company Entity or SBU shall give notice of such default not later than 180 days following such date of expiration or earlier termination. Section 8.2. Furnishings and Equipment. In the event the Capital Entity in question wishes to furnish its Support Space with office furnishings different than the standard office furnishing fitout provided to the Company Entities/SBU personnel at the Sales Site, the Capital Entity must first obtain the written permission of the Company Entity or SBU to do so, which permission shall not be unreasonably withheld, provided, however, that (i) such furnishings are purchased or leased by the Capital Entity, (ii) such furnishings are installed and at term's end removed at the Capital Entity's sole cost and expense and (iii) all such furnishings are reasonably consistent in style and quality with the furnishings in the Sales Site used by the Company Entity or SBU at such Sales Site. If such installation is reasonably necessary for the conduct of the Capital Entity's business at the Sales Site, the Capital Entity in question shall further be permitted to install business machinery and equipment in the Support Space, subject to the electrical capacity thereof (provided same are installed in conformity with the requirements of law and the requirements of the underlying space lease, if any), provided same shall be removed at the Support Space Term's end in accordance with the provisions of Section 7.1 hereof. Company Entities shall have no obligation to provide any additional or special electrical capacity or extra heating or air-conditioning with respect to any Capital Entity's business machinery or equipment referred to in the preceding sentence. ARTICLE IX ACCESS TO SUPPORT SPACE PREMISES Section 9.1. Sales Site Owner Access. With respect to any Support Space, the Company Entity or SBU and/or any building landlord thereof (each, a "Sales Site Owner") shall be and is hereby permitted access into the Support Space under the terms of this Agreement and/or of any space lease, ground lease or mortgage applicable to the Sales Site. Each Capital Entity occupying such Support Space shall have the right to secure its own business files and other proprietary information. The Company Entity or SBU in question shall have no responsibility for the security, maintenance or preservation of such Capital Entity business files and proprietary information. Section 9.2. Capital Entity Access. The Company, for itself and each of the Company Entities and SBUs providing Support Spaces, covenants and agrees that each Capital Entity and its employees shall be provided access to its particular Support Space on the same basis as access is permitted to the Sales Site generally to the personnel of the Company 7 Entity or SBU occupying the Sales Site in question. In the event that a restricted access Sales Site features a lobby guard, sign-in or pass system for such building access (whether within office hours on business days, or outside such time periods), Capital, for itself and each of the Capital Entities occupying such Support Space, covenants and agrees to conform to the building rules and regulations governing such access system from time to time. Section 9.3. Securing Support Space. Subject to the provisions of Sections 2.1 and 9.1 hereof, and subject to any more restrictive provisions of an underlying space lease with a Sales Site Owner, in which case the provisions of such space lease shall control, the Capital Entity shall be permitted to secure its separately demised Support Space with locking door hardware, provided always that (i) if the Support Space is not delivered with locking hardware, the cost of installation of locking hardware of the same general model and (at the Support Space Term's end) the cost of removal and replacement thereof shall be borne solely by the Capital Entity, and (ii) duplicate keys to such locks shall be delivered to all affected Sales Site Owners (Company Entity or SBU and the landlord, if any) at the Sales Site. ARTICLE X NO LEASE; NO CO-TENANCY; NO SUBLEASE Section 10.1. No Lease; No Co-tenancy; No Sublease. This Agreement is intended by the parties hereto to provide only for so-called "location support" or "desk space" for the provision of Financings and Ancillary Services by the Capital Entities to the Company Entities and SBUs. The Capital Entities, with respect to the Support Spaces occupied or to be occupied by each in the Sales Sites, do not purport or intend to be and are not to be deemed by the Company, by the Company Entities or the SBUs or their respective landlords, or by any third party, to be space or occupancy tenants, co-tenants or subtenants or lease assignees of any of the Support Spaces, and Capital and the Capital Entities shall have no rights or obligations with respect to such Support Spaces except as specifically provided for herein and in the applicable Letter Supplement(s). Nothing contained in this Agreement shall be construed in any manner to constitute this Agreement as an occupancy lease respecting the Support Space, or as a co-tenancy agreement with respect to any Sales Site (whether owned in fee or occupied under lease by the Company Entity or SBU in question), or as an occupancy sublease arising under any lease of a Sales Site by an Company Entity or SBU, or as an assignment to a Capital Entity of any lease or sublease of a Sales Site under which the Company Entity or SBU is tenant. Capital for itself and for all Capital Entities hereby waives, with respect to any Support Space provided hereunder, any and all rights appertaining to, or claims which might be made by, a tenant or co-tenant or subtenant or lease assignee of such premises. In the event that, at any Sales Site which is under lease or sublease to an Company Entity or SBU, the landlord thereof shall by notice or otherwise raise objection to the occupancy of the Support Space by a Capital Entity or the conduct of its business at the Sales Site, and such objection cannot be resolved, the affected Company Entity or SBU shall have the right to terminate the Support Space Term by written notice to the Capital Entity, which shall promptly pay any monies due the Company Entity or SBU for use of the Support Space and promptly vacate said Support Space in accordance with the provisions of Section 7.1; provided however, that in the event such landlord is willing to consider a negotiated resolution of such objection (which resolution shall in no event require the payment of money or the increase in any obligation of the Company Entity or SBU under the lease), the Capital Entity shall be afforded the 8 opportunity to reach such resolution with landlord prior to the service of any notice of termination hereunder. ARTICLE XI INDEMNIFICATION Section 11.1. Indemnification by Capital and Capital Entity. Capital and the Capital Entity occupying the Support Space in question each agrees to defend, indemnify and hold harmless each of the Company and the Company Entity or SBU controlling the Sales Site hosting the Support Space, and their respective directors, officers, agents and employees from and against any and all claims, demands, liability, loss, damage, costs and expenses (including reasonable attorneys' fees and disbursements) arising from or in connection with: (i) the conduct or management of the Support Space or of any business therein, or any work or act whatsoever done, or any condition created (other than by or at the direction of the Company, the Company Entity or SBU at the Sales Site, or any director, officer, agent or employee of any of the foregoing) in or about the Support Space or the Sales Site during the Support Space Term, or during any period of holdover occupancy after the expiration or earlier termination of this Agreement and/or any Letter Supplement with respect to such Support Space, by or at the direction of Capital or the Capital Entity; (ii) any act, omission or negligence of Capital or of the Capital Entity or of any of their respective directors, officers, agents, invitees, employees or contractors (but not business visitors to the Capital Entity which are directors, officers or employees of the hosting Company Entity or SBU); (iii) any accident, injury or damage whatsoever (unless caused by the gross negligence or willful misconduct of the Company or of the hosting Company Entity or SBU, or of any of their respective directors, officers, agents, third parties invitees or employees) occurring in or about the Support Space or the Sales Site caused by Capital or the Capital Entity, or any director, officer, agent or employee of either of the foregoing; and (iv) the holding over by the Capital Entity beyond the Support Space Term as to any particular Support Space. Section 11.2. Indemnification by the Company and the Company Entity or SBU. The Company and the Company Entity or SBU controlling the Support Space in question each agrees to defend, indemnify and hold harmless Capital and the Capital Entity occupying the Support Space, and their respective directors, officers, agents and employees from and against any and all claims, demands, liability, loss, damage, costs and expenses (including reasonable attorneys' fees and disbursements) arising from or in connection with: (i) the conduct or management of the Sales Site excluding the Support Space, or of any business therein, or any work or act whatsoever done, or any condition created (other than by or at the direction of Capital or the Capital Entity occupying the Support Space, or any director, officer, agent or employee of any of the foregoing) in or about the Sales Site or the Support Space during the Support Space Term, by or at the direction of the Company or the Company Entity or SBU; (ii) any act, omission or negligence of the Company and/or the Company Entity or SBU or of any of their respective directors, officers, agents, invitees, employees or contractors (but not business visitors to the Company Entity or SBU which are directors, officers or employees of the Capital Entity); and (iii) any accident, injury or damage whatsoever (unless caused by the gross negligence or willful misconduct of Capital or of the Capital Entity or of any of their respective directors, officers, agents or employees) occurring in or about the Support Space or the Sales Site caused by the Company or the Company Entity or SBU, or any director, officer, agent, third parties invitees or employee of any of the foregoing. 9 Section 11.3. Indemnification Claim Procedure. Each indemnified party under Section 11.1 or 11.2 hereof with respect to any claim to be made hereunder shall follow the procedure set forth in Section 9.3 of the Operating Agreement. Section 11.4. Survival of Indemnities. The indemnity agreements set forth in this Article 11 shall survive the expiration or any earlier termination of this Agreement and/or of any Letter Supplement with respect to any Support Space or Sale Site as to which indemnification is sought or claimed. ARTICLE XII NOTICES Section 12.1. Notices. A. All notices, consents, deliveries, demands, requests, approvals and other communications which are required or may be given hereunder and which affect more than one Support Space shall be in writing and shall be deemed to have been duly given if personally delivered (including courier service), telecopied or mailed certified first class mail, postage prepaid, addressed as follows: (a) if to the Company, to: AT&T Global Information Solutions, Inc. _______________________________________________ _______________________________________________ Telecopier Number: ____________________________ Confirmation Number: __________________________ Attention: with a copy to: _______________________________________________ _______________________________________________ _______________________________________________ Telecopier Number: ____________________________ Confirmation Number: __________________________ Attention: (b) If to Capital, to: AT&T Capital Corporation 44 Whippany Road Morristown, New Jersey 07960 Telecopier Number: 201-397-3220 Confirmation Number: 201-397-3187 Attention: Chief Executive Officer 10 with a copy to: AT&T Capital Corporation 44 Whippany Road Morristown, New Jersey 07960 Telecopier Number: 201-397-3220 Confirmation Number: 201-397-3187 Attention: General Counsel B. All notices, consents, deliveries, demands, requests, approvals or other communications which are required or may be given hereunder and which affect only a particular Support Space shall be in writing and shall be deemed to have been duly given if personally delivered (including courier service), telecopied or mailed certified first class mail, postage prepaid, addressed to the Company Entity or SBU, or to the Capital Entity, as the case may be, at the address and to the attention of the person identified in the last-dated Letter Supplement delivered by the affected parties in connection with such Support Space. ARTICLE XIII AGREEMENT INCORPORATION AT SUPPORT SPACES; DISTRIBUTION Section 13.1. Letter Supplement Delivery and Agreement Incorporation. The Company and Capital agree that, upon identification from time to time of any Support Space to be occupied by a Capital Entity in a Sales Site, a Letter Supplement shall be prepared executed and delivered in counterparts between the affected Company Entity or SBU and the Capital Entity occupying or about to occupy such Support Space, setting forth (i) the floor or suite location thereof, (ii) the annualized Reimbursement Cost therefor and other office equipment or service charge rates, if any, (iii) the name and address for notices under Section 12.1 hereof, and (iv) such other Sales Site-specific provisions for such occupancy not otherwise covered hereby. The parties hereto further agree that this Agreement is intended to be incorporated by reference into the Letter Supplement except to the extent that certain terms hereof are explicitly stated to be overridden by differing provisions set forth in such Letter Supplement, and in the event of any other conflict between the terms of this Agreement and the terms of a Letter Supplement, the terms of this Agreement shall govern and be deemed to prevail. Notwithstanding the foregoing, it is further understood and agreed that, with respect to Capital Entities personnel presently situated in Sales Sites as at the date hereof, they shall be permitted to remain in place whether under the terms of such client commitment letters between the affected entities as may be applicable, or otherwise, and the Company and Capital agree that they will cooperate in good faith to prepare, execute and deliver a Letter Supplement with respect to the Support Space for such Sales Sites. In no event shall such Capital Entities personnel be permitted to remain in place in a Sales Site under lease to an Company Entity or SBU for which landlord's consent has not been forthcoming as required under Section 2.4 hereof, and failure to vacate such Support Site promptly following notice that such landlord's consent has not been obtained shall be subject to indemnification for any costs or damages resulting therefrom under Section 11.1 hereof. The parties' agreement to cooperate in good faith to prepare, execute and deliver Letter Supplements shall not in any event delay the effective date of this Agreement as to any Sales Site, and all Sales Sites shall be governed by 11 this Agreement from its effective date, notwithstanding the failure to have a Letter Supplement agreed by such date. ARTICLE XIV MISCELLANEOUS Section 14.1. Amendments. Any Capital Entity and Company Entity may by mutual consent from time to time vary the terms of this Agreement as it applies to such Capital Entity and either such Company Entity or one or more SBUs within such Company Entity. In such event, such varied terms will be deemed to amend this Agreement as it applies to such Capital Entity and such Company Entity(or such SBUs) for such period of time as such variance is agreed to by such Capital Entity and such Company Entity; provided that the variance(s) (i) are in writing, (ii) specifically reference this Agreement, and (iii) expressly state the intention of the parties thereto to vary the terms of this Agreement, which varied terms shall be identified with specificity. The parties hereto agree that a Letter Supplement containing the information described in clauses (i) through (iv) in Section 13.1 hereof, without reference to any variance from specific provisions of this Agreement, shall not be deemed a variance for amendment to this Agreement. Notwithstanding any such variance, this Agreement will continue to apply to all other Company Entities and Capital Entities (or, if applicable, all SBUs within the Company Entity that consents to such variance that are not made subject to such variance) as if such variance had not been effected. Notwithstanding the foregoing, this Agreement cannot be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties hereto (or by the applicable Company Entity and Capital Entity). Section 14.2. Successors and Assigns; Third Parties. (a) This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and assigns. (b) Except as set forth in Article XI, nothing in this Agreement, expressed or implied, is intended or will be construed to confer upon any Person (including Customers and Authorized Dealers, as such three capitalized terms are defined in the Operating Agreement) other than the parties (and the Company Entities and Capital Entities) and their successors and assigns any right, remedy or claim under or by reason of this Agreement. (c) The Company hereby represents and warrants to Capital that it has the requisite authority to commit and bind the other Company Entities to the applicable terms of this Agreement. (d) Capital hereby represents and warrants to the Company that it has the requisite authority to commit and bind the other Capital Entities to the applicable terms of this Agreement. Section 14.3. Sales Sites Under Lease. In the event that any Sales Site is now or hereafter under lease to an Company Entity or SBU, the execution and delivery of this Agreement, and/or of any Letter Supplement with respect to Support Space at such Sales Site, shall not be deemed to amend or modify or otherwise affect any such lease, and in the event of any conflict with regard to the use and occupancy of the Support Space at such Sales Site 12 between the provisions of this Agreement or such Letter Supplement and the provisions of the applicable lease, the provisions of such lease shall control. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. AT&T GLOBAL INFORMATION SOLUTIONS, INC. BY: ______________________________ NAME: TITLE: AT&T CAPITAL CORPORATION BY: ______________________________ NAME: TITLE 13 SCHEDULE B The Company entities have not in the past provided interim Financings for Products in the form of sales-type leases, installment sales contracts or conditional sales contracts to Customers or Authorized Dealers to Finance the Acquisition by them of Products. SCHEDULE C GENERAL ALLOCATION OF RESPONSIBILITIES BETWEEN THE CAPITAL ENTITIES AND THE COMPANY ENTITIES TABLE OF CONTENTS SECTION SUBJECT MATTER ONE General Allocation of Responsibilities. TWO Methods and Procedures. ATTACHMENTS A. - Listing of Company Responsibilities. B. - Suggested Operational Procedures. C. - Remarketing Procedures. D. - Repurchase Calculation Methodology. E. - Post-Repurchase Allocation of Repurchase Monies. 2 GENERAL ALLOCATION OF RESPONSIBILITIES REGARDING TRANSACTIONS WHERE A CAPITAL ENTITY PROVIDES FINANCING Since 1985 Credit Holdings has been providing Financing to Customers and Authorized Dealers. Such services are now provided by the Capital Entities, including NCR Credit. While the Company Entities and Capital Entities benefit from the provision of such Financings, it is recognized that the Company Entities and Capital Entities will not receive the full benefits of such Financings unless Customers and Authorized Dealers fulfill their related payment obligations. Because the revenue stream resulting from such Financings is adversely affected by the subsequent failure of Customers or Authorized Dealers to pay, it is appropriate to allocate the responsibility for subsequent billing, collection and account enforcement activity when such situations occur. Therefore, as between the Company Entities and the Capital Entities, the entities capable of controlling a particular risk or covering a particular risk in its pricing (Product or Financing), shall be responsible for subsequent billing, collection, and account enforcement activity relating to the Financing shortfall. For example, should a Financing shortfall occur as a result of a Customer's or Authorized Dealer's inability to pay, or failure to pay for reasons which are not related to a Company Responsibility, or should the Capital Entities, anticipated residual value for the Product not be attained -- the Capital Entities would be responsible. Should a Financing shortfall occur as a result of a Company Responsibility, then the SBU that markets or provides the related Product would be responsible for subsequent billing,-collection, and account enforcement activity. In order to implement this allocation policy, the attached Methods and Procedures, which are made a part of this General Allocation of Responsibilities, shall apply. Such Methods and Procedures are intended to further define and amplify the responsibilities of the Company Entities (including their SBUs) and Capital Entities and to establish procedures that will facilitate the expeditious resolution of issues between the Company Entities and the Capital Entities. Except as set forth in the attached Methods and Procedures, this General Allocation of Responsibilities will not apply in situations where the Product warranty has expired and the Customer or Authorized Dealer has 3 chosen not to avail itself of the various maintenance service contracts offered by the SBUs. This General Allocation of Responsibilities will not affect those programs or transactions where the Capital Entities and Company Entities agree (or have previously agreed), in writing, to different apportionment responsibilities or procedures. In order to provide continued flexibility for the future, the Capital Entities and Company Entities may modify this General Allocation of Responsibilities as they may mutually agree in writing. Moreover, this General Allocation of Responsibilities will apply to any successors of the parties subject to this allocation policy. It is understood and agreed that this General Allocation of Responsibilities refers in various contexts to obligations or agreements of SBUs (which may or may not be legal entities) because as a practical matter, the relevant obligation will be performed by a SBU or the relevant agreement will be entered into by personnel serving a SBU. In all events, any such obligations or agreements shall, in the case of SBUs that are not Company Entities, constitute obligations or agreements of the Company Entities of which such SBUs constitute a division or business grouping. NOTHING WITHIN THIS DOCUMENT PURPORTS TO EXTEND ADDITIONAL REPRESENTATIONS, WARRANTIES OR RIGHTS TO A CUSTOMER OR AUTHORIZED DEALER ABOVE AND BEYOND THOSE REPRESENTATIONS, WARRANTIES AND RIGHTS CONTAINED IN THE CONTRACT BETWEEN SUCH CUSTOMER OR AUTHORIZED DEALER AND THE RELEVANT COMPANY ENTITIES. 4 METHODS AND PROCEDURES REGARDING GENERAL ALLOCATION OF RESPONSIBILITIES OVERVIEW AND GENERAL STATEMENT The foregoing General Allocation of Responsibilities is intended to broadly define the circumstances in which responsibility for billing, collection and account enforcement activity is allocated to either a Capital Entity or the SBUs in situations where a Capital Entity provides Financing for a Customer or Authorized Dealer. The purpose of these Methods and Procedures is to further define and amplify the General Allocation of Responsibilities, and to establish procedures that will facilitate the resolution of issues between the Company Entities and the Capital Entities. These Methods and Procedures are comprised of the following: Attachment A - is a specific listing of circumstances wherein SBUs will assume responsibility for billing, collection, and account enforcement activity. Attachment B - sets forth the procedures to be followed when dealing with transactions that require SBUs to assume responsibility for billing, collection, and account enforcement activity. Attachment C - sets forth certain equipment remarketing procedures. Attachment D - sets forth the general repurchase calculation methodologies that will apply when SBUs assume the responsibility for billing, collection, and account enforcement activity. Attachment E - sets forth the procedures to be utilized in calculating net book value. In preparing these Methods and Procedures, the assumption is made that every possible action had' been taken, in accordance with the terms and conditions of the contract between the Customer or Authorized Dealer and the relevant Company Entities, to resolve issues raised by the Customer or Authorized Dealer relating to the Product or related service provided by the Company Entities, and that such actions have not caused the Customer or Authorized Dealer to honor its financial obligations relative to its Financing contract with the appropriate Capital Entity. 5 Any exception to these Methods and Procedures requires the consent of all parties to the foregoing General Allocation of Responsibilities affected by such change. 6 Attachment A LISTING OF COMPANY RESPONSIBILITIES The appropriate SBU will assume responsibility for billing, collection, and account enforcement activity of shortfall in a Financing provided by a Capital Entity when the customer or Authorized Dealer asserts that its failure to honor its financial obligation under the Financing contract with the Capital Entity is a result of one or more of circumstances constituting a Company Responsibility, provided, however, that customer assertions are subject to the review procedures set forth in Attachment B. SBU personnel may, on a case by case basis, conclude that enforcing the terms and conditions of the Financing contract between the Customer or Authorized Dealer and the appropriate Capital Entities, or the contract between the Customer or Authorized Dealer and the appropriate Company Entities, would be inappropriate. When this occurs, the transaction will be treated as a Company Responsibility. SBUs shall not be responsible for Financing shortfalls in situations where a Capital Entity provides Customer Financing that is arranged through an Authorized Dealer (but not including situations in which a Capital Entity provides Dealer Financing or customer Financing arranged directly by a Capital Entity or through a Company Entity), except in the following circumstances: (x) the Financing shortfall is caused by clause (iii) of the definition of "Company Responsibility" set forth in Section 7.2 of the Agreement; (y) the Product does not work or perform in accordance with any accompanying representation or warranty by a Company Entity; or (z) as a matter of law or equity the Company Entities are found to be responsible for the Customer's failure to honor its financial obligation to a Capital Entity. Except for the matters covered by clause (iii) of the definition of "Company Responsibility" set forth in Section 7.2 of the Agreement as well as the immediately preceding paragraphs, a Company Responsibility will only apply to matters that occur during the term of the warranty and during the term of any maintenance or service contract of a Company Entity. NOTHING WITHIN THIS DOCUMENT PURPORTS TO EXTEND ADDITIONAL REPRESENTATIONS, WARRANTIES OR RIGHTS TO A CUSTOMER OR AUTHORIZED DEALER ABOVE AND BEYOND THOSE REPRESENTATIONS, WARRANTIES OR RIGHTS CONTAINED IN THE CONTRACT BETWEEN SUCH CUSTOMER OR AUTHORIZED DEALER AND THE RELEVANT COMPANY ENTITIES. 7 Attachment B SUGGESTED OPERATIONAL PROCEDURES Within 10 business days of receipt of information of Customer or Authorized Dealer dissatisfaction and the actual withholding of, or notice from a Customer or Authorized Dealer of their intention to withhold, payment to the Capital Entity, the SBU or Capital Entity in receipt of such information will complete the Initial Equipment Problem Report ("Initial Report") appended hereto as Exhibit 1, and forward it to the other party. The SBU will then investigate the merits of any such Customer or Authorized Dealer assertions and will inform the Capital Entity, within 30 days of the Initial Report Date, if the SBU believes that (1) a Company Responsibility does exist or (2) further time is needed to investigate the Customer or Authorized Dealer's assertion. The SBU will advise the Capital Entity of the course of action it plans to pursue by completing the Investigatory Response section of the Initial Report, and by returning it to the Capital Entity within the 30 day time frame noted above. Thereafter, the Capital Entity and SBU will follow the Action Timetable appended hereto as Exhibit 2, whereby the SBU will provide the Capital Entity with a Status Report (Exhibit 3) in intervals of approximately 30 days. IN NO EVENT WILL SBU'S INVESTIGATION OF A CUSTOMER OR AUTHORIZED DEALER COMPLAINT BE DEEMED AN ACKNOWLEDGMENT THAT A COMPANY ENTITY OR SBU BEARS ANY RESPONSIBILITY WHATSOEVER FOR THE ALLEGED PROBLEM. If the SBU determines that a Company Responsibility exists ("Repurchase Determination"), the SBU will assume the responsibility for subsequent billing, collection and account enforcement by repurchasing the Financing contract from the Capital Entity pursuant to the reimbursement methodology set forth in Attachment D, and in accordance with the timetable outlined in Exhibit 2. The SBU will make its Repurchase Determination within 120 days of the date of the Initial Report, unless the SBU and the Capital Entity mutually agree to extend such date. Moreover, the SBU will make its Repurchase Determination at such earlier date as may be warranted by the situation, and will thereafter promptly repurchase the Financing contract from the Capital Entity pursuant to the reimbursement methodology set forth in Attachment D. 8 In instances where an Company Responsibility has, in the SBU's opinion, been corrected, but the Customer or Authorized Dealer continues to refuse to make Financing payments to the Capital Entity for the period that such Company Responsibility existed, in lieu of repurchasing the financing contract as set forth above, the SBU and the Capital Entity may implement some other mutually agreeable mechanism to compensate the Capital Entity for the cost of carrying the non-performing asset during the non-performance period. In the event that the SBU believes that an Company Responsibility does not exist, and the Capital Entity initiates enforcement action against the Customer or Authorized Dealer, and the Capital Entity is unsuccessful in attempting to enforce its Financing contract because of a determination by a court, arbitrator or other tribunal that there was an Company Responsibility, then the SBU will bear responsibility for future billing, collection, and account enforcement activity. While a particular case is under review by the SBU as set forth above, the Capital Entity will not initiate legal action against the Customer or Authorized Dealer unless it is necessary to preserve the Capital Entity's rights (in which case the Capital Entity will consult with the SBU before initiating such legal action). In the event that the Capital Entity believes that the SBU's decision as to whether an Company Responsibility exists is in error, the Capital Entity and the SBU will escalate the issue within their respective organizations. All inquiries ' s regarding such matters should be forwarded to the appropriate individuals within the respective organizations. In the unusual event that the designated SBU and the Capital Entity representatives cannot come to agreement as to how to allocate the responsibility for subsequent billing, collection, and account enforcement activity on a particular transaction, then such representatives will escalate the issue to the appropriate level of senior management of the applicable SBU and Capital Entity for resolution. Any unresolved disputes shall be resolved pursuant to the arbitration provisions set forth in Article X of the Agreement. Should a SBU sustain any loss resulting from an offset due to a genuine breach by a Capital Entity of its Financing contract with the Customer or Authorized Dealer, the Capital Entity will compensate the SBU for such loss pursuant to procedures specified herein. 9 The responsible SBU may request that the Capital Entity provide post-repurchase administrative services on transactions that fall under the terms of the General Allocation of Responsibilities. The Capital Entities shall perform such services at such terms as are mutually agreeable to both the Capital Entity and SBU. 10 Attachment C REMARKETING PROCEDURES In those instances where a Company Responsibility exists, the cost of deinstallation and remarketing the Financed Product falls to the SBU without contribution from the Capital Entity. In those instances where a Company Responsibility does not exist, the cost of deinstallation, refurbishment, and remarketing the Financed Product falls to the Capital Entity. The SBU shall have the first right of purchase for Financed Products that come into the possession of the Capital Entity for potential remarketing, at a price that is mutually agreed to by the parties. This right is contingent upon the establishment of mutually agreeable mechanisms, methods and procedures as to how the right of first offer will be implemented and managed on an ongoing basis. 11 Attachment D REPURCHASE CALCULATION METHODOLOGY As previously stated, the Capital Entities and Company Entities do not obtain the full benefit of a customer or Authorized Dealer Financing unless the Customer or Authorized Dealer fulfills its financial obligation under its Financing contract with the Capital Entity. Unless otherwise agreed to by an Company Entity or SBU and Capital Entity with respect to particular types of Financings, when a Company Responsibility exists, all of the Capital Entity's right, title and interest in, to and under the Financing and Financed Product will be repurchased by the SBU from the Capital Entity utilizing the following methodology to calculate the appropriate price to be paid to the Capital Entity: (a) Reimbursement Methodology The Company Entities shall pay the Capital Entities the original equipment cost ("OEC") financed by the Capital Entity less payments received by the Capital Entities, multiplied by the following percentages: if OEC is less than $300,000 - 85%; if OEC is $300,000 or more, but less than $1,000,000 - 90%; and if OEC is $1,000,000 or more - 95%. (b) Sundry Expenses: The Capital Entity shall be compensated by the SBU for verifiable out of pocket expenses incurred for transactions that fall under the terms of this Schedule. This includes such things as litigation expense (where outside counsel is being retained), costs of collection such as on-sight asset inspection/inventory, collection agency expense, and deinstallation expense (if paid by the Capital Entity). The SBU will not be responsible for soft costs, such as reimbursement for the time and effort of the Capital Entity employees, consultants, or temporary employees in resolving such situations. 12 In some instances a Company Responsibility can be resolved by unwinding only a portion of the transaction, as opposed to a complete repurchase of the account by the responsible SBU. When this occurs the Capital Entity and SBU shall apply the methodologies contained in this Schedule on that percentage of the transaction that is being unwound, in order to arrive at the appropriate amount to be paid to the Capital Entity by the SBU. 13 Attachment E POST-REPURCHASE ALLOCATION OF REPURCHASE MONIES The General Allocation of Responsibilities defines, among other things, circumstances under which the SBUs will assume responsibility for the billing, collection, and account enforcement, which is accomplished via the repurchase of the Financing from the Capital Entity for transactions that are Company Responsibilities. The SBUs recognize that the assumption of the referenced responsibilities may result from problems under their direct control, or from problems under the direct control of some other SBU (i.e., selling SBU differs from Product-owning SBU). The SBUs shall negotiate, within a reasonable time frame after the date hereof, the methods and procedures necessary to allocate the repurchase price paid to the Capital Entity by the SBU which has been deemed to be responsible for the Financing shortfall. 14 Exhibit 1 PRODUCT / SERVICE PROBLEM REPORT FOR CAPITAL ENTITY FINANCED TRANSACTION *****INITIAL REPORT***** - --------------------------------------------------------------------------------------------------------------------------- Initial Report Originator: [ ] Company Entity [ ] Capital Entity Date: (Name): Room Address: Branch Code (Company Entity) Address: Telephone: - --------------------------------------------------------------------------------------------------------------------------- Customer/Authorized Dealer Bill Name: Units: Address: Contact: Address: Telephone: Original Date Funded: Amount Funded: - --------------------------------------------------------------------------------------------------------------------------- PROBLEM TYPE: [ ] Product [ ] Service [ ] Warranty [ ] Other Date First Notified of Problem: By Whom: A Brief Description of Problem: Resolution/Recommendation/Comments: - --------------------------------------------------------------------------------------------------------------------------- INVESTIGATORY RESPONSE; Date: By (Name): Room Address: Branch Code (Company Entity) Address: Telephone: 15 Resolution/Recommendation/Comments: 16 Exhibit 2
- --------------------------------------------------------------------------------------------------------------- ACTION TIMETABLE - --------------------------------------------------------------------------------------------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- CASE DAYS CAPITAL ENTITY ACTION SBU ACTION REQUIRED ACTION DAYS - ----------- ---------------------------------- ---------------------------------- ----------------------------- 0 1) Becomes aware of alleged 1) Completion of Initial Report The Initial Report to be Product/service related if problem surfaces through c). prepared and forwarded problem, through: within 10 days of learning a) Collection efforts of the alleged problem. b) Customer or Authorized Dealer contact c) Contacted by SBU 2) Completion of Initial Report (Exhibit 1) if problem surfaces through a) or b) above. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 1-30 Continue billing and collection Status Report to Capital Entity Within 30 days of first activity, unless otherwise via the Investigator Response Case Day. agreed. section of the Initial Report. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 31-60 Continue billing and collection Status Report to Capital Entity Within 60 days of first activity, unless otherwise if not resolved by day 60. Case Day. agreed. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 61-90 Continue billing and collection Status Report to Capital Entity Within 90 days of first activity, unless otherwise if not resolved by day 90. Case Day. agreed. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 91-120 Continue billing and collection (1) Status Report to Capital Within 120 days of first activity pending SBU decision. Entity if not resolved by Case Day. Case Day 120. (2) By Case Day 120 SBU will advise Capital Entity that is taking one of the following courses of action: a) continue problem resolution but SBU will assume the responsibility for billing, collection, and account enforcement until problem is resolved. b) SBU will assume the responsibilities stated in (a) above and will deal directly with the customer. c) inform Capital Entity that the SBU has performed its obligations, and that an AT&T - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- -----------------------------
17 - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- Responsibility does not exist. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 121-150 1) If SBU opts for a) or b) Within 150 days of first above, Capital Entity will Case Day. prepare a repurchase calculation worksheet and forward it to the SBU for payment processing (along with repurchase calculation backup and invoice). 2) If SBU chooses c) above, Capital Entity may take whatever action it deems appropriate, including enforcement action against the customer. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 151-180 If SBU has decided to assume the If SBU is to assume Within 180 days of first responsibility for billing, responsibility for billing, Case Day. collection, and account collection, and account enforcement activity, Capital enforcement, it will verify that Entity will close billing and the repurchase price is properly collection efforts upon receipt calculated, obtain necessary of the repurchase amount or 180 internal approvals and paperwork days from the first Case Day to generate the repurchase whichever occurs earlier. check, and forward the check to Capital Entity. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 181-120 Upon receipt of SBU repurchase Retain Capital Entity documents Within 15 days of receipt check: for future use, if any. of repurchase check. (1) send all original documents to SBU; (2) execute an assignment form, transferring all right, title, and interest to SBU; and (3) execute the appropriate UCC documents to assign an perfected security interest to SBU. - ----------- ---------------------------------- ---------------------------------- -----------------------------
18 Exhibit 3 *****Status Report ***** ********************************************************************************************************* Initial Report Originator: ( ) Company Entity ( ) Capital Entity Date:______________________ By (Name):_______________________________________________________ Room #:__________________________ Address:__________________________________________________________ Branch Code (Company Entity):____ Address:__________________________________________________________ Telephone:_______________________ ********************************************************************************************************* CUSTOMER/AUTHORIZED DEALER INFORMATION: Customer/Authorized Dealer Bill Name:_____________________________________________________________ Units:___________________________ Address:__________________________________________________________ Contact:_________________________ Address:__________________________________________________________ Telephone:_______________________ ********************************************************************************************************* FOLLOWUP INFORMATION: ( ) Problem Resolved ( ) No Problem Exists ( ) Problem Not Resolved ( ) Problem Resolution Expected By:____________________________________________________________________ Brief Description of Current Efforts:____________________________________________________________________ _________________________________________________________________________________________________________ _________________________________________________________________________________________________________ _________________________________________________________________________________________________________ _________________________________________________________________________________________________________ _________________________________________________________________________________________________________ Resolution/Recombination/Comments:_______________________________________________________________________ _________________________________________________________________________________________________________ _________________________________________________________________________________________________________ _________________________________________________________________________________________________________ ********************************************************************************************************* RECEIVERS RESPONSE (IF ANY): Date:___________________________________ By (Name):_____________________________________________ Room #:_________________________________ Address:________________________________________________ Branch Code (Company Entity):___________ Address:________________________________________________ Telephone:______________________________ Resolution/Recombination/Comments: ______________________________________________________________________ _________________________________________________________________________________________________________ _________________________________________________________________________________________________________ _________________________________________________________________________________________________________ ********************************************************************************************************* Exhibit B LUCENT TECHNOLOGIES OPERATING AGREEMENT Dated as of __________________, 1996 Between LUCENT TECHNOLOGIES, INC. a Delaware corporation, And AT&T CAPITAL CORPORATION, a Delaware corporation TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS.............................................................. 2 ARTICLE II FINANCING RELATED SERVICES TO BE PROVIDED BY CAPITAL..................... 11 2.1 Financing Related Services - Objectives and Commitments ....... 11 2.2 Training of Company Personnel ................................. 13 2.3 Providing Company with Information as to Financings and Finance Markets .............................. 14 2.4 Subsidized and Guaranteed Financings and Ancillary Services .......................................... 14 2.5 Advisory Services ............................................. 15 2.6 No Obligation or Commitment ................................... 15 2.7 Alternative Financing and Recourse Arrangements ............... 16 ARTICLE III PREFERRED PROVIDER STATUS................................................ 17 3.1. Support of the Capital Entities................................ 17 3.2. Preferred Provider Status...................................... 18 3.3. Right to Choose Alternative Providers.......................... 20 3.4. Finance Marketing Support...................................... 21 3.5. Personnel Support.............................................. 21 3.6. Information Support............................................ 22 3.7. Activities of the Company Entities............................. 22 ARTICLE IV NON-COMPETITION.......................................................... 22 4.1. Covenant Not to Compete........................................ 22 4.2. Use of a Permitted Captive Financing Source.................... 25 4.3. Financing Operations of Acquired Entities...................... 26 ARTICLE V PROTOCOLS AND PROCEDURES AND RELATED MATTERS............................. 28 5.1. Protocols and Procedures; Pilot Programs....................... 28 5.2. Systems Interface.............................................. 29 -i- ARTICLE VI REMARKETING OF PRODUCTS.................................................. 30 6.1. In General..................................................... 30 6.2. Deinstallation, Refurbishment and Re-Certification of Remarketed Products....................................... 31 6.3. Rights to Use Software......................................... 32 ARTICLE VII CERTAIN ALLOCATIONS OF RISK; LITIGATION AND REPOSSESSION................. 32 7.1. Representations, Warranties and Covenants...................... 32 7.2. Allocation of Certain Risks.................................... 34 7.3. Collection and Repossession Actions............................ 36 7.4. Actions Against Significant Accounts........................... 36 ARTICLE VIII SCOPE OF APPLICATION OF AGREEMENT........................................ 37 8.1. Attribution of Actions of Subsidiaries to Their Parents........ 37 8.2. Application of Agreement to Certain Joint Ventures and Other Minority Investments of the Company.......................... 38 8.3. Sale, Public Offering or Spin-Off of a Significant Products Entity ............................................. 38 8.4. New Products and Company Entities.............................. 39 8.5. Geographic Scope of Agreement.................................. 40 ARTICLE IX INDEMNIFICATION................................. 41 9.1. Capital Indemnity.............................................. 41 9.2. Company Indemnity.............................................. 41 9.3. Procedure...................................................... 42 ARTICLE X DISPUTE RESOLUTION....................................................... 43 10.1. Resolution of Disputes......................................... 43 10.2. Resolution of Disputes Using Best Efforts...................... 43 10.3. Arbitration.................................................... 44 10.4. Continuity of Service and Performance.......................... 46 10.5. Disputes as to Sales Site Protocols and Procedures............. 46 -ii- ARTICLE XI TERM AND TERMINATION..................................................... 46 11.1. Initial Term and Renewal....................................... 46 11.2. Termination.................................................... 47 11.3. Effect of Termination.......................................... 48 ARTICLE XII CONFIDENTIALITY.......................................................... 49 ARTICLE XIII MISCELLANEOUS............................................................ 50 13.1. Variation of Terms; Amendments................................. 50 13.2. No Partnership................................................. 50 13.3. Successors and Assigns; Third Parties.......................... 50 13.4. Severability................................................... 50 13.5. Notices........................................................ 51 13.6. Governing Law.................................................. 52 13.7. Headings....................................................... 52 13.8. Counterparts................................................... 52 SCHEDULES AND EXHIBITS Schedule A--Description of the Business of the Divisions Schedule B--Location Support Agreement Schedule C--Description of Certain Past Practices of the Divisions Relating to Interim Financings Schedule D--Description of Certain Past Practices of AT&T Paradyne Schedule E--Description of Certain Equipment, Systems and Services Provided by Network Systems Schedule F--Description of Certain Past Practices of the Divisions Relating to the Rental of Products on a Periodic Basis Schedule G--General Allocation of Responsibilities -iii- LUCENT TECHNOLOGIES OPERATING AGREEMENT LUCENT TECHNOLOGIES OPERATING AGREEMENT dated as of ________________, 1996 (this "Agreement") between LUCENT TECHNOLOGIES INC., a Delaware corporation (the "Company"), and AT&T CAPITAL CORPORATION, a Delaware corporation ("Capital"). W I T N E S S E T H: WHEREAS, the Board of Directors of AT&T Corp.("AT&T") has determined that it is in the best interest of AT&T to separate AT&T's existing businesses into three independent businesses; WHEREAS, as part of the foregoing, NCR Corporation ("NCR") and the Company will enter into a Separation and Distribution Agreement with AT&T which provides, among other things, for the separation of the Company assets and the Company liabilities; WHEREAS, in order to consummate a spin-off of the Company, (i) AT&T will contribute or otherwise convey or cause to be conveyed the assets, or certain assets, of the Divisions (as defined herein) to the Company, a recently formed wholly-owned Subsidiary of AT&T, (ii) the Company will sell to the public, pursuant to an initial public offering (the "IPO"), approximately 15% of its common equity and (iii) in a separate transaction following the IPO, AT&T will spin-off its entire interest in the Company to its shareholders (such transactions are collectively referred to as the "Spin-Off Transactions"); WHEREAS, Capital entered into an Operating Agreement dated as of June 25, 1993 (as amended from time to time, the "AT&T Operating Agreement") with AT&T; WHEREAS, pursuant to Section 8.3 of the AT&T Operating Agreement, Capital has requested AT&T to cause the Company to enter into a Comparable Operating Agreement (as defined in Section 8.3 of the AT&T Operating Agreement) relating to the businesses of the Divisions that is substantially similar in scope and terms to the AT&T Operating Agreement; WHEREAS, AT&T and Capital have entered into an Agreement dated as of January 5, 1996 pursuant to which AT&T has agreed to use its best efforts to cause the Company to enter into this Agreement by January 31, 1996 (but in any event no later than the date required pursuant to Section 8.3 of the AT&T Operating Agreement); WHEREAS, it is the intention of the parties hereto that (i) this Agreement constitute a Comparable Operating Agreement relating to the businesses of the Divisions and (ii) this Agreement shall govern the relationship between the Company and its Subsidiaries, on the one hand, and Capital and its Subsidiaries, on the other hand, after the consummation of the Spin-Off Transactions as to the matters set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises herein set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the conditions and upon the terms hereof, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms will have the following meanings, applicable both to the singular and the plural forms of the terms defined: "AAA" has the meaning ascribed thereto in Section 10.3(g). "Acquired Entity" has the meaning ascribed thereto in Section 4.3. "Acquired Entity Financing Source" has the meaning ascribed thereto in Section 4.3. "Active Service Area" has the meaning ascribed thereto in Section 8.5. "Adjusted Financeable Product Sales" means, with respect to any calendar year, the aggregate purchase price (net of any discounts) paid by Customers, Authorized Dealers or the Capital Entities (or, with respect to periods prior to March 31, 1993, Capital Holdings and its Subsidiaries) to the Company Entities, together with any related sales taxes and installation and similar costs, for Financeable Products sold by the Company Entities during such calendar year and each of the two preceding calendar years. In the event that during any three-year period for which Adjusted Financeable Product Sales is calculated, there has occurred a disposition, termination or phase-out by any Company Entity of any significant Financeable Product line, the Adjusted Financeable Product Sales amount with respect to such three-year period shall be reduced by the amounts attributable to sales of such Financeable Products during such three-year period and any related sales taxes and installation and similar costs. In the event that during any three-year period for which Adjusted Financeable Products Sales is calculated, there has been introduced or has occurred a phase-in or an acquisition by any Company Entity of any significant Financeable Product line, the Adjusted Financeable Product Sales amount with respect to such three-year period shall be adjusted such that the aggregate purchase price (net of discounts) of and any related sales taxes -2- and installation and similar costs for such significant Financeable Product line shall be (x) with respect to each full calendar year within such three-year period during which such Financeable Product line has been sold by the Company Entities (each such year, a "Full Sales Year"), the actual aggregate purchase price (net of discounts) of and any related sales taxes and installation and similar costs for Financeable Products constituting part of such Financeable Products line that are sold within such Full Sales Year and (y) with respect to each calendar year within such three-year period during or prior to which such Financeable Product line was introduced, phased-in or acquired (each such year, a "Partial Sales Year"), an assumed amount equal to the amount calculated pursuant to clause (x) above for the first Full Sales Year following such Partial Sales Year. Notwithstanding the foregoing, there shall be excluded from the foregoing calculations (i) Financeable Product lines sold by AT&T Paradyne or Network Systems for which AT&T Paradyne or Network Systems, as the case may be, provide financing pursuant to Section 4.1(b) and (ii) Financeable Product lines the introduction, phase-in or acquisition of which was effected in the calendar year with respect to which Adjusted Financeable Products Sales is being calculated together with, in each case, any related sales taxes and installation and similar costs. The foregoing adjustments to Adjusted Financeable Product Sales for any period shall be calculated on a basis that is consistent with the basis on which adjustments to Adjusted Financing Amount for such period are calculated. "Adjusted Financing Amount" means, with respect to any calendar year, the aggregate amount of Financings provided by the Capital Entities (or, with respect to periods prior to March 31, 1993, Capital Holdings and its Subsidiaries) for Financeable Products sold by the Company Entities during such calendar year and each of the two preceding calendar years, together with the aggregate amount of Financings of any related sales taxes and installation and similar costs. In the event that during any three-year period for which Adjusted Financing Amount is calculated, there has occurred a disposition, termination or phase-out by any Company Entity of any significant Financeable Product line, the Adjusted Financing Amount with respect to such three-year period shall be reduced by the amount attributable to Financings of Financeable Products constituting part of such Financeable Product line during such three-year period or to Financings of any related sales taxes and installation and similar costs. In the event that during any three-year period for which Adjusted Financing Amount is calculated, there has been introduced or has occurred a phase-in or an acquisition by any Company Entity of any significant Financeable Product line, the Adjusted Financing Amount with respect to such three year period shall be adjusted such that the amount of Financings for such significant Financeable Product line shall be (x) with respect to each Full Sales Year (as defined in the definition of "Adjusted Financeable Product Sales"), the aggregate amount of such Financings (together with the aggregate amount of Financings of -3- any related sales tax and installation and similar costs) for Financeable Products constituting part of such Financeable Product line that are sold within such Full Sales Year and (y) with respect to any Partial Sales Year (as defined in the definition of "Adjusted Financeable Product Sales"), an assumed amount equal to the amount calculated pursuant to clause (x) above for the first Full Sales Year following such Partial Sales Year. Notwithstanding the foregoing, there shall be excluded from the foregoing calculations (i) Financings provided by the Capital Entities for Financeable Product lines sold by AT&T Paradyne or Network Systems for which AT&T Paradyne or Network Systems, as the case may be, provide financing pursuant to Section 4.1(b) and (ii) Financings provided by the Capital Entities for Financeable Products lines the introduction, phase-in or acquisition of which was effected in the calendar year with respect to which Adjusted Financing Amount is being calculated together with, in each case, Financings of any related sales taxes and installation and similar costs. "Advisory Services" has the meaning ascribed thereto in Section 2.5. "Affiliate" means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote a majority of the securities having voting power for the election of directors (or other Persons acting in similar capacities) of such Person or otherwise to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "After-Tax Basis" means, with respect to any payment to be received or accrued by any Person, the amount of such payment supplemented by a further payment or payments (which shall be payable either simultaneously with the initial payment or, in the event that taxes resulting from the receipt or accrual of such initial payment are not payable in the year of receipt or accrual, at the time or times such taxes become payable) so that the sum of all such initial and supplemental payments, after deduction of all taxes imposed by any taxing authority (after taking into account any credits or deductions or other tax benefits arising therefrom to the extent such are currently utilized) resulting from the receipt or accrual of such payments (whether or not such taxes are payable in the year of receipt or accrual) will be equal to the initial payment to be so received or accrued. "Agreement" has the meaning ascribed thereto in the preamble hereto, as such agreement is amended and supplemented from time to time in accordance with its terms. -4- "Alternative Ancillary Services" means Ancillary Services offered or provided to the Company Entities, Customers or Authorized Dealers by an Alternative Provider. "Alternative Financing Program" means a Financing program offered or provided to the Company Entities, Customers or Authorized Dealers by an Alternative Provider. "Alternative Provider" means a Person (other than an Affiliate of the Company or Capital) that offers financings or other services competitive with Financings or Ancillary Services offered by the Capital Entities hereunder. "Ancillary Services" means (i) the provision of property, casualty or similar types of insurance with respect to Products, (ii) asset monitoring, recovery and remarketing services of a type provided by the Capital Entities to the Company Entities or their Customers or Authorized Dealers on or prior to the date hereof and (iii) any other value-added services relating to Products or Financings offered by the Capital Entities from time to time and agreed to by the parties to be treated as Ancillary Services for purposes of this Agreement. "AT&T" has the meaning ascribed thereto in the preamble. "AT&T Entities" means AT&T and all Persons that constitute Subsidiaries of AT&T (other than Subsidiaries that constitute Capital Entities) from time to time. "AT&T Microelectronics" means the SBU of AT&T commonly referred to as "AT&T Microelectronics", a general description of the business of which (including a description of its Products, customers and markets) is set forth on Schedule A attached hereto and made a part hereof. "AT&T Operating Agreement" has the meaning ascribed thereto in the preamble. "AT&T Paradyne" means AT&T Paradyne Corporation, a wholly-owned Subsidiary of AT&T, a general description of the business of which (including a description of its Products, customers and markets) is set forth on Schedule A attached hereto and made a part hereof. "Authorized Dealer" means any Person that is authorized or permitted by any Company Entity to acquire Products directly from such Company Entity for resale on a wholesale or retail basis. "Business Day" means any day other than a Saturday, Sunday or other day on which banking institutions in New Jersey are authorized or required by law to be closed. -5- "Capital" means AT&T Capital Corporation, a Delaware corporation, and its successors and permitted assigns. "Capital Entities" means Capital and all Persons that constitute Subsidiaries of Capital from time to time. "Capital Entities' Financing Penetration Rate" means, as of the end of any calendar year, the Adjusted Financing Amount for such year and the two preceding calendar years expressed as a percentage of the Adjusted Financeable Product Sales for such year and the two preceding calendar years. "Capital Holdings" means AT&T Capital Holdings, Inc., a Delaware corporation. "Captive Financing Trigger Event" has the meaning ascribed thereto in Section 4.2. "Company" has the meaning ascribed thereto in the preamble. "Company Entities" means the Company and all Persons that constitute Subsidiaries of the Company from time to time; provided, however, in respect of the business activities and performance of the Company Entities at any time prior to the Spin-Off Date, "Company Entities" shall refer to the businesses and assets of the Divisions. "Company Responsibility" has the meaning ascribed thereto in Section 7.2(b). "Comparable Operating Agreement" has the meaning ascribed thereto in Section 8.3. "Consumer Products" means the SBU of AT&T commonly referred to as "Consumer Products", a general description of the business of which (including a description of its Products, customers and markets) is set forth on Schedule A attached hereto and made a part hereof. "Credit" means AT&T Credit Corporation, a Delaware corporation that is a wholly-owned Subsidiary of Capital and was previously named "AT&T Captive Finance, Inc.". "Credit Holdings" means AT&T Credit Holdings, Inc., a Delaware corporation that is a wholly-owned Subsidiary of Capital Holdings and was previously named "AT&T Credit Corporation". "Credit Receivables Agreement" means the Operating Agreement dated as of January 1, 1985, among AT&T and Credit Holdings and certain of their Affiliates, as such agreement is amended and supplemented from time to time in accordance with its terms. -6- "Customer" means any Person that is an actual (or, if the context so indicates, potential) acquirer or user of Products, other than an Authorized Dealer. "Customer Financing" means any direct or indirect financing of the sale, lease or other furnishing of Products by any Company Entity (or Authorized Dealer) to Customers, and will include, without limitation, (i) entering into leases, secured loans, installment sales contracts or conditional sales contracts directly with such Customers, (ii) the purchase or financing of receivables arising from such sales, leases or other furnishings of Products by any Company Entity (or Authorized Dealer), and (iii) the issuance of charge or credit cards (such as Capital's Products Plus Card) primarily intended for the financing of purchases of Products. "Customer Outsourcing Program" means any program of the Company Entities for the acquisition, maintenance and/or operation by the Company Entities of telecommunications, computer, data and/or information networks or operations for Customers under what is generally referred to in the industry as an outsourcing or network management contract ("Outsourcing Contract") between the applicable Customer and the applicable Company Entities, under which program financing of the products and other equipment and software (which may include, but are not necessarily limited to, Products) used in connection with the Outsourcing Contract is provided by a financing source other than the internal or budgeted funds of the Company Entities offering such program. "Dealer Financing" means any direct or indirect (i) financing of the purchase or lease by Authorized Dealers of Products from the Company Entities for resale or re-lease to Customers, including, without limitation, floor planning loans and other forms of inventory financing and (ii) provision of other types of secured loans to such Authorized Dealers. "Divisions" means, collectively, AT&T Microelectronics, Network Systems, AT&T Paradyne, Consumer Products, Global Business Communications Systems and any other SBU of AT&T that becomes an SBU or a part of an SBU of the Company or any of the Company's Subsidiaries in connection with the Spin-Off Transactions. Any reference to a Division relating to a period after the Spin-Off Date shall refer to the relevant SBU (or part of such SBU) of the Company or the Company's Subsidiaries conducting the business of such Division after the Spin-Off Date. "Dollars" and "$" mean the lawful money of the United States. "Financeable Products" means all Products (other than Products constituting consumables or maintenance, service or similar contracts) sold by the Company Entities to Customers or Authorized Dealers within the Active Service Areas that (i) have -7- been Financed by the Capital Entities or (ii) are types of Products for which it is customary in the equipment finance industry within the Active Service Areas for third-party, "non-captive" equipment financing companies to provide Financing. "Financed Products" means Products with respect to which Financing has been provided. "Finance Marketing Support" has the meaning ascribed thereto in Section 3.1(i). "Financing" means Customer Financing, Dealer Financing or Outsource Financing. "First Tier Transfer of Control" means a transaction or series of transactions that has the effect of reducing AT&T's direct or indirect ownership interest of Capital's voting securities, such that Capital is no longer a Subsidiary of AT&T. "Global Business Communications Systems" means the SBU of AT&T commonly referred to as "Global Business Communications Systems", a general description of the business of which (including a description of its Products, customers and markets) is set forth on Schedule A attached hereto and made a part hereof. "Information Support" has the meaning ascribed thereto in Section 3.1(v). "Initial Term" has the meaning ascribed thereto in Section 11.1. "IPO" has the meaning ascribed thereto in the preamble. "Location Support" has the meaning ascribed thereto in Section 3.1(iii). "Location Support Agreement" has the meaning ascribed thereto in Section 3.1(iii). "Network Systems" means the SBU of AT&T commonly referred to as "Network Systems", a general description of the business of which (including a description of its Products, customers and markets) is set forth on Schedule A attached hereto and made a part hereof. "Outsource Financing" means any direct or indirect financing (including, without limitation, through secured loans and leases) of or with respect to any Customer Outsourcing Program. "Person" means any individual, partnership, joint venture, corporation, trust, unincorporated organization, -8- government (and any department or agency thereof) or other entity. "Personnel Support" has the meaning ascribed thereto in Section 3.1(ii). "Products" means any products (including, without limitation, Software, but not including any real estate) and related installation and maintenance services provided, furnished, manufactured, sold or marketed, as the case may be, by the Company Entities from time to time. "Products Capacity" means the capacity of a Significant Products Entity to manufacture, market or provide Products (including, to the extent appropriate, the related manufacturing capacity, distribution and marketing capacity and Product development and support systems). "Protocols and Procedures" has the meaning ascribed thereto in Section 5.1(a). "Protocol Standards" has the meaning ascribed thereto in Section 5.1(a). "Renewal Period" has the meaning ascribed thereto in Section 11.1. "Sales Site" means any site, office or location from which any Company Entity or SBU conducts the sale or marketing of Products. "SBU" means a division of AT&T, prior to the Spin-Off Date, or of a Company Entity, from and after the Spin-Off Date, involved in the manufacture, sale, provision or marketing of Products, including, without limitation, each of the Divisions. "Significant Account" means a customer (which may be an Authorized Dealer or a Customer) of a Company Entity (i) which has acquired Products with an aggregate purchase price exceeding $10,000,000 in the most recent calendar year or which can reasonably be expected to acquire Products with an aggregate purchase price exceeding such amount in the current calendar year and (ii) has been designated by such Company Entity as a "Significant Account" by written notice to Capital. "Significant Products Entity" means a Company Entity or SBU (x) which is in the business of manufacturing, marketing or providing Products and (y) which has annual sales revenues in excess of $200,000,000 for the calendar year immediately preceding the calendar year during which the applicable transaction referred to in Section 8.3 is proposed or effected. "Software" means any intellectual property commonly or generically known as software, together with related storage -9- disks and instructional and other documents, the acquisition or use of which by any Person is customarily financed by the Capital Entities or relates to or is used in connection with equipment financed by the Capital Entities. "Spin-Off Date" means the date of the consummation of the Spin-Off Transactions. "Spin-Off Transactions" has the meaning ascribed thereto in the preamble. "Standard Documents" means standardized forms of documents prepared (and from time to time revised) by the Capital Entities in connection with the offering of various types of Financings and Ancillary Services, including forms of leases, loan agreements, security agreements, guarantees, financing statements and other documents necessary or appropriate for the conducting of the Capital Entities' business of providing Financing and Ancillary Services. "Subsequent Transfers of Control" means any transaction or series of events or transactions, in which Capital becomes a Subsidiary of any Person other than the Person (or an Affiliate of the Person) which acquired Capital in the First Tier Transfer of Control. "Subsidiary" means, with respect to any Person, any other Person which is directly or indirectly controlled by such Person. For purposes of this definition, "control", as applied to any Person, means the possession, directly or indirectly, of the power to vote a majority of the securities having voting power for the election of directors (or other Persons acting in similar capacities) of such Person or otherwise to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Systems Support" has the meaning ascribed thereto in Section 3.1(iv). Unless the context indicates otherwise, references to Articles, Sections and Schedule will refer to the corresponding articles and sections in and schedule to this Agreement and references to the parties shall mean the parties to this Agreement. Capitalized terms used herein without definition (such as "Financed") that have correlative defined terms (such as "Financing") will have a meaning correlative to the defined term. References to "consistent with past practice" shall refer to the past practices of the Capital Entities and the businesses of the Divisions prior to June 25, 1993. -10- ARTICLE II FINANCING RELATED SERVICES TO BE PROVIDED BY CAPITAL Section 2.1. Financing Related Services-Objectives and Commitments. (a) It is the mutual objective of the parties to this Agreement that Capital will, during the term of this Agreement and within the Active Service Areas, either directly or through its Subsidiaries: (i) make available to Customers of the Company Entities and Authorized Dealers appropriate forms of Customer Financings for the purchase, lease or other acquisition of Products (such as, but not necessarily including with respect to each type of Product, leases, secured loans, installment sales contracts and conditional sales contracts), and otherwise provide the Company Entities and Authorized Dealers with Customer Financing in the form of purchases or financings of receivables arising from the sale, lease or other furnishing by the Company Entities or Authorized Dealers of Products to Customers; (ii) make available to Authorized Dealers appropriate forms of Dealer Financing and make available to the Company Entities appropriate forms of Outsource Financing; and (iii) make available to the Company Entities, Customers and Authorized Dealers, where appropriate, various types of Ancillary Services offered from time to time by Capital and its Subsidiaries. (b) In furtherance of the objectives described in paragraph (a) above, Capital shall, during the term of this Agreement and within the Active Service Areas, either directly or through its Subsidiaries: (i) generally continue the Financing and Ancillary Services programs under which Capital Holdings and its Subsidiaries (and, as successors to the "captive" financing businesses thereof, Capital and its Subsidiaries) have heretofore been providing Financings and Ancillary Services to the Company Entities, Customers and Authorized Dealers (subject to Capital's right to modify, revise or terminate particular programs as appropriate to accommodate changes in market conditions or the marketing requirements of the Company Entities, Customers and Authorized Dealers and other relevant developments); (ii) as the Company Entities introduce new Products, use its good faith efforts, in cooperation with the Company, to modify existing or devise new Financing and Ancillary Service programs, where appropriate, to support the sale, lease or other furnishings of such Products; -11- (iii) make any new Ancillary Services offered by the Capital Entities available to the Company Entities, Customers and Authorized Dealers, as appropriate; (iv) cooperate with the Company Entities and Authorized Dealers in promoting and advertising the availability of the Financings and Ancillary Services to Customers, including providing their sales and marketing personnel with information with respect to such Financings and Ancillary Services and by generally responding to inquiries made by Customers or the employees of such Company Entities or Authorized Dealers with respect to such Financings and Ancillary Services; (v) jointly with the Company, establish and implement and, where appropriate, revise from time to time Protocols and Procedures for the furnishing of such Financings and Ancillary Services in accordance with the provisions of Section 5.1; (vi) prepare Standard Documents for use in connection with standardized types of Financings and maintain the capacity to (A) modify such Standard Documents in order to document particular Financings and Ancillary Services and (B) prepare appropriate documentation for any customized Financings and Ancillary Services that Capital may offer to particular Customers or Authorized Dealers pursuant to this Agreement; (vii) cooperate with the Company Entities and Authorized Dealers to facilitate Financings (including, where appropriate, extensions, renewals or modifications of existing Financings) of replacements or upgrades of Financed Products or additions of Products to previously Financed Products (subject to adequate protection of the interests of the Capital Entities in any Financings that would be affected thereby); (viii) maintain the capacity to, and employ (or have ready access to) personnel having the requisite financial, legal and other skills to, respond to requests of Customers or Authorized Dealers with respect to unusual, specialized or complex Financings and Ancillary Services; (ix) endeavor to maintain good relations with Customers and Authorized Dealers and, by offering courteous, efficient and informed Financing services and Ancillary Services, promote and support the efforts of the Company Entities and Authorized Dealers to sell, distribute and market the Products; (x) keep appropriate employees of the Capital Entities informed of business developments at the Company Entities, the characteristics of Products and their usages, -12- developments of new Products, Product migration and marketing strategies and the Product-related business plans of the Company Entities by disseminating the information provided to the Capital Entities by the Company Entities pursuant to Section 3.6; (xi) generally keep informed of developments in the equipment financing industry and of the development of new types of financings; and (xii) at appropriate intervals, review the types of Financings and Ancillary Services offered and provided for the Products, the types of Financings and Ancillary Services requested by the Company Entities, Customers and Authorized Dealers and other available information so as to assess the responsiveness of the Financings and Ancillary Services offered by the Capital Entities to the financing and related needs of such Company Entities, Customers and Authorized Dealers, and use its good faith efforts to develop new Financing techniques or products and new types of Ancillary Services that would enhance or facilitate the sale, lease or other furnishings of Products to Customers and Authorized Dealers. (c) In connection with the activities described in paragraph (b) above, Capital shall, during the term of this Agreement and within the Active Service Areas, either directly or through its Subsidiaries: (i) employ and train appropriate personnel and maintain, adapt and upgrade its telecommunications, information-processing and record-keeping systems as it deems necessary or appropriate for the purpose of carrying out such activities; and (ii) obtain and maintain such franchises, licenses and permits as it deems necessary or appropriate for the purpose of carrying out such activities. Section 2.2. Training of Company Personnel. The Capital Entities shall, consistent with past practice, conduct training programs for attendance by appropriate sales personnel employed by the Company Entities and Authorized Dealers at which such individuals shall be trained in the proper documentation of Financings, the techniques of using Financings and Ancillary Services offered by the Capital Entities as sales tools and the particulars of such Financings and Ancillary Services. The Capital Entities shall also provide appropriate training and assistance, consistent with past practice, to the Company Entities' operational and office support personnel with respect to the implementation of the Protocols and Procedures (including, without limitation, processing of applications for and documentation of Financings and Ancillary Services), the -13- electronic systems interfaces between the Company Entities' and Capital Entities' computer systems and related matters. Section 2.3. Providing the Company with Information as to Financings and Finance Markets. The Capital Entities shall, consistent with past practice, provide to the appropriate Company Entities on a periodic basis information concerning levels of applications for and approvals of Financings and Ancillary Services, turn-around times for processing applications for Financings and Ancillary Services, levels of completed and outstanding Financings and, where requested, payment and delinquency histories with respect to Financings and Ancillary Services, and other appropriate information with respect to Financings and Ancillary Services provided under this Agreement. Upon request and to the extent permitted by applicable law, the Capital Entities shall also provide to the Company Entities appropriate information within the possession or control of such Capital Entities that is relevant to an analysis of the credit standing of any Customer or Authorized Dealer that has directly or indirectly received or applied for Financing or Ancillary Services from the Capital Entities. The Capital Entities shall also provide to the Company Entities, (i) on a periodic basis, appropriate information concerning competitive lease and other financing products and market conditions for financing products, and (ii) on a regular and timely basis, the development and marketing plans and strategies of the Capital Entities with regard to Financings and Ancillary Services. The Capital Entities shall, in a manner consistent with past practice, comply with all reasonable requests of the Company Entities for information with respect to the Capital Entities' business plans and results and programs for financings and ancillary services that are relevant to the activities contemplated under this Agreement (whether or not relating to the Active Service Areas.) Section 2.4. Subsidized and Guaranteed Financings and Ancillary Services. In the event that any Company Entity at any time desires that a Capital Entity provide a proposed Financing or Ancillary Service that has previously been rejected by or is otherwise unacceptable to such Capital Entity because of the level of credit, residual or other risk proposed to be borne by such Capital Entity in the provision of such Financing or Ancillary Service, or if any Company Entity at any time desires that a Capital Entity provide Financing or an Ancillary Service to a Customer or Authorized Dealer at a yield rate or price that is more favorable to such Customer or Authorized Dealer than the rate or price such Capital Entity is otherwise willing to offer, Capital shall use its best efforts to work out arrangements with such Company Entity such that the Company might, directly or indirectly, (x) subsidize such Financing or Ancillary Service (for instance, by agreeing to pay supplemental rent, premiums or interest or accepting a greater than usual discount) and/or (y) provide credit support with respect to such Financing or Ancillary Service (for instance, by guaranteeing payments due and/or the residual under a lease) so as to permit such Capital -14- Entity to offer such Financing or Ancillary Service to the Customer or Authorized Dealer on the terms contemplated by such Company Entity. Capital shall use its best efforts to (x) respond in a timely manner to any proposal by any Company Entity with respect to the subsidization or guarantee of any such Financing or Ancillary Service and (y) identify to the Company Entities in advance, where it is reasonably practicable to do so, the types of Financings and Ancillary Services that Capital would be willing to provide on a subsidized or guaranteed basis. It is understood by Capital that the provision by the Company of any guarantee or subsidy with respect to any Financing or Ancillary Service is in the sole discretion of the Company. Section 2.5. Advisory Services. Capital shall (to the extent it is permitted to do so under applicable laws without the requirement of obtaining regulatory approvals or licenses in addition to those the Capital Entities may possess at the relevant time) use its good faith best efforts to provide, either directly or through its Subsidiaries, the Company Entities with financial advisory and syndication services ("Advisory Services") upon request in areas in which the Capital Entities have expertise, such as the structuring of Financings for certain Products not covered by the Capital Entities' general Financing programs (e.g., switching systems marketed by the Company Entities in certain less developed countries) and the arranging of securitizations of financial assets (other than financial assets subject to Financings by Capital). Such Advisory Services shall be provided by Capital pursuant to commercially reasonable arrangements to be agreed upon by the Company and Capital and will involve the payment to the relevant Capital Entities of advisory fees in an amount to be agreed upon. The utilization by the Company Entities of the Capital Entities for provision of such Advisory Services shall be in the sole discretion of the Company Entities. Section 2.6. No Obligation or Commitment. (a) The Capital Entities shall use their good faith efforts to provide Financings and Ancillary Services for sales, leases and other furnishings of Products by the Company Entities within the Active Service Areas, subject to compliance with Capital's credit and documentation standards and the availability of funding sources. However, the provisions of this Agreement are not intended to and will not be interpreted so as to obligate or commit the Capital Entities to provide Financings or Ancillary Services with respect to any particular Company Entity, Customer, Authorized Dealer or Product, and the Capital Entities will retain full discretion with respect to the circumstances in which it will provide, and the terms of, such Financings and Ancillary Services. (b) Although the Capital Entities are entitled, in their discretion, to modify or discontinue programs for Financings and Ancillary Services, the Capital Entities shall, consistent with past practice, prior to discontinuing or making a significant modification of any such program, inform the SBUs -15- that would be affected by such discontinuance or modification and use reasonable efforts, in consultation with such SBUs, to minimize, as far as practicably possible, any disruptive effect of such discontinuance or modification on such SBU's sale, lease or other furnishings of Products. Section 2.7. Alternative Financing and Recourse Arrangements. (a) The Company Entities and Capital Entities may, in their discretion, choose to enter into arrangements or programs from time to time with respect to Financings and Ancillary Services that have terms and conditions that vary from those contemplated in this Agreement. Any such alternative arrangements and programs will not be construed to amend this Agreement, which may be amended solely in accordance with the terms of Section 13.1. The parties further acknowledge and agree that, except to the extent otherwise provided herein, (i) any recourse or other similar arrangements with respect to Financings or Ancillary Services (whether written or oral) in effect on the date of this Agreement between any Capital Entity (as successor to Capital Holdings or any Subsidiary thereof or otherwise), on the one hand, and any AT&T Entity, on the other hand, will remain in effect in accordance with their terms and (ii) on the Spin-Off Date the Company will succeed to the right, and assume the obligations, of the AT&T Entities, in accordance with Section 8.1(a) (it being understood that no AT&T Entity shall be released from its obligations under any such recourse or similar arrangements entered into prior to the Spin-Off Date). (b) The Company acknowledges and agrees, on behalf of itself and the other Company Entities that are parties to the Credit Receivables Agreement, and Capital acknowledges and agrees, on behalf of the Capital Entities that are parties to the Credit Receivables Agreement, that (i) Credit has succeeded to the rights and assumed the obligations of Credit Holdings in and under the Credit Receivables Agreement, (ii) the Credit Receivables Agreement shall continue in full force and effect except that (A) the term "Affiliates" (as such term is used therein), as it applies to affiliates of the Company, shall include all the Company Entities but shall not include the Capital Entities and (B) the rights and obligations of Credit thereunder may be exercised or performed by any Capital Entity and (iii) the terms and conditions of this Agreement shall apply to the transactions contemplated in or effected pursuant to the Credit Receivables Agreement to the extent that such terms and conditions are not inconsistent with the terms and conditions of the Credit Receivables Agreement and, to the extent of any such inconsistency, the terms and conditions set forth in the Credit Receivables Agreement shall apply and be controlling with respect to the transactions contemplated in or effected pursuant to the Credit Receivables Agreement. Any disputes arising under the Credit Receivables Agreement shall be resolved pursuant to the provisions of Article X. -16- ARTICLE III PREFERRED PROVIDER STATUS Section 3.1. Support of the Capital Entities. The Company agrees that during the term of this Agreement the Company Entities shall, within the Active Service Areas, in connection with the offering or provision of Financings or Ancillary Services by the Capital Entities: (i) promote the utilization by Customers and Authorized Dealers of Customer Financings and Dealer Financings, as appropriate, and Ancillary Services made available by the Capital Entities (which type of support is described more fully in Section 3.4 and is referred to herein as "Finance Marketing Support"); (ii) (A) support the efforts of the Capital Entities to make available Customer Financings and Dealer Financings, as appropriate, and Ancillary Services to Customers and Authorized Dealers and (B) consistent with past practice, provide training to appropriate personnel employed by the Capital Entities with respect to the Products and the sales and marketing thereof (which type of support is described more fully in Section 3.5 and is referred to herein as "Personnel Support"); (iii) provide appropriate personnel of the Capital Entities with office space at Sales Sites and appropriate office support services on the terms and conditions set forth in Schedule B attached hereto and made a part hereof (the "Location Support Agreement") (which type of support is referred to herein as "Location Support"); (iv) permit and facilitate linkages between the Capital Entities' and the Company Entities' computer and telecommunications systems for the purpose of retrieving and transmitting between the systems information and documentation in connection with the offering, documentation and monitoring of Financings and Ancillary Services and otherwise facilitating the efficient implementation of the relationships and activities contemplated in this Agreement (which type of support is described more fully in Section 5.2 and is referred to herein as "Systems Support"); and (v) provide to the Capital Entities information with respect to the Company Entities' product development and marketing plans, consistent with past practice, for the purposes of permitting the Capital Entities to more effectively design appropriate programs for Financings and Ancillary Services and to determine the likely residual values of Products (which type of support is described more fully in Section 3.6 and is referred to herein as "Information Support"). -17- In addition to the foregoing, the Company Entities shall provide to the Capital Entities such assistance as the Capital Entities may reasonably request in order to facilitate the Capital Entities' financing activities relating to the provision of Financings and Ancillary Services. Such assistance may include matters such as structuring and documenting arrangements (including purchase, payment and invoicing arrangements) between the Company Entities and the Capital Entities or between the Company Entities and Customers and Authorized Dealers for purposes of facilitating receivables financings, leases and other financing transactions effected by the Capital Entities. Section 3.2 Preferred Provider Status. (a) The Company Entities shall provide the Capital Entities with an opportunity to propose a Financing program or Financings and, where applicable, Ancillary Services, with respect to all sales, leases or other furnishings of Products directly by Company Entities to Customers and Authorized Dealers and all Customer Outsourcing Programs within the Active Service Areas. However, the Company Entities shall have the right to utilize or promote an Alternative Financing Program or Alternative Ancillary Services with respect to particular sales, leases or other furnishings of Products or Customer Outsourcing Programs subject to the following conditions: (i) the Company Entities shall not utilize any Alternative Financing Program or Alternative Ancillary Services if the Capital Entities have offered to provide Financings or Ancillary Services on the same or better terms, conditions and standards of service overall as those offered by the Alternative Provider (it being understood, however, that the Company Entities will not be obligated to provide the Capital Entities with a "last look" with respect to the terms, conditions and standards of service offered by such Alternative Provider, provided that they do not provide any such Alternative Provider with information concerning the terms, conditions and standards of service offered by the Capital Entities); (ii) the Company Entities shall not provide to any such Alternative Provider any benefits, inducements or information in connection with any proposed Alternative Financing Program or Alternative Ancillary Services unless the same or comparable benefits, inducements or information have been offered or provided to the Capital Entities, and shall not give any Alternative Provider preferential treatment in any respect with respect to any Alternative Financing Program or Alternative Ancillary Services; and (iii) the Company Entities shall not provide to any such Alternative Provider, for purposes of facilitating or promoting any Alternative Financing Program or Alternative Ancillary Services: (A) any confidential information with -18- respect to any Products (including, without limitation, information relating to Product development and marketing plans, but excluding any specific technical information with respect to the Products being financed necessary for the implementation of the Alternative Financing Program), (B) any commitments to repurchase or remarket Products, (C) the right to directly or indirectly provide incentive compensation to any sales or other personnel employed by the Company Entities, (D) any computer or other technological systems interfaces between the Company Entities (on the one hand) and such Alternative Provider (on the other hand) or (E) the opportunity or right to base or locate any Alternative Provider personnel at any Sales Site. (b) Except as provided in this Section 3.2, the Company Entities shall not provide any support similar to the Finance Marketing Support, Location Support or Systems Support to any Alternative Provider that provides or proposes to provide, in any Active Service Area, Alternative Financing Programs or Alternative Ancillary Services to the Company Entities, Customers or Authorized Dealers. (c) In the event that (i) the Capital Entities decline (or do not bid) to provide, in any Active Service Area, any particular type of Financings or Ancillary Services or Financings or Ancillary Services for any particular line of new Products or Products for which the Capital Entities do not have programs for the provision of Financings or Ancillary Services, in each such case on such conditions and specifications as are communicated by a Company Entity to the Capital Entities and any Alternative Provider, and (ii) such Company Entity makes an arrangement with any such Alternative Provider to provide an Alternative Financing Program or Alternative Ancillary Services with respect to such particular type of Financings or Ancillary Services or Financings or Ancillary Services for such particular line of Products on the conditions and specifications so communicated to the Capital Entities and such Alternative Provider, the provisions of paragraphs (a) and (b) above shall not apply solely with respect to such Alternative Financing Program or Alternative Ancillary Services. It is understood by the parties that the provisions of this paragraph (c) are intended solely to permit the Company to extend the benefits set forth in paragraphs (a) and (b) above to Alternative Providers in circumstances in which the Capital Entities do not provide or offer to provide certain Financings or Ancillary Services. (d) Notwithstanding the other provisions of this Article III, the Company Entities may but shall not be required to provide to the Capital Entities any (i) Finance Marketing Support in connection with any Customer Outsourcing Program, (ii) Location Support or Systems Support in connection with any Customer Outsourcing Program in addition to that currently provided by the Company Entities, and (iii) Information Support in connection with any Customer Outsourcing Program except that -19- the Company Entities shall provide information to the Capital Entities relating to the specific Products being Financed by the Capital Entities in connection with any Customer Outsourcing Program. In addition to the foregoing, the Company Entities may, in connection with any Customer Outsourcing Program with any Customer, without providing a right to bid thereon to the Capital Entities, (x) guarantee or assume the payment obligations of such Customer under financings for products provided to such Customer by any financing source that is unaffiliated to the Company Entities or Capital Entities to the extent that such financings are in effect at the time that the Company Entities enter into such Customer Outsourcing Program with such Customer and (y) finance, through the financing program or arrangement in effect with such alternative financing source, upgrades or add-ons to the products that have been so financed through such alternative financing program or arrangement. (e) In the event that a Company Entity reasonably believes that any Financings and Ancillary Services provided by the Capital Entities at any Sales Site are not being provided substantially and generally in accordance with the applicable Protocols and Procedures, such Company Entity shall provide notice thereof to the appropriate Capital Entities (which notice shall set forth in reasonable detail the basis of such belief of the Company Entity). The Capital Entities shall have 60 days after receipt of such notice to cure such deficiencies and provide Financing and Ancillary Services substantially and generally in accordance with the applicable Protocols and Procedures. If the Capital Entities fail to cure such deficiencies within such 60 day period, the Company Entities may, notwithstanding the provisions of Section 3.1 and this Section 3.2, make arrangements with an Alternative Provider to provide at such Sales Site Alternative Financing Programs and/or Alternative Ancillary Programs of the type not being provided by the Capital Entities at such Sales Site substantially and generally in accordance with the applicable Protocols and Procedures. Section 3.3. Right to Choose Alternative Providers. Capital acknowledges that Customers and Authorized Dealers are entitled to choose not to Finance the acquisition or use of Products or to choose to make arrangements for obtaining Financings for the acquisition or use of Products or Ancillary Services from Alternative Providers. Capital further acknowledges that the provisions of this Agreement (including the Company's commitment in Section 3.2 to promote the use of Financings and Ancillary Services offered by the Capital Entities) do not require the Company Entities to condition the sale or furnishing of Products on the choice by Customers or Authorized Dealers of Financings or Ancillary Services offered by the Capital Entities or otherwise require Customers or Authorized Dealers to utilize such Financings or Ancillary Services. Nothing set forth in this Agreement will be construed so as to prohibit any sales representative of any Company Entity from cooperating with a Customer or Authorized Dealer in obtaining -20- Financing or Ancillary Services from an Alternative Provider where the Customer or Authorized Dealer has independently decided not to obtain such Financing or Ancillary Services from Capital; provided, however, that the ability of such Company Entities to cooperate with such Alternative Provider will be subject to the limitations set forth in Section 3.2(a) and Section 3.2(b). Section 3.4. Finance Marketing Support . The Company Entities' sales representatives engaged in the sale or marketing of Products of a type for which the Capital Entities offer Customer Financings or Dealer Financings or Ancillary Services shall be provided by the Company Entities with promotional and informational literature concerning such Financings and Ancillary Services and, where appropriate, Standard Documents that are in each case provided by the Capital Entities to the Company Entities. Such sales representatives shall make the Financing options offered by the Capital Entities known to Customers and Authorized Dealers interested in Financing the purchase, lease or other acquisition of Products and, where appropriate, shall make the Ancillary Services offered by the Capital Entities known to such Customers and Authorized Dealers. In addition, such sales representatives shall generally use their good faith best efforts to promote the use of such Financings and Ancillary Services by such Customers and Authorized Dealers. Section 3.5. Personnel Support. (a) Consistent with past practice, the Company Entities shall, in a manner deemed appropriate by the Company in its discretion, make available employees of such Company Entities with the requisite position, knowledge, skill and experience to coordinate the Company Entities' marketing and sales strategies with the Capital Entities' marketing and Financing and Ancillary Services strategies, to coordinate the actual marketing and sale of Products by such Company Entities with the offering and documentation of Financings and Ancillary Services by the Capital Entities, to receive and disseminate within each SBU within each such Company Entity and provide timely responses to communications, requests and information from the Capital Entities to such SBU, to coordinate cash management, accounting and systems interfaces between the Company Entities and the Capital Entities and to otherwise comply with such Company Entities' obligations to Capital hereunder. (b) The Company Entities shall provide training to appropriate personnel of the Capital Entities with respect to Products and their characteristics and usages, the interrelationships among Product lines, the potential for Product upgrades and add-ons, the products of other manufacturers competitive with the Products, Product marketing and sales strategies and similar technical or marketing matters that could be of use to such personnel in designing and pricing appropriate types of Financings and Ancillary Services, including the determination of appropriate residual values. -21- Section 3.6. Information Support. The Company Entities shall, in a manner consistent with past practice, comply with all reasonable requests of the Capital Entities for information with respect to the Company Entities' business plans and results and Products that are relevant to the activities contemplated under this Agreement (whether or not relating to the Active Service Areas). Without limiting the foregoing, the Company Entities shall keep the Capital Entities informed on a regular and timely basis of their Product development and marketing plans and results to the extent relevant to the activities contemplated under this Agreement. The Company Entities shall also provide the Capital Entities appropriate information within the possession or control of such Company Entities that is relevant to an analysis of the credit standing of any Customer or Authorized Dealer proposed to directly or indirectly receive Financing or Ancillary Services from the Capital Entities, and shall provide the Capital Entities such Product information as may be useful in connection with the pricing of Financings and Ancillary Services and the determination of appropriate residual values (such as information as to Product remarketing prices, Product pricing analyses, Product aging and replacement reports and analyses and Product migration strategies). Section 3.7. Activities of the Company Entities. The "preferred provider" rights and benefits conferred on the Capital Entities and the obligations of the Company Entities under this Article III shall not be applicable to or restrict or limit the rights of the Company Entities to engage in Financing and Ancillary Service activities to the extent the Company Entities are expressly permitted to engage in such activities pursuant to Article IV; provided, however, that the Company Entities shall not transfer or assign (except to other Company Entities) such rights to any other Person. ARTICLE IV NON-COMPETITION Section 4.1. Covenant Not to Compete. (a) In furtherance of the "preferred provider" status accorded by the Company to the Capital Entities under Section 3.2, the Company covenants and agrees that the Company shall not, and shall not permit the other Company Entities to, directly or indirectly, at any time during the term of this Agreement (whether as stockholder, principal, agent, independent contractor, partner or otherwise) maintain an ownership interest in, manage, operate, control or participate in a business involving (i) the Financing of Products or the offering of Ancillary Services anywhere within any Active Service Area (which activities the parties agree shall be deemed to be in direct competition with the Capital Entities), or (ii) the financing of products or services manufactured, sold, furnished provided or marketed by Persons that are not Company Entities, or the offering of ancillary services similar to the -22- Ancillary Services with respect to such products or services, or the providing of secured financing to any Person (whether or not such competition relates to the services offered by the Capital Entities under this Agreement) anywhere within any Active Service Area (it being acknowledged that the prohibited activities are not limited to any particular region within the Active Service Areas because the prohibited activities may be engaged in effectively in competition with the Capital Entities' business from any location within the United States or within any other Active Service Area), except as provided in paragraph (b) below and Section 4.2. (b) Notwithstanding the provisions of paragraph (a) above: (i) the Company Entities may acquire and own, individually or collectively, in the aggregate, (A) except as provided in clause (ii) below, not in excess of 5% of any class of stock of any financial institution if such stock is publicly traded and listed on any national or regional stock exchange or reported on the National Association of Securities Dealers Automated Quotation System (NASDAQ) and (B) ownership interests in any company that has an equipment leasing subsidiary or division to the extent that by ownership of such equity interests or otherwise the Company Entities do not "control" (as described in the definition of Subsidiary) such company, provided that the Company Entities shall not assist such equipment leasing subsidiary or division in competing with the Capital Entities and shall not provide such subsidiary or division with any "preferred provider" rights of the type set forth in Section 3.2; (ii) the Company Entities may acquire or establish and own a bank, insurance company, savings and loan association or similar financial institution that does not (or, following such acquisition, ceases to) offer programs for equipment leasing or other types of equipment Financing with respect to Products, asset remarketing or Finance-related equipment insurance in connection with Products that compete with programs for such services offered by the Capital Entities; (iii) the Company Entities may issue credit cards; provided that the Company Entities shall not use such credit cards to offer programs for equipment leasing or other types of equipment Financing with respect to Products, asset remarketing or Finance-related equipment insurance in connection with Products that compete with programs for such services offered by the Capital Entities (it being understood that for purposes of this clause (iii) "Products" shall include Products (as defined in the AT&T Operating Agreement or any Comparable Operating Agreement entered into pursuant to, and as defined in, the AT&T Operating Agreement); -23- (iv) the Company Entities may, in a manner consistent with past practice (such past practice being more fully described on Schedule C attached hereto and made a part hereof) or as otherwise agreed by the Company and Capital from time to time, provide interim Financings for Products in the form of sales-type leases, installment sales contracts or conditional sales contracts to Customers or Authorized Dealers to Finance the acquisition by them of Products; provided that the Company Entities shall offer to the Capital Entities an opportunity to purchase the receivables resulting from such Financings on terms consistent with past practice and, where applicable, subject to the terms of the Credit Receivables Agreement; (v) AT&T Paradyne may, consistent with past practice (such past practice being more fully described on Schedule D attached hereto and made a part hereof) provide Financings to its Customers and Authorized Dealers in the form of sales-type leases, installment sales contracts or conditional sales contracts and AT&T Paradyne may retain or sell the interests in such Financings; provided that AT&T Paradyne shall, in connection with any sale or other disposition of any interests in such Financings or the related receivables, generally provide to Capital a right of first refusal to purchase or otherwise acquire such interests and to match any bids by other Persons for the purchase or other acquisition of such interests, and, in the event that Capital makes a bid for such purchase or other acquisition and the terms of such bid, taken as a whole, are at least as favorable to AT&T Paradyne as the terms of any other bid, taken as a whole, AT&T Paradyne shall sell or otherwise dispose of such interests to Capital; (vi) Network Systems and any Acquired Entity Financing Source (as defined in Section 4.3(a) hereinbelow), for so long as such Acquired Entity Financing Source is a Subsidiary of the Company or a division of any Company Entity, may provide Financings and financial advisory and syndication services with respect to equipment, systems and services of the type traditionally manufactured or marketed by Network Systems as of June 25, 1993 (such equipment, systems and services being more fully described on Schedule E attached hereto and made a part hereof) (together with equipment and systems manufactured by other Persons that are integrated with equipment manufactured and Financed by Network Systems) to Customers such as telephone companies and other providers of communication services; provided that Network Systems and such Acquired Entity Financing Source shall (A) not retain any interests in such Financings other than interests in a limited amount of such Financings and (B) provide the Capital Entities with the same opportunities to bid on the provision of Financings and advisory and syndication services as are provided to any unaffiliated financing source anywhere in the world; -24- (vii) the Company Entities may, consistent with past practice (such past practice being more fully described on Schedule F attached hereto and made a part hereof), rent Products to Customers on a daily, weekly, monthly or other periodic basis, or otherwise, with no obligation to advise Capital or any Capital Entity; (viii) the Company Entities may finance the sale or other disposition of real estate owned by the Company Entities from time to time; (ix) Acquired Entity Financing Sources may conduct the financing activities that such entities are permitted to conduct under Section 4.3; (x) the Company Entities may provide short-term trade credits to Customers and Authorized Dealers in connection with the acquisition of Products by such Customers and Authorized Dealers; and (xi) the Company Entities may provide services to lessees involving (A) inspection of leased equipment and analysis of related leases with a view towards reducing ongoing lease expenses, (B) provision of recommendations to reduce current and future costs related to equipment and the related leases or (C) negotiation with lessors with respect to matters such as credits for returned equipment, purchase by lessees of equipment and consolidation of equipment leases. It is the intent and understanding of the parties hereto that if, in any action before any court, agency or tribunal legally empowered to enforce this Section 4.1, any term, restriction, covenant or promise in this Section 4.1 is found to be invalid, illegal or unenforceable, then such term, restriction, covenant or promise will be deemed modified to the extent necessary to make it valid, legal or enforceable by such court, agency or tribunal. Section 4.2. Use of a Permitted Captive Financing Source. If at any time a Captive Financing Trigger Event (as defined below) occurs, the Company may, upon at least 120 days' prior notice to Capital given not later than 30 days after the date of the determination that such Captive Financing Trigger Event exists, elect to (i) provide, or to cause another Company Entity to provide Financings with respect to future sales, leases or other furnishings of Products and related Ancillary Services and (ii) terminate the "preferred provider" rights and benefits provided to the Capital Entities pursuant to Section 3.2. A "Captive Financing Trigger Event" shall be deemed to have occurred if, and only if, the Capital Entities' Financing Penetration Rate as of the end of any calendar year declines by ten (10) percentage points or more relative to the Capital -25- Entities' Financing Penetration Rate as of the end of the preceding calendar year (for instance, the requirements of this clause (ii) shall be satisfied for calendar year 1997 in the event that the Capital Entities' Financing Penetration Rate for calendar year 1997 were 44% and the Capital Entities' Financing Penetration Rate for calendar year 1996 were 55% since such 1996 Financing Penetration Rate would have exceeded such 1997 Financing Penetration Rate by 11 percentage points); provided that any decline in such Financing Penetration Rate as of the end of any calendar year that is attributable to a breach or violation by a Company Entity or an employee of a Company Entity of this Agreement (whether or not such breach or violation gives rise to a right of termination of this Agreement) shall be excluded from the calculation of such Capital Entities' Financing Penetration Rate. In comparing the Capital Entities' Financing Penetration Rate for any two three-year periods, the adjustments to the Adjusted Financing Amount and Adjusted Financeable Product Sales contemplated in the definitions thereof for calculation of such Capital Entities' Financing Penetration Rates shall be effected on a consistent basis (for instance, if the Adjusted Financing Amount and Adjusted Financeable Product Sales for calendar year 1997 are adjusted downwards to reflect a phase-out in calendar year 1997 of a significant Products line, the Adjusted Financing Amount and Adjusted Financeable Products Sales for calendar year 1996 shall also be correspondingly adjusted downwards as if the phase-out of the significant Products line occurred in calendar year 1996). The Company and Capital shall, as part of the Protocols and Procedures, establish procedures and parameters for determining whether or not a Captive Financing Trigger Event has occurred as of the end of any calendar year. Section 4.3. Financing Operations of Acquired Entities. (a) In the event that the Company Entities at any time acquire equity interests in or the assets of any Person or business (such entity or the entity holding such acquired assets being sometimes referred to herein as an "Acquired Entity") that thereby becomes a Subsidiary of the Company or a division of any Company Entity and which engages, directly or through an Affiliate, in the financing of products or services manufactured, marketed or provided by such Acquired Entity (the division or Affiliate that provides such financing being sometimes referred to herein as an "Acquired Entity Financing Source"), except as described in Section 4.3(c) below, the Company shall use reasonable efforts to facilitate one or more of the following transactions by Capital, in Capital's discretion: (i) acquisition by Capital of the capital stock or substantially all the assets of such Acquired Entity Financing Source for an amount equal to the fair market value thereof (not to exceed the portion of the total consideration paid by the Company Entities for the acquired equity interests or assets that is allocable to such assets or stock of such Acquired Entity Financing Source); (ii) acquisition by Capital of the capital stock or substantially all of the -26- assets of such Acquired Entity Financing Source, other than its portfolio of existing financings, for an amount equal to the fair market value of such acquired assets (subject to the same limiting principle as in the preceding clause (i)) and execution by Capital of an exclusive agreement with such Acquired Entity Financing Source for Capital to service such existing portfolio (including any future additions to such portfolio) for a reasonable, market-based fee; or (iii) without the acquisition of such capital stock or assets or portfolio, the execution by Capital of an exclusive agreement with such Acquired Entity Financing Source for Capital to service such portfolio (including any future additions to such portfolio) for a reasonable, market-based fee. (b) In the event that Capital does not acquire the capital stock or substantially all the assets of any such Acquired Entity Financing Source as provided in paragraph (a) above or Section 4.3(c) below, such Acquired Entity Financing Source may, so long as it continues to be, or continues to be a division or unit of, a direct or indirect Subsidiary of the Company, continue to provide financing for: (A) products or related services manufactured, marketed, furnished or provided by the related Acquired Entity as of the date of the acquisition thereof by the Company Entities, together with any new generations of such products or services (subject, however, to the limitations and restrictions set forth in Section 4.1(b)(vi) above with respect to an Acquired Entity Financing Source described in Section 4.3(c) below); provided, that such products and services will nonetheless be deemed to be "Products" for the purposes of this Agreement and Capital will also have a right to offer Financings and Ancillary Services with respect to such Products in accordance with the terms of Article III (except that the "preferred provider" provisions of Section 3.2 shall not restrict the Company Entities from providing any rights or benefits to such Acquired Entity Financing Source with respect to such Products); and (B) products or related services manufactured, marketed or provided by Persons that do not constitute Company Entities (subject, however, to the limitations and restrictions set forth in Section 4.1(b)(vi) above with respect to an Acquired Entity Financing Source described in Section 4.3(c) below) so long as the scope and nature of such financing activities are restricted to the scope and nature of such financing activities of such Acquired Entity Financing Source as of the date of the acquisition thereof by the Company Entities (it being understood and agreed that such Acquired Entity Financing Source shall not provide Financings for Products (other than the Products permitted to be Financed pursuant to clause (A) above) except to the extent that such other Products are incorporated in or integral to the products and services permitted to be financed pursuant to this clause (B) and which do not constitute more than 40% of the value of such products or services and such Financings of Products do not occur as a course of dealing with respect to any Customer or Customer segment). At the request of either party, the parties shall set forth in -27- writing the specific scope, nature and extent of the financing activities of any such Acquired Entity Financing Source that are permitted under the terms of this Section 4.3. (c) Notwithstanding anything in Section 4.3(a) to the contrary, to the extent an Acquired Entity Financing Source is engaged in the provision of Financing and financial advisory and syndication services with respect to equipment, systems, and services of the type traditionally manufactured or marketed by Network Systems as of June 25, 1993, and as described on Schedule E attached hereto, Capital shall have no right to require the Company to use reasonable efforts to facilitate the transactions described in Section 4.3(a)(i) or (ii) with respect to such Acquired Entity Financing Source; provided, that the Company shall use reasonable efforts to facilitate, in Capital's discretion (1) a transaction whereby Capital would acquire substantially all of such Acquired Entity Financing Source's portfolio of existing financing for an amount equal to the fair market value of such acquired assets (subject to the same limiting principle in Section 4.3(a)(i))or (2) the same type of transaction described in Section 4.3(a)(iii). ARTICLE V PROTOCOLS AND PROCEDURES AND RELATED MATTERS Section 5.1. Protocols and Procedures; Pilot Programs. (a) The Company and Capital acknowledge that there are presently in effect certain protocols and procedures governing certain aspects of the business relationship between the Capital Entities (or their predecessors) and the Company Entities (collectively, "Protocols and Procedures") that were agreed to between such Company Entities and Capital Entities (or their predecessors) for the purposes of (A) on the one hand, promoting efficiency in the identification, communication and processing of requirements of Customers and Authorized Dealers for Financings and Ancillary Services and the provision and monitoring of such Financings and Ancillary Services and (B) on the other hand, improving the Capital Entities' Financing Penetration Rate while maintaining the profitability to the Capital Entities of the provision of Financings and Ancillary Services (the "Protocol Standards"). Such Protocols and Procedures will continue to remain in effect between the appropriate Company Entities and Capital Entities, and the Company Entities and Capital Entities shall conduct the activities contemplated in the Protocols and Procedures to be conducted by the Company Entities and Capital Entities, as the case may be, substantially and generally in accordance with the terms thereof (it being understood that complete and consistent compliance by the parties with the Protocols and Procedures is not practical). It is the intention of the parties that the -28- Protocols and Procedures will not supersede or modify the agreements of the parties set forth in the Location Support Agreement or other written agreements between the parties relating to the provision of products or services by one party to the other party. (b) The appropriate Company Entities and Capital Entities shall review the Protocols and Procedures on a periodic basis to determine if it would be appropriate or necessary to modify or supplement the Protocols and Procedures in order for the Protocols and Procedures to comport more closely with the Protocol Standards or for the Protocols and Procedures to take into account new types of Financings or Ancillary Services or other changes in circumstances in a manner consistent with the Protocol Standards. The appropriate Company Entities and Capital Entities may also suggest modifications or supplements to the Protocols and Procedures at any time and from time to time that are consistent with the Protocol Standards. The Company Entities may, consistent with past practice, in determining whether the Protocols and Procedures are to be modified or updated, take into account relevant benchmarking and other methods of evaluating the Financing programs offered by the Capital Entities whereunder such programs would be compared to substantially similar (as to scope and nature) financing programs offered by other financing sources for equipment and products that do not constitute Products. Where applicable, the appropriate Company Entities and Capital Entities shall, in any such circumstances, negotiate in good faith to appropriately modify or supplement the Protocols and Procedures. (c) The Capital Entities and the Company Entities shall, consistent with past practice, cooperate with each other to institute pilot Financing programs by the Capital Entities which are mutually satisfactory to the Company Entities and the Capital Entities. Section 5.2. Systems Interface. (a) The Company and Capital agree to maintain in effect the existing telecommunications and computer linkages (including, without limitation, telecommunications and computer linkages relating to voice messaging, electronic written messaging, remote terminal document retrieval, and data storage and retrieval) between the Company Entities and Capital Entities that facilitate (x) the accessing by the Capital Entities of information with respect to Customer and Authorized Dealer locations, Product delivery, location, installation and servicing, SBU sales force performance and related matters, (y) the accessing by the Company Entities and the SBUs of information with respect to terms of or rates for Financings and Ancillary Services, acceptance, billing and payment status and credit and collection information and, to the extent such information is available to the Capital Entities, information with respect to Customer and Authorized Dealer locations and Product delivery, location, installation and servicing, and (z) the integration of funds transfers between the -29- Company Entities and Capital Entities with their respective invoicing and accounting systems in connection with the provision by the Capital Entities of Financings and Ancillary Services with respect to Products. (b) The appropriate Company Entities and Capital Entities shall review the foregoing telecommunications and computer linkages on a periodic basis to determine if it would be appropriate or necessary to improve, expand, modify or supplement such linkages in order to comply with the Protocols and Procedures, integrate more efficient technology, improve and expand data retrieval and usage and improve the sales of Products and the utilization of Financings and Ancillary Services offered by the Capital Entities or to take into account new types of Financings or Ancillary Services or other changes in circumstances. The appropriate Company Entities and Capital Entities may also suggest improvements, expansions, modifications or supplements to such telecommunications and computer linkages at any time and from time to time that are consistent with the foregoing standards. If necessary or appropriate, the appropriate Company Entities and Capital Entities shall, in any such circumstances, take appropriate actions to effect such improvements, expansions, modifications or supplements to such telecommunications and computer linkages. (c) The Company Entities shall bear the costs of maintaining and improving, expanding, modifying or supplementing the computer and telecommunications systems owned by them and the costs of telecommunication and other services utilized by them. The Capital Entities shall bear the costs of maintaining and improving, expanding, modifying or supplementing the computer and telecommunication systems owned by them and the costs of telecommunication and other services utilized by them. The costs of designing and implementing the interfaces between the Company Entities' and Capital Entities' computer and telecommunications systems and the costs of related telecommunications and other services shall be shared equally between the Company and Capital. ARTICLE VI REMARKETING OF PRODUCTS Section 6.1. In General. (a) The Company Entities and the Capital Entities and the SBUs shall, in a manner consistent with past practice but subject to the terms hereof, coordinate their strategies with respect to the disposition or re-lease (whether by extension of the existing lease or by a new lease to a third party) of leased Products (whether at the end of the lease term or upon the return or repossession of the leased Product prior to the end of such term), with the objective of both maintaining the relevant Customers and Authorized Dealers as purchasers and users of Products, on the one hand, and protecting the Capital Entities' reasonable expectations concerning the realization of profits from end of term residuals, on the other -30- hand. Unless otherwise agreed to by the Capital Entities in connection with particular Financings or Financing programs, Capital will not be restricted in terms of its right to sell, re-lease or otherwise dispose of returned or repossessed Products (including Products that have been leased by or subject to security interests or other claims in favor of any Capital Entity). Except as otherwise agreed in writing, the Company Entities shall not be deemed to have represented or warranted to the Capital Entities that the Capital Entities will obtain any minimum proceeds or rate of return upon the resale, re-lease or other disposition of returned or repossessed Products. (b) The Company Entities and Capital Entities may from time to time enter into agreements with respect to the disposition or re-lease of Products. The Company acknowledges and agrees, on behalf of itself and the other Company Entities parties thereto, and Capital acknowledges and agrees, on behalf of itself and other Capital Entities parties thereto, that (i) Credit has succeeded to the rights and assumed the obligations of Credit Holdings under each and any agreement in effect on the date hereof between any AT&T Entity and Credit Holdings with respect to the disposition or re-lease of Products and (ii) on the Spin-Off Date the Company shall succeed to the rights and assume the obligations of the AT&T Entities in accordance with Section 8.1(a) under each and any agreement in effect on the date hereof between any AT&T Entity and any Capital Entity with respect to the disposition or re-lease of Products shall remain in full force and effect (it being understood that no AT&T Entity shall be released from its obligations under any such agreement entered into prior to the Spin-Off Date). The terms and conditions of this Agreement shall apply to the disposition or re-lease of any Products with respect to which an agreement of the type referred to in this paragraph (b) is in effect at any time to the extent that such terms and conditions are not inconsistent with the terms and conditions of any such agreement and, to the extent of any such inconsistency, the terms and conditions set forth in such agreement shall apply and be controlling. Section 6.2. Deinstallation, Refurbishment and Re-Certification of Remarketed Products. In the event that any Product subject to a Financing is returned to a Capital Entity (or the right to possession of such Product otherwise reverts to a Capital Entity), at the request of such Capital Entity, the Company shall cause the relevant Company Entity to deinstall, refurbish, recertify, store and/or redeliver such Product in accordance with the reasonable instructions of such Capital Entity. Such Capital Entity shall pay such Company Entity for such services at the most competitive rates customarily charged by such Company Entity to Authorized Dealers and other Product dealers for such services. Nothing contained herein shall be construed as limiting in any way the right of the Capital Entities to obtain any of the foregoing services from Persons other than Company Entities. -31- Section 6.3. Rights to Use Software. The Company hereby grants, on behalf of itself and any other applicable Company Entity, a license to the Capital Entities to use any and all Software, which license shall with respect to any such Software be effective automatically and immediately upon Financing by the Capital Entities of such Software or any other Products in connection with which such Software is to be used. Except as provided herein, the scope of the license granted to the Capital Entities shall be consistent with the scope of the license granted by the applicable Company Entity in its standard form of license agreement with respect to such Software. The Capital Entities shall (i) not be required to pay any license fee for such Software or otherwise comply with the terms of any applicable license agreement for so long as the Capital Entities are merely providing Financing for such Software or any related Products or have foreclosed on or otherwise repossessed or re-acquired such Software in connection with a default under or expiration or termination of the related Financing but are not using such Software (except for purposes of testing or demonstrating such Software in connection with any proposed disposition of such Software) and (ii) be entitled to assign their license to any other Person, provided that if such Person is not a Capital Entity and the applicable Company Entity's standard form of license agreement for such Software requires the prior consent of a Company Entity to assign such license, the Capital Entities shall assign such license only upon execution and delivery by the assignee of the applicable Company Entity's standard form of license agreement for such Software and agreement by such assignee to pay, at the then-prevailing rate, any fees required to be paid by a licensee of such Software to the applicable Company Entity pursuant to the terms of such license agreement. ARTICLE VII CERTAIN ALLOCATIONS OF RISK; LITIGATION AND REPOSSESSION Section 7.1. Representations, Warrants and Covenants. (a) Unless otherwise agreed with respect to particular Financings or Ancillary Services or programs with respect thereto, the Company and any other appropriate Company Entity will be deemed to make the following representations, warranties and covenants to Capital and any other appropriate Capital Entity each time that a Capital Entity provides, extends or renews a Financing or Ancillary Service with respect to a Product (to the extent such representations, warranties or covenants are applicable to the particular Financing or Ancillary Service): (i) the appropriate Capital Entity will, upon payment of the purchase price of any Product that is being Financed by such Capital Entity pursuant to a lease or other arrangement in which such Capital Entity retains title to the Product, receive (A) title to the Product (other than -32- Products constituting Software) free and clear of any lien or charge thereon created by or through any Company Entity and (B) to the extent any portion of such Product is not manufactured or developed by a Company Entity and with respect to which a Company Entity has received a warranty or indemnity from another Person, an assignment by such Company Entity of any such applicable warranty, express or implied, and indemnity rights applicable to such Product to the extent that such warranty and indemnity rights are by their terms assignable (and if any such warranty or indemnity rights are not by their terms so assignable, such Company Entity will hold any such warranty and indemnity rights for the benefit of such Capital Entity and will, at the direction and expense of such Capital Entity, take all such actions as such Capital Entity may reasonably request to enforce all or any part of such warranty and indemnity rights); (ii) neither any Company Entity nor any employees or agents of any such Company Entity will knowingly participate in, or fail to disclose to the appropriate Capital Entity any knowledge of, any fraudulent or illegal act in connection with the Financing or Ancillary Service; (iii) the Product Financed by the Capital Entity will be delivered to the Customer or Authorized Dealer named in the applicable Financing application and installed at the location indicated in the applicable Financing application in accordance with such Company Entity's normal operating practices and the terms of the contract with the Customer or Authorized Dealer, and the appropriate Company Entity will honor all express and implied warranties and agreements, representations and/or assurances made by such Company Entity to any Customer or Authorized Dealer with respect to any such Product; and (iv) the Company Entities and their employees will not, without the appropriate Capital Entity's express consent, make any representation, warranty or covenant on behalf of such Capital Entity to a Customer or Authorized Dealer with respect to the Financing, the Standard Documents or other documents provided by the Capital Entities, the Ancillary Service or the Financed Product. (b) Unless otherwise agreed with respect to particular Financings, Ancillary Services or programs with respect thereto, Capital and any other appropriate Capital Entity will be deemed to make the following representations, warranties and covenants to the Company and any other appropriate Company Entity each time that a Capital Entity resells a Financed Product to a Company Entity or a Capital Entity provides, extends or renews a Financing or Ancillary Service with respect to a Product (to the extent such representations, warranties or covenants are applicable to the particular Financing or Ancillary Service): -33- (i) the appropriate Company Entity will, upon payment of the purchase price of any Financed Product that is sold by the appropriate Capital Entity to such Company Entity, receive (A) title to the Product free and clear of any lien or charge thereon created by or through any Capital Entity and (B) to the extent any portion of such Product is not manufactured or developed by a Company Entity and with respect to which any Capital Entity has received a warranty or indemnity from a Person other than a Company Entity, an assignment by such Capital Entity of any such applicable warranty, express or implied, and indemnity rights applicable to such Product to the extent that such warranty and indemnity rights are by their terms assignable (and if any such warranty or indemnity rights are not by their terms so assignable, such Capital Entity will hold any such warranty and indemnity rights for the benefit of such Company Entity and will, at the direction and expense of such Company Entity, take all such actions as such Company Entity reasonably will request to enforce all or any part of such warranty and indemnity rights); (ii) neither any Capital Entity nor any employees or agents of such Capital Entity will knowingly participate in, or fail to disclose to the appropriate Company Entity any knowledge of, any fraudulent or illegal act in connection with the Financing or Ancillary Service; and (iii) the Capital Entities and their employees will not, without the appropriate Company Entity's express consent, make any representation, warranty or covenant on behalf of a Company Entity to a Customer or Authorized Dealer with respect to the Financing, Ancillary Service or Financed Product. Section 7.2. The Capital Entities shall assume responsibility for and bear the risks of delinquency, default and non-payment under any Financings provided by them unless (i) the relevant Company Entity and the relevant Capital Entity agree or have agreed otherwise, (ii) a Company Entity has provided the relevant Capital Entity with a full or partial guaranty or indemnity pursuant to Section 2.4 or Section 2.7, (iii) Capital is entitled to indemnification for such risks pursuant to the terms of Article IX or (iv) such delinquency, default or non-payment is attributable to a Company Responsibility, as defined below (in which event such risks will be borne in accordance with this Section 7.2). (b) A "Company Responsibility" means a delinquency, default or non-payment by a Customer or an Authorized Dealer under any Financing provided by a Capital Entity of a Product in circumstances where such delinquency, default or non-payment is a result of: -34- (i) failure by any Company Entity to deliver, install or service, as the case may be, such Product in accordance with such Company Entity's contractual or legal obligation to deliver, install or service such Product; (ii) failure of such Product to comply with any contractual representation, warranty or covenant provided by any Company Entity with respect to such Product or with any warranty applicable to such Product by operation of law; (iii) any offset or counterclaim by the relevant Customer or Authorized Dealer against the amounts due by it under the Financing on the basis of disputes between such Customer or Authorized Dealer and any Company Entity (or on the basis of amounts owing by any Company Entity to such Customer or Authorized Dealer) under any business dealings between such Customer or Authorized Dealer and any Company Entity, whether or not related to such Product or such Financing; or (iv) breach or violation by any Company Entity or any employee of a Company Entity of the provisions of Section 7.1(a) (whether or not such breach or violation gives rise to a right of termination of this Agreement). In addition, a "Company Responsibility" will be deemed to exist if, as a matter of law or equity, any Company Entity is found to be responsible for the Customer's or Authorized Dealer's failure to honor its obligations under a Financing or such Customer or Authorized Dealer is able to avail itself of a defense to any claim asserted by the relevant Capital Entity with respect to such Financing based on non-performance by any Company Entity of any obligations of any such Company Entity (whether or not related to the Financed Product) or any breach by a Company Entity of any warranty (at contract or at law) with respect to any Product. The application of the term "Company Responsibility" is further described in the General Allocation of Responsibilities set forth on Schedule G. (c) The Company and Capital agree that in any situation in which there arises the potential for a delinquency, default or non-payment with respect to a Financing which may be a result of a Company Responsibility (including any such situation in which a Customer or Authorized Dealer has refused to perform its obligations thereunder based on the alleged existence of a circumstance that would constitute a Company Responsibility), the billing, collection and enforcement activities and any losses with respect to such Financing will be allocated to the relevant Capital Entities or SBUs in accordance with the General Allocation of Responsibilities set forth on Schedule G. (d) The parties hereby acknowledge and agree that the provisions of this Section 7.2 and Schedule G are intended to supersede the General Allocation of Responsibilities dated as of -35- August 5, 1988 and that such provisions will be deemed to retroactively apply to any Financings currently subject to such General Allocation of Responsibilities. In addition, the provisions of this Section 7.2 and Schedule G shall apply to Financings provided at any time by any Capital Entities, including Capital Entities to which the General Allocation of Responsibilities of August 5, 1988 did not apply. Section 7.3. Collection and Repossession Actions . Except as provided in Sections 7.2 and 7.4, Capital will be entitled, in its discretion, to take (or determine not to take) any and all actions to collect amounts due and unpaid or otherwise enforce its rights upon the occurrence and continuation of a default by a Customer or Authorized Dealer under a Financing including, without limitation, to make demand for payment or performance, institute an action for payment of amounts due or for specific performance, institute collection proceedings, effect acceleration or termination of the Financing, foreclose upon or take possession of security (which may include the Financed Product) provided by or on behalf of the Customer or Authorized Dealer or enforce remedies to take possession and control of the Product. In no event will the Capital Entities engage in unlawful collection practices or refer matters for collection to any collection agencies or attorneys who are known by the Capital Entities to engage in unlawful collection practices. Section 7.4. Actions Against Significant Accounts . (a) Capital shall, to the extent reasonable and practicable, provide advance notice to the relevant SBUs of any legal proceeding or repossession action to be initiated by any Capital Entity against a Significant Account. If circumstances require the immediate commencement of such an action in order to reasonably protect the interests of the Capital Entities under any Financing or Ancillary Service or in the related Financed Products, the Capital Entities may take such action, but shall notify the relevant SBUs of the situation as soon as practicable after initiating such action. (b) In the event that any Capital Entity initiates or proposes to initiate any legal proceeding or repossession action against a Significant Account, such Capital Entity shall delay or refrain from pursuing or initiating such action in the event that the Company either (A) agrees to purchase, without recourse or warranty (except as to title and as provided herein or otherwise agreed), all of the interest of such Capital Entity in such Financing, Ancillary Service and the related Financed Products for a purchase price calculated in accordance with the General Allocation of Responsibilities set forth on Schedule G or (B) gives such Capital Entity other legal undertakings reasonably satisfactory to such Capital Entity to induce it to delay or refrain from taking such action. -36- ARTICLE VIII SCOPE OF APPLICATION OF AGREEMENT Section 8.1. Attribution of Actions of Subsidiaries to Their Parents . (a) The Company agrees and acknowledges that the Company shall be responsible for, and hereby guarantees, the due and punctual payment and performance, in accordance with their terms, of the obligations hereunder applicable to any Company Entity (other than the Company) or any SBU or division within any Company Entity or in any other agreement or commitment (including, without limitation, any lease agreement) of any such Company Entity or SBU or division within any Company Entity entered into at any time and from time to time (whether before or after the Spin-Off Date) with or for the benefit of any Capital Entity or any strategic business unit or division within any Capital Entity (it being understood that no AT&T Entity shall be released from any of its obligations under the AT&T Operating Agreement). The Company further acknowledges and agrees that the foregoing undertaking and guarantee shall extend for the benefit of any permitted assignee of any Capital Entity's or such strategic business unit's or division's rights and benefits with respect to any such agreement or commitment and, if reasonably requested by Capital, the Company shall affirm such undertaking and guarantee for the benefit of any such assignee. Capital agrees that any obligation of the Company hereunder or thereunder that is paid or performed by a Company Entity (other than the Company) shall be deemed to be paid or performed, as the case may be, by the Company. The Company hereby represents and warrants to Capital that it has the requisite authority to commit and bind the other Company Entities to the applicable terms of this Agreement. (b) Capital agrees and acknowledges that Capital shall be responsible for, and hereby guarantees, the due and punctual payment and performance, in accordance with their terms, of the obligations hereunder applicable to any Capital Entity (other than Capital) or any strategic business unit or division of any Capital Entity or in any other agreement or commitment (including, without limitation, any lease agreement) of such Capital Entity or any strategic business unit or division within any Capital Entity entered into at any time and from time to time (whether before or after the Spin-Off Date) with or for the benefit of any Company Entity or SBU or division within any Company Entity. Capital further acknowledges and agrees that the foregoing undertaking and guarantee shall extend to the benefit of any permitted assignee of any Company Entity's, SBU's or division's rights and benefits with respect to any such agreement or commitment and, if reasonably requested by the Company, Capital shall affirm such undertaking and guarantee for the benefit of any such assignee. The Company agrees that any obligation of Capital hereunder or thereunder that is paid or performed by a Capital Entity (other than Capital) shall be deemed to be paid or performed, as the case may be, by Capital. Capital hereby represents and warrants to the Company that it has -37- the requisite authority to commit and bind the other Capital Entities to the applicable terms of this Agreement. Section 8.2. Application of Agreement to Certain Joint Ventures and Other Minority Investments of the Company. (a) To the extent that the Company Entities presently have or hereafter acquire equity interests in any joint venture or other Person that is not deemed to be a "Subsidiary" for the purposes of this Agreement, the Company Entities shall nonetheless use reasonable efforts, upon request of Capital, to assist Capital in negotiating and entering into an agreement with such Person pursuant to which Capital would become a "preferred provider" of financing for the products and services sold, marketed or distributed by such Person and its Subsidiaries (if any) in accordance with the terms and principles set forth in Section 3.2. (b) The Company agrees to provide Capital with reasonably prompt notice of any acquisition by any Company Entity of any equity interest in any joint venture or other Person to which the provisions of this Section 8.2 would apply and to provide Capital with such information concerning such Person as Capital may reasonably request. Section 8.3. Sale, Public Offering or Spin-Off of a Significant Products Entity . In the event that (x) any Company Entity at any time proposes to (i) sell in a public offering or spin-off to its shareholders a controlling block of the equity of any Significant Products Entity or (ii) sell, directly or indirectly, in an assets or stock sale or through a merger or other form of business combination, a Significant Products Entity or a major portion of the Products Capacity thereof to one or more Persons in a negotiated transaction (including a sale or transfer in connection with a transaction referred to in Section 8.2) and (y) the effect of such transaction would be that such Significant Products Entity or such major portion of the Products Capacity thereof would no longer constitute or form a part of a "Company Entity" for the purposes of this Agreement, the Company shall: (i) at the time that the Company formulates the general intention to spin-off, offer publicly or seek potential purchasers for such Significant Products Entity or portion of the Products Capacity thereof, provide Capital with notice of such intention, and in connection with any specific proposed spin-off, public offering or sale transaction, provide Capital with notice of the same as far in advance of such sale as is reasonably practicable in the circumstances; and (ii) in the case of a spin-off or public offering, as a condition precedent to the consummation of such transaction, if so requested by Capital, first cause such Significant Products Entity or the entity holding such portion of the -38- Products Capacity thereof to be spun-off or offered publicly to enter into an agreement with Capital under which Capital would continue to provide Financing and Ancillary Services with respect to the Products of such Significant Products Entity or other entity following such spin-off or public offering that is substantially similar in scope and terms to this Agreement and that has a term substantially equivalent to the then remaining term of this Agreement (a "Comparable Operating Agreement"); (iii) in the case of a negotiated sale transaction (including a sale or transfer in connection with a transaction referred to in Section 8.2), if so requested by Capital, use reasonable efforts to facilitate negotiations between Capital and the purchasers of such Significant Products Entity or major portion of the Products Capacity thereof (or an appropriate Affiliate) with respect to the execution by such parties of a Comparable Operating Agreement with respect to the Products of such Significant Products Entity or major portion of the Products Capacity thereof; and (iv) whether or not the Capital Entities obtain any rights to provide Financings or Ancillary Services in the circumstances contemplated in this Section 8.3, reimburse the Capital Entities for any reasonable costs and charges incurred by the Capital Entities in connection with any reduction in the scope or nature of the Capital Entities' operations for the provision of Financings or Ancillary Services that results from the sale or other disposition of any Significant Products Entity or any major portion of the Products Capacity thereof (including, without limitation, costs relating to severance or redeployment of employees and costs relating to unutilized or underutilized real estate or other assets); provided that to the extent that the incurrence of such costs and expenses is reasonably determinable to be under Capital's control, the Company shall be responsible for reimbursement thereof only to the extent it has consented to the incurrence of such costs and expenses, such consent not to be unreasonably withheld (an example of such costs and expenses would be severance obligations incurred by Capital in connection with a severance package specifically designed for employees that are rendered redundant as a result of the sale or other disposition of any Significant Products Entity or any major portion of the Products Capacity thereof). Section 8.4. New Products and Company Entities . Capital's commitments with respect to the provision of Financings and Ancillary Services (including those set forth in Article II), the Company's commitments to support Capital (including those set forth in Articles III and IV) and the other provisions of this Agreement shall apply to existing and future lines of Products and existing and future Company Entities (including Acquired -39- Entities that do not, at the time of acquisition by the Company of such entities, own an Acquired Entity Financing Source), subject in each case to the requirements of Article II and Article III and the limitations and exceptions set forth in this Agreement (including, without limitation, those set forth in Article IV and this Article VIII). Section 8.5. Geographic Scope of Agreement . (a) The Capital Entities have the present capability to provide Financings and Ancillary Services with respect to sales, leases or other furnishings of Products sold or marketed by the Company Entities within the United States of America, Canada, France, Germany and the United Kingdom (each an "Active Service Area"). As the Capital Entities are able to expand their capabilities to provide such Financings or Ancillary Services in other countries or regions (or specific markets therein) being served by the Company Entities, Capital may from time to time request the Company that, and the Company may, in its sole discretion, decide to agree that such countries or regions (or specific markets therein) be designated as "Active Service Areas" with respect to the Company Entities generally or with respect to one or more Company Entities or SBUs for purposes of this Agreement, in which event the obligations of the parties hereunder shall apply with respect to such countries or regions (or specific markets therein) to the same extent as they would to any other Active Service Areas with respect to sales, leases or other furnishings of Products by such Company Entities or SBUs within such Active Service Areas. (b) Without limiting the provisions of paragraph (a) above, in the event that the Company Entities desire to provide, in connection with the provision of Financings or Ancillary Services in any country or region that is not an Active Service Area, to any Alternative Provider a "preferred provider" status with respect to such Financings or Ancillary Services reasonably similar to the "preferred provider" status provided to the Capital Entities pursuant to Section 3.2, the Company Entities shall provide the Capital Entities with an opportunity to bid to provide in such country or region the Financings or Ancillary Services and any related programs proposed to be provided in such country or region by such Alternative Provider. In the event that any such bid by the Capital Entities, considered as a whole, is at least as favorable to the Company Entities as the bid of any Alternative Provider, the Company Entities shall accept the bid of the Capital Entities and the country or region in which such Financings or Ancillary Services and any related programs are to be provided shall for all purposes of this Agreement (including Article III and Article IV) be considered to be an Active Service Area. -40- ARTICLE IX INDEMNIFICATION Section 9.1. Capital Indemnity . Capital agrees to save, protect, indemnify and hold harmless, on an After-Tax Basis, the Company Entities and the employees, officers, directors, agents and representatives of each of the foregoing from and against all liabilities, costs (including attorney's fees and disbursements), claims and charges arising from or relating to: (i) the breach by any Capital Entity of any representations, warranties or covenants of such Capital Entity contained in or delivered pursuant to this Agreement or any other agreement of any Capital Entity relating to Products, Financings or Ancillary Services; or (ii) any violation by any Capital Entity or any employee or agent thereof of any law applicable to the sale, lease or other furnishing of Products or to any related Financings or Ancillary Services (including, without limitation, any law relating to the reporting of or extension or denial of credit, the collection of debt or the repossession or disposition of products); provided that in the event that a Company Entity and a Capital Entity separately agree to indemnification (or waiver thereof) with respect to a matter that would otherwise be subject to indemnification pursuant to this Section 9.1, such other agreement will apply with respect to such matter and this Section 9.1 will not so apply. The foregoing indemnity shall not apply in respect of liabilities, costs, claims or charges to the extent arising from or relating to (i) any action, sufferance or omission by a Company Entity or an employee of a Company Entity that is effected in bad faith or represents gross negligence or willful misconduct, (ii) any action, sufferance or omission by a Capital Entity or employee of a Capital Entity pursuant to the express instructions of a Company Entity or employee of a Company Entity (in the case of such employee, if such instructions are provided by such employee in his or her capacity as such) or (iii) any breach or violation by a Company Entity or any employee of a Company Entity of the provisions of this Agreement or any other applicable agreement between a Company Entity and a Capital Entity (whether or not such breach or violation gives rise to a right of termination of this Agreement or such other agreement). Section 9.2. Company Indemnity . The Company agrees to save, protect, indemnify and hold harmless, on an After-Tax Basis, the Capital Entities and the employees, officers, directors, agents and representatives of each of the foregoing from and against all liabilities, costs (including attorney's fees and disbursements), claims and charges arising from or relating to: (i) breach by any Company Entity of any representations, warranties or covenants of such Company Entity contained in or delivered pursuant to this Agreement or any other agreement of any Company Entity relating to Products, Financings or Ancillary Services; (ii) any products, environmental or other similar liability relating to the Products (such as claims for personal injury or property damage); (iii) any misrepresentation made by any employee or agent of any Company Entity to any -41- Customer or Authorized Dealer as to the commitment of any Capital Entity to provide any Financings or Ancillary Services to such Customer or Authorized Dealer or the likely availability thereof; and (iv) any violation by any Company Entity or any employee or agent thereof of any law applicable to the sale, lease or other furnishing of Products or to any related Financings or Ancillary Services; provided that in the event that any Company Entity and a Capital Entity separately agree to indemnification (or waiver thereof) with respect to a matter that would otherwise be subject to indemnification pursuant to this Section 9.2, such other agreement will apply with respect to such matter and this Section 9.2 will not so apply. To the extent that a Company Entity performs its obligations under Section 7.2 with respect to an actual or potential Company Responsibility, the Capital Entities and related indemnified parties will not be separately entitled to indemnification under this Section 9.2 with respect to any loss or cost relating to such Company Responsibility that would otherwise be indemnifiable under this Section 9.2. The foregoing indemnity shall not apply in respect of liabilities, costs, claims or charges to the extent arising from or relating to (i) any action, sufferance or omission by a Capital Entity or an employee of a Capital Entity that is effected in bad faith or represents gross negligence or willful misconduct, (ii) any action, sufferance or omission by a Company Entity or employee of a Company Entity pursuant to the express instructions of a Capital Entity or employee of a Capital Entity (in the case of such employee, if such instructions are provided by such employee in his or her capacity as such) or (iii) any breach or violation by a Capital Entity or any employee of a Capital Entity of the provisions of this Agreement or any other applicable agreement between a Company Entity and a Capital Entity (whether or not such breach or violation gives rise to a right of termination of this Agreement or such other agreement). Section 9.3. Procedure . Each indemnified party under Section 9.1 or Section 9.2 shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder notify the indemnifying party in writing of the claim or action; provided, that the failure to notify the indemnifying party will not relieve it from any liability which it may have to an indemnified party on account of the indemnity agreement contained in Section 9.1 or Section 9.2 unless, and only to the extent that, the indemnifying party was prejudiced by such failure, and in no event will such failure relieve the indemnifying party from any other liability which it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, the indemnifying party will be entitled to participate therein, and, to the extent that it wishes, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of any claim or action, the indemnifying party will not be liable to the indemnified party -42- under Section 9.1 or Section 9.2 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, that the indemnified party will have the right to employ separate counsel to represent it if, in the reasonable judgment of such indemnified party, it is advisable for it to be represented by separate counsel, and in such event the fees and expenses of such separate counsel will be paid by such indemnified party. The indemnifying party may not without the prior written consent of the indemnified party agree to any settlement of any claim or action as the result of which any remedy or relief, other than solely for monetary damages for which the indemnifying party will be responsible hereunder, will be applied to or against the indemnified party. In any action hereunder as to which the indemnifying party has assumed the defense thereof with counsel satisfactory to the indemnified party, the indemnified party will continue to be entitled to participate in the defense thereof, with counsel of its own choice, but the indemnifying party will not be obligated hereunder to reimburse the indemnified party for the costs thereof. ARTICLE X DISPUTE RESOLUTION Section 10.1. Resolution of Disputes . Except as otherwise provided in this Article X, the procedures for discussion, negotiation and arbitration set forth in this Article X will apply to all disputes solely between the parties under this Agreement; provided that arbitration will not apply or be required in the case of any dispute challenging the validity of any provision of this Agreement or any breach of the provisions of Section 4.1 unless the parties so agree in writing. Section 10.2. Resolution of Disputes Using Best Efforts . (a) The parties hereto agree and acknowledge that (i) this Agreement is intended to provide a flexible framework for a cooperative and mutually beneficial arrangement for the provision of Financings and Ancillary Services by the Capital Entities and the treatment by the Company Entities of Capital Entities as the preferred providers of Financings and Ancillary Services to Customers and Authorized Dealers and (ii) the parties shall use good faith best efforts to resolve all differences and disputes between the parties with respect to the matters covered hereby that may arise from time to time at the level of the appropriate Capital Entity and Company Entity (or the appropriate SBU within such Company Entity) and, to the extent resolution is not achieved at such level, at the level of management of the Company and Capital. Consistent with the foregoing principles, the parties shall not refer the resolution of such differences and disputes to the arbitration proceedings specified herein except to the extent that after good faith best efforts the parties cannot resolve such differences and disputes without so -43- escalating such resolution. Any agenda, location or procedures for such discussions or negotiations between the parties may be established by the parties from time to time or as the occasion warrants. (b) The parties may, by mutual consent, retain a mediator to aid the parties in their discussions and negotiations by informally providing advice to the parties. Any opinion expressed by the mediator shall be strictly advisory and shall not be binding on the parties, nor will any opinion expressed by the mediator be admissible in any arbitration 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 mediation shall be borne one-half by the Company and one-half by Capital, except that each party shall be responsible for its own expenses. Mediation is not a prerequisite to a demand for arbitration under Section 10.3. Section 10.3. Arbitration. (a) If any dispute (other than a dispute which challenges the validity of any provision of this Agreement and other than a breach of Section 4.1) referred to the management of the Company and Capital has not been resolved within forty-five (45) days after referral to such management, either party may demand that the dispute be resolved by binding arbitration. Notice of the demand for arbitration by one party will be given in writing to the other party to this Agreement. Upon such demand, the dispute will be decided by a sole arbitrator in accordance with the rules set forth in this Section 10.3. (b) The parties shall attempt to select, within 15 days after such notice of demand for arbitration is given, a sole arbitrator satisfactory to both parties. (c) In the event that the parties are not able to jointly select a sole arbitrator within such 15 day period, the parties shall each appoint an arbitrator within 30 days after provision of the notice referred to in paragraph (a) above. If one party appoints an arbitrator within such time period and the other party fails to appoint an arbitrator within such time period, the arbitrator appointed by the one party shall be the sole arbitrator of the dispute. (d) In the event that a sole arbitrator is not selected pursuant to paragraph (b) or (c) above, and, instead, two arbitrators are selected pursuant to paragraph (c) above, the two arbitrators will, within thirty (30) days after the appointment of the later of them to be appointed, select a third arbitrator who will act as the sole arbitrator of the dispute. After selection of such sole arbitrator, the two initial arbitrators shall have no further role with respect to the dispute. In the event that the arbitrators so appointed do not, within thirty (30) days after the appointment of the later of them to be appointed, agree on the selection of the sole -44- arbitrator, either party may apply to any court having jurisdiction over the parties and the controversy to select the sole arbitrator. (e) The sole arbitrator selected pursuant to paragraph (b), (c) or (d) above will set a time for the hearing of the dispute which will not be later than sixty (60) days after the date of appointment of the sole arbitrator pursuant to paragraph (b), (c) or (d) above, and the final decision of such arbitrator will be rendered in writing to the parties not later than sixty (60) days after the last hearing date, unless otherwise agreed by the parties in writing. (f) The place of any arbitration hereunder will be New York, New York, or at such other place as agreed to by the parties. (g) Except as otherwise set forth herein, any arbitration hereunder will be conducted in accordance with the rules of the American Arbitration Association ("AAA") then prevailing, and the decision of the arbitrator will be final and binding on the parties, and will be enforceable in any court having jurisdiction over the parties. Compliance with the provisions of this Agreement concerning arbitration of disputes is a condition precedent to the commencement of any suit, action or proceeding in any federal, state or local court with respect to any controversy or dispute under this Agreement, except a suit, action or proceeding which challenges the validity of any provision of this Agreement or a breach of Section 4.1. (h) Any party may send out requests to compel document production from the other party. Disputes concerning the scope of document production and enforcement of the document production requests will be determined by written agreement of the parties or, failing such agreement, will be referred to the arbitrator for resolution. All discovery requests will be subject to the proprietary rights and rights of privilege of the parties, and the arbitrator will adopt procedures to protect such rights. Except where contrary to the provisions set forth in this Agreement, the rules of the AAA for commercial arbitration will be applied to all matters of procedure, including discovery; provided, however, that the arbitration will not be conducted under the auspices of the AAA and the fee schedule of the AAA will not apply. The arbitrator may obtain independent legal counsel to aid in his or her resolution of legal questions presented in the course of arbitration, to the extent he or she considers that such counsel is appropriate or necessary for a fair resolution of the dispute, and to the extent that it is economical to do so considering financial consequences of the dispute. The arbitrator will be limited to interpreting or construing the applicable provisions of this Agreement, and will have no authority or power to alter, amend, modify, revoke or suspend any condition or provision of this Agreement; it being understood, however, that the arbitrator will have full authority -45- to implement the provisions of this Agreement, including provisions requiring further agreement of the parties hereunder, and to fashion appropriate remedies for breaches of this Agreement; provided that the arbitrator shall not (i) have any authority in excess of the authority a court having jurisdiction over the parties and the controversy or dispute would have absent these arbitration provisions and (ii) have any right or power to award punitive damages. (i) If a party fails or refuses to appear at and participate in an arbitration hearing after due notice, the arbitrator may hear and determine the controversy upon evidence produced by the appearing party. (j) Arbitration costs will be borne one-half by the Company and one-half by Capital, except that each party will be responsible for its own expenses and the costs of witnesses selected by such party. Section 10.4. Continuity of Service and Performance . Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement during the course of dispute resolution pursuant to the provisions of this Article X. Section 10.5. Disputes as to Sales Site Protocols and Procedures . Notwithstanding the provisions of Section 10.3(c) and Section 10.3(d), if the Company Entities and the Capital Entities have a dispute under Section 3.2(f) regarding compliance by the Capital Entities with applicable Protocols and Procedures with respect to any Financings or Ancillary Services provided at a Sales Site (or whether the Capital Entities have cured any deficiencies within the applicable period set forth in Section 3.2(e)), and the parties are not able to agree upon the selection of the sole arbitrator pursuant to Section 10.3(b), either party may immediately refer the matter to the AAA and request that the AAA select an arbitrator within 15 days of such request, and such selection by the AAA shall be binding upon both parties. ARTICLE XI TERM AND TERMINATION Section 11.1. Initial Term and Renewal . (a) Subject to Section 11.2, this Agreement shall become effective on the Spin-Off Date and shall remain in effect until, and shall terminate on, August 4, 2000 (the "Initial Term"). This Agreement shall automatically be renewed and remain in effect for an indefinite number of successive periods of two years (each such period, a "Renewal Period"), the first such Renewal Period commencing upon the expiration of the Initial Term and each successive Renewal Period commencing upon the expiration of the preceding Renewal Period, unless either party elects not to extend the term of this Agreement beyond the Initial Term or any -46- Renewal Period by giving the other party notice of such election at least one year prior to the expiration of the Initial Term or Renewal Term then in effect (it being understood that failure to give timely notice of non-renewal will be deemed to constitute an election by the parties to renew the term of this Agreement as provided herein). (b) Prior to the Spin-Off Date, Capital shall have no obligation under this Agreement to the Company, the Divisions or any AT&T Entity, it being understood that the relationship between the Capital Entities and the Divisions with respect to the subject matter hereof shall continue to be governed by the AT&T Operating Agreement prior to the consummation of the Spin-Off Transactions. Section 11.2. Termination. (a) This Agreement may be terminated in its entirety prior to the expiration of the Initial Term or any Renewal Term in effect: (i) at any time, by the mutual written consent of Capital and the Company; (ii) at the election of the Company (after the Spin-Off Date), by at least 180 days' prior notice to Capital, in the event of a Subsequent Transfer of Control unless (a) prior to any such transfer, Capital requests the Company's approval thereof and (b) the Company consents to such transfer (it being understood that such consent shall not be unreasonably withheld or delayed); (iii) in the event one party (the "defaulting party") has materially defaulted on its obligations under this Agreement, the other party (the "non-defaulting party") may give notice of default to the defaulting party and, in the event the defaulting party does not cure the default within 60 days of such notice of default, the non-defaulting party may, within 60 days after the expiration of such 60 day period, give notice of termination to the defaulting party and specify in such notice the date of termination of this Agreement (which date shall be a date not less than 30 days following the date of such termination notice), in which event this Agreement shall terminate on the date specified in the termination notice; (iv) at the election of the Company, by notice to Capital, in the event that Capital commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy or similar law or statute or makes an assignment of its property or any substantial portion thereof for the benefit of creditors and such proceeding or assignment is continuing or in effect at the time of such notice; -47- (v) at the election of the Company, by notice to Capital, in the event that there is commenced against Capital an involuntary proceeding seeking to have Capital declared a bankrupt or seeking to have a receiver appointed with respect to a substantial portion of its property which is not dismissed within sixty (60) days of commencement, or there is entered an order declaring Capital a bankrupt or appointing a receiver with respect to a substantial portion of its property and such proceeding or order is continuing or in effect at the time of such notice; (vi) at the election of Capital, by notice to the Company, in the event that the Company commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy or similar law or statute or makes an assignment of its property or any substantial portion thereof for the benefit of creditors and such proceeding or assignment is continuing or in effect at the time of such notice; or (vii) at the election of Capital, by notice to the Company, in the event that there is commenced against the Company an involuntary proceeding seeking to have the Company declared a bankrupt or seeking to have a receiver appointed with respect to a substantial portion of its property which is not dismissed within sixty (60) days of commencement, or there is entered an order declaring the Company a bankrupt or appointing a receiver with respect to a substantial portion of its property and such proceeding or order is continuing or in effect at the time of such notice. Notwithstanding anything in this Agreement to the contrary, it is specifically understood and agreed that the Company shall not have any right to terminate this Agreement because of the occurrence of a First Tier Transfer of Control. Section 11.3. Effect of Termination . Upon the termination of this Agreement as provided in this Article XI, all obligations of the parties hereto with respect to any future Financings and Ancillary Services under this Agreement will cease; provided, however, that the obligations of the parties set forth herein as they relate to completed Financings and Ancillary Services (including the obligations set forth in Articles II, III, V, VI, and VII) and the provisions herein as to indemnification, dispute resolution, confidentiality and miscellaneous matters (Articles IX, X, XII and XIII) will continue in full force and effect. -48- ARTICLE XII CONFIDENTIALITY Capital and the Company each understand and agree that the terms of this Agreement, including the schedule hereto, may be publicly disclosed, including in any public filing made by the Company or Capital or any Affiliate thereof with the Securities and Exchange Commission. However, Capital and the Company each covenants and agrees that it shall, and shall cause its Subsidiaries to, treat any information provided by any Company Entity to any Capital Entity (in the case of Capital's obligations hereunder) or by any Capital Entity to any Company Entity (in the case of the Company's obligations hereunder) pursuant to this Agreement (including, without limitation, the Protocols and Procedures or any proprietary information otherwise acquired hereunder) as privileged and confidential and to hold such information and to use it solely for purposes of this Agreement and will not, without the prior consent of the other party hereto, disclose, or cause to be disclosed, such information to any Person, except that any such information may be disclosed (a) to Capital's or the Company's agents, directors, officers, employees, representatives, accountants, counsel or special counsel who have a need to know or have access to such information and who have been instructed or have a duty to keep such information confidential in accordance with the terms hereof, (b) to the Affiliates of Capital and the Company, and such Affiliates' agents, directors, officers, employees, representatives, accountants, counsel or special counsel who have a need to know or have access to such information and who have been instructed or have a duty to keep such information confidential and to use it in accordance with the terms hereof, (c) to such other Persons who are reasonably deemed necessary by Capital and the Company, as the case may be, in connection with the enforcement of their rights under this Agreement, (d) to the extent required pursuant to applicable law or any governmental authority (including, but not limited to, the National Association of Insurance Commissioners, Internal Revenue Service auditors, state taxing or communications authorities or federal or state judicial authorities), (e) to the extent required or appropriate to be disclosed in response to a reasonable request by rating agencies, underwriters, or creditors in connection with financing transactions undertaken by Capital or the Company or their Affiliates, who agree or are under a duty to hold such information confidential in accordance with the terms hereof, (f) to the extent that prior to such disclosure, such information is in the public domain (it being understood and agreed that any document or information that is filed as a matter of public record with any state, federal or foreign governmental authority or is generally available to the public at the time of disclosure (other than as a result of disclosure by such Person) will for the purposes hereof be deemed to be in the public domain) or (g) to Persons involved in potential acquisitions of, mergers with, or purchase of all or substantially all of the assets of Capital (or any other Capital Entity) or the Company (or any other -49- Company Entity) who, in each case, agree in writing to hold such information confidential in accordance with the terms hereof. Capital and the Company Entities will take such action as may be reasonably necessary to ensure that the competitors of the other party do not acquire such information. ARTICLE XIII MISCELLANEOUS Section 13.1. Variation of Terms; Amendments. Any Capital Entity and Company Entity may by mutual consent from time to time vary the terms of this Agreement as it applies to such Capital Entity and either such Company Entity or one or more SBUs within such Company Entity. In such event, such varied terms will be deemed to amend this Agreement as it applies to such Capital Entity and such Company Entity (or such SBUs) for such period of time as such variance is agreed to by such Capital Entity and such Company Entity. Notwithstanding any such variance, this Agreement will continue to apply to all other Capital Entities and Company Entities (or, if applicable, all SBUs within the Company Entity that consents to such variance that are not made subject to such variance) as if such variance had not been effected. Notwithstanding the foregoing, this Agreement cannot be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties hereto (or by the applicable Company Entity and Capital Entity). Section 13.2. No Partnership. Nothing contained in this Agreement will be construed in any manner to constitute the creation of a partnership between the Company Entities and the Capital Entities nor to characterize the Company Entities and the Capital Entities as joint venturers. The Company Entities and the Capital Entities will at all times be and remain independent contractors with respect to the subject matter of this Agreement. Section 13.3. Successors and Assigns; Third Parties. (a) This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and assigns. (b) Except as set forth in Article IX, nothing in this Agreement, expressed or implied, is intended or will be construed to confer upon any Person (including Customers and Authorized Dealers) other than the parties (and the Company Entities and Capital Entities) and their successors and assigns any right, remedy or claim under or by reason of this Agreement. Section 13.4. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction or duly authorized arbitration tribunal to be invalid, illegal or unenforceable to any extent, the remainder of this Agreement or such provision or the application of such provision to such party or circumstances, other than those to -50- which it is so determined to be invalid, illegal or unenforceable, will remain in full force and effect to the fullest extent permitted by law and will not be affected thereby, unless such a construction would be unreasonable. Section 13.5. Notices. All notices, consents, deliveries, demands, requests, approvals and other communications which are required or may be given hereunder will be in writing and will be deemed to have been duly given if personally delivered (including courier service), telecopied or mailed certified first class mail, postage prepaid, addressed as follows: (a) if to the Company, to: LUCENT TECHNOLOGIES INC. Attn: General Counsel At such address as is specified by such General Counsel from time to time pursuant to this Section 13.5 Telecopier Number: (to be specified by such General Counsel) Confirmation Number: (to be specified by such General Counsel) with a copy to: the same address Attn: Pamela Craven, Esq. (b) If to Capital, to: AT&T Capital Corporation 44 Whippany Road Morristown, New Jersey 07960 Telecopier Number: 201-397-3220 Confirmation Number: 201-397-3187 Attention: Chairman and CEO with a copy to: AT&T Capital Corporation 44 Whippany Road Morristown, New Jersey 07960 Telecopier Number: 201-397-3220 Confirmation Number: 201-397-3187 Attention: Senior Vice President, General Counsel, Secretary and Chief Risk Management Officer -51- Section 13.6. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York, without giving effect to the choice of law provisions of its conflicts of law rules. Section 13.7. Headings. The article headings and the section headings and subheadings contained in this Agreement are intended solely for the convenience of reference and will not affect in any manner the meaning or interpretation of this Agreement. Section 13.8. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original instrument, but all of which together will constitute one and the same agreement, and will become binding when one or more counterparts have been executed and delivered by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. LUCENT TECHNOLOGIES INC. By:_______________________ Name: Title: AT&T CAPITAL CORPORATION By:______________________ Name: Title: -52- SCHEDULE A I. NETWORK SYSTEMS A. PRODUCTS Central office switching equipment and associated software. Transmission systems. Mobile switching centers, radio base stations, mini/microcells, fixed-loop systems, wireless data products. Optical fiber, electronic wire and cable products. Wired and wireless terminal equipment. B. CUSTOMERS/MARKETS EQUIPMENT Local and long distance service providers in the US and internationally. US government. Private communications network operators. Cable television companies. Wireless service providers. Competitive access providers. II. CONSUMER PRODUCTS A. PRODUCTS Corded and cordless telephones, cellular phones, . answering systems and telephone accessories, including intercoms, fax line adapters, modular headsets, specialty products and tone/bell ringers. Communications systems for disabled persons. VideoPhones. Smart Cards. Personal communicators. Personal computers, copiers and printers of third party vendors. B. CUSTOMERS/MARKETS Consumers. Small businesses that acquire the products through AT&T Phone Center stores. III. GLOBAL BUSINESS COMMUNICATIONS SYSTEMS A. PRODUCTS Customer-premises communications, video, voice processing and computer - telephone integration systems, including, but, not limited to: Communications systems (e.g., Definity(C), Partner(R) and Merlin(R) Communications Systems) Multimedia Call Exchanges (MMCX) Products that link private branch exchanges (PBXs) to computers for customer service and telemarketing applications. Multimedia messaging and response systems (e.g., AT&T Intuity(TM) System; Audix(R) Voice Messaging Systems; Conversant(R) Voice Information System Ovation voice processing system; Message Manager(TM)system; and AT&T Group Video System). Video conferencing systems. Voice and data terminals. Computer equipment. Wire and wiring. Installation and maintenance services. System design and integration services. Routers, brouters, hubs, switches, computers, workstations and other products manufactured by affiliates and third parties. Computer-telephony applications and software. Data/muiltimedia communications, wireless and professional services. Microcells and wireless communications products. B. CUSTOMERS MARKETS End-user Business customers worldwide. Private communications network operators. Systems integrators. US, State and Local Governments and related entities. Not-for-profit entities. AT&T affiliates. IV. AT&T PARADYNE A. PRODUCTS Consumer and commercial modems. VideoSpan'TM' multimedia technology. Network management systems and network access products, such as Acculink(R) and Comsphere(R) multiplexers and CSU/DSUs. Data service units/channel service units. Channel extension products. Globespan receivers. B. CUSTOMERS/MARKETS Business customers. V. AT&T MICROELECTRONICS A. PRODUCTS Digital signal processors. Integrated circuits. Optoelectronic components. Printed circuit boards and power systems. Semiconductors. Videoconferencing microchips. Telecommunications microchips. B. CUSTOMERS/MARKETS AT&T Corp. and other high-technolcgy companies worldwide. Schedule B LOCATION SUPPORT AGREEMENT LOCATION SUPPORT AGREEMENT dated as of __________________, 1996 to (this "Agreement") between LUCENT TECHNOLOGIES INC., a Delaware corporation (the "Company") and AT&T CAPITAL CORPORATION, a Delaware corporation ("Capital"). W I T N E S S E T H: WHEREAS, Capital has requested and the Company has agreed on behalf of itself and the Company Entities and SBUs (each as hereinafter defined) to permit (to the extent provided in, and subject to the terms and conditions of, this Agreement) Capital and the Capital Entities (as hereinafter defined) to base appropriate employees of the Capital Entities ("Capital Entities Employees") in designated space in any site or location (a "Sales Site") from which the sale and marketing of products and services (collectively, as defined below, "Products") is conducted by the Company or by any Company Entity or SBU; WHEREAS, in consideration of the provision of such office space within the Sales Sites, Capital and the Capital Entities have agreed to make reimbursement to the Company Entities and SBUs for the costs of providing such office space; and WHEREAS, the parties hereto mutually desire to establish certain other terms and conditions of the Capital Entities' utilization of such office space to be made available to them for such purpose; NOW, THEREFORE, in consideration of the mutual promises herein set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the conditions and upon the terms hereof, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms will have the following meanings, applicable both to the singular and the plural forms of the terms defined: "Agreement Term" has the meaning ascribed thereto in Section 3.1. "Ancillary Services" has the meaning ascribed thereto in the Operating Agreement. "Company Entities" has the meaning ascribed thereto in the Operating Agreement, subject to the provisions of Section 2.7 hereof. "Capital Entities" has the meaning ascribed thereto in the Operating Agreement. 1 "Capital Entities Personnel" has the meaning ascribed thereto in the Preamble. "Financing" has the meaning ascribed thereto in the Operating Agreement. "Letter Supplement" has the meaning ascribed thereto in Section 13.1. "Operating Agreement" means the Lucent Technologies Operating Agreement dated as of __________________, 1996 between the Company and Capital, as such agreement is amended and supplemented from time to time in accordance with its terms. "Products" has the meaning ascribed thereto in the Operating Agreement. "Sales Site" has the meaning ascribed thereto in the Operating Agreement. "Sales Site Owner" has the meaning ascribed thereto in Section 9.1. "SBU" has the meaning ascribed thereto in the Operating Agreement. "Support Space" has the meaning ascribed thereto in Section 2.1. "Support Space Term" has the meaning ascribed thereto in Section 3.2. All capitalized terms not otherwise defined herein but defined in the Operating Agreement shall have the meanings ascribed thereto in the Operating Agreement. ARTICLE II PROVISION OF SUPPORT SPACE Section 2.1. Support Space. Subject to the availability of space (including storage space) in each Sales Site (such availability of space to be determined by the affected Company Entity or SBU in its reasonable discretion), the Company agrees to cause each of the Company Entities and SBUs to provide in each Sales Site, to one or more of the appropriate Capital Entities intended under the Operating Agreement to provide various Financings and Ancillary Services to a Company Entity or SBU, (i) furnished office space (individually a "Support Space", and collectively, "Support Spaces") which Support Space may or may not have separately demised walls as the parties may agree to, or as may fit the character of the location, or as may be deemed feasible in the reasonable determination of the Company Entity or SBU, and (ii) basic office support services for such Support Space during regular business hours (namely, cleaning, relamping and, when so requested, telephone lines). Provision at any particular Sales Site of one or more additional office support services, if any, such as document duplicating, document processing, file storage, secretarial, mailroom and similar services shall be subject to separate agreement at each Sales Site to be concluded by the Company Entity or SBU and the Capital Entity in question, shall not be required by the terms of this Agreement, and shall be limited in any event to the additional office support services which are regularly available at such Sales Site. The Company further agrees, where space is available, to cause the Company Entities and SBUs to use reasonable efforts to permit the Support Space for the 2 Capital Entity in question to be located reasonably near the sales personnel of the Company Entity or SBU in question. Section 2.2. Capital Entities Employees. With respect to each Support Space the Capital Entity in question shall advise the Company Entity or SBU in question of the number and type (manager, secretary, etc.) of Capital Entities Employees reasonably believed to be required to be based at the related Sales Site in connection with the provision of Financings and Ancillary Services with respect to the Products sold or leased through such Sales Site, in order that the parties may reach agreement on the amount, availability, adequacy and suitability of the space proposed by the Company Entity or SBU to be identified and designated as Support Space for such Sales Site. Section 2.3. Sales Site Amenities. With regard to building occupant amenities and services at any Sales Site (parking, dining facilities and similar services as agreed to by the parties), it is the intention of the parties hereto that, to the extent such amenities or services are available to the Company Entity or SBU in question and/or to the employees thereof, such amenities or services shall also be available, on the same basis and at the same cost or charge, if any, to the Capital Entity and/or its employees (subject to any necessary consent of the landlord where the Company Entity or SBU is not the Sales Site Owner), provided always that the Capital Entity in question shall be liable for its proportionate share of any costs assessed or charges imposed generally in connection with such building occupant amenity or service, and shall be liable for the entirety of any costs or charges arising from services rendered solely to the Capital Entity or to the Support Space. Section 2.4. Landlord Consent. In the event that any Sales Site shall be leased, and not owned, by a Company Entity or SBU, and the lease in question does not by its terms permit the tenant thereunder to make a Support Space available to a Capital Entity in the manner contemplated by this Agreement, the Company agrees that the Company Entity or SBU in question shall use its reasonable efforts to procure any requisite consent. Capital shall cause the Capital Entity in question to reimburse the Company Entity or SBU in question for any out-of-pocket costs incurred in procuring such consent (which shall not include any payment for such consent demanded by landlord unless agreed in advance by the Capital Entity). In the event that such landlord consent is not forthcoming, the Company and the Company Entity or SBU in question shall have no further obligation to provide Support Space at such Sales Site for the Capital Entity in question, and such Capital Entity agrees that, with respect to any Sales Site in which such Capital Entity is in occupancy on the date of this Agreement, such Capital Entity shall promptly vacate such leased Sales Site as to which such landlord consent has been refused. Section 2.5. Relocation of Company Entity or SBU Sales Site. In the event that any Sales Site having a Support Space shall be voluntarily or involuntarily relocated by the Company Entity or SBU in question to another location serving the same (or new or reconfigured) geographical marketing area, or in the event a new Sales Site is established, the Company agrees to cause such Company Entity or SBU to use reasonable efforts to provide a new Support Space in the new Sales Site on the terms and conditions set forth herein, unless the Capital Entity in question shall elect not to accompany the relocation and occupy the new Sales Site. In no event (including, but not limited to, events such as a breach by any Company Entity of its obligations, if any, under this Section) shall the Capital Entity located at any Sales Site remain thereat beyond the date the Company Entity or SBU in question vacates such 3 Sales Site, and Capital agrees (i) to cause such Capital Entity to vacate the Sales Site in question on or before the date the Company Entity or SBU shall so vacate same and (ii) to indemnify and hold harmless the Company and the Company Entity or SBU at the Sales Site in question from any and all claims, costs, loss or damage arising from such holding over beyond such date. Section 2.6. Occupancy In Conformity With Rules and Regulations and Leases. Capital agrees that each Capital Entity shall occupy its respective Support Space in accordance with the rules and regulations and general office business practices for the Sales Site in question, whether such Sales Site is owned by the Company Entity or SBU in question, or whether the occupancy by same of such Sales Site shall be by way of a lease of all or a portion of the Sales Site. The Company Entity or SBU hosting the Support Space shall provide the Capital Entity with a copy of such rules and regulations, if available, and advise such Capital Entity regarding any other general office business practices to permit the Capital Entity in question to fulfil its obligations hereunder. The Capital Entities' occupancy of any leased or subleased sales sites shall be in compliance with any existing or future leases (or subleases) with third parties. Section 2.7. Excluded Company Entity and SBU. This Location Support Agreement shall not be deemed to apply to the Company Entity known as AT&T PARADYNE Corporation or to the SBU known as AT&T Consumer Products, unless and until one or both of such entities shall elect to become a party hereto, as evidenced by a written notice of election satisfactory in form and substance to both the present parties. ARTICLE III TERM Section 3.1. Term of Agreement. The term of this Agreement (the "Agreement Term") shall be co-terminous with the term of the Operating Agreement, subject to the provisions of Section 14.1 respecting amendment hereof. Section 3.2. Term of Occupancy of Individual Support Space. The term of occupancy (the "Support Space Term") for each Support Space identified by the parties shall commence, for those Support Spaces occupied by Capital Entities personnel on the effective date of this Agreement, on such date (subject to consent of the landlord at any leased Sales Site as required under Section 2.4 hereof), and shall commence for each Support Space hereafter identified and established pursuant to the terms of this Agreement on the date the Capital Entity in question shall first occupy such Support Space. The Support Space Term for any given Support Space shall expire and terminate on the earliest to occur of (i) the date of expiration or termination of the Operating Agreement (provided however, that the expiration or termination of the Operating Agreement shall not be deemed to prevent the continued occupancy of such Support Space by the Capital Entity in question, subject to the consent of the Company Entity or SBU in question in its sole discretion, and to any necessary consent of the landlord of such Sales Site, on the same terms and conditions as existed prior to the date of expiration or termination, or upon such other terms as may be agreed upon by the Capital Entity and the Company Entity or SBU in question), (ii) the date the Sales Site containing the Support Space is vacated for any reason by the Company Entity or SBU having the primary occupancy thereof (unless the Capital Entity shall elect to stay to provide Financing and/or Ancillary Services to another Company Entity remaining at such location, in which case the 4 expiration date for purposes of this clause (ii) shall be such remaining Company Entity's date of vacation of such Sales Site and the Capital Entity shall have Support Space to provide said services for the remaining Company Entity in accordance with and subject to Article II), or (iii) the date which is ninety (90) days from the date of written notice of termination given by the occupying Capital Entity to the Sale Site Company Entity or SBU, or (iv) if the Sales Site is leased, the day prior to the date of expiration or earlier termination of such lease in accordance with its terms. ARTICLE IV Reimbursement Section 4.1. Reimbursement for Support Space. Capital covenants and agrees to reimburse (or to cause the respective Capital Entities occupying each Support Space to reimburse) the Company Entity or SBU owning or occupying the Sales Site in question, for the proportional costs of provision of the Support Space and of such Support Space's allocable share of the costs of any common areas of the Sales Site, including, but not limited to, (i) building operating expenses (if the Sales Site in question is owned) or reasonable estimates for anticipated tax and/or operating expense escalation rent (if the Sales Site is leased, it being the intent of the parties that the Capital Entity shall be charged and paying on a current basis for tax and operating cost escalation charge increases which are reasonably anticipated by the Company Entity or SBU under the lease, but which charges will not be billed to same by landlord until some period after the period for which the Capital Entity is making payment), (ii) utility user charges (at actual cost for dedicated utilities and as appropriately apportioned or otherwise measured if not so dedicated to the Capital Entity) and (iii) fixed general charges for building amenities or services which are not charged on a per-use basis (collectively, the "Reimbursement Cost"). The Reimbursement Cost for each Support Space (i) shall be mutually agreed on an annualized basis by the Company and Capital (and/or by the applicable Company Entities or SBUs and Capital Entities with respect to the Support Space in question), such agreement on particular Support Space and Reimbursement Cost to be evidenced by letter agreement between the affected entities intended to supplement this Agreement from time to time with respect to such Support Space (a "Letter Supplement", as more fully described in Section 13.1 hereof), and (ii) shall be paid by Capital or the Capital Entity, without requiring any prior invoice or statement therefor from the Company Entity or SBU so long as the Letter Supplement shall establish a monthly or other periodic payment amount with respect to the Reimbursement Cost, in equal monthly installments in advance on the first day of each calendar month in the Support Space Term (or with such other frequency or in such other manner as may be specified in the relevant Letter Supplement) to the Company or to the Company Entity or SBU identified in the Letter Supplement. Capital further covenants and agrees to pay or reimburse (or to cause the respective Capital Entities occupying each Support Space to pay or reimburse) the Company Entity or SBU owning or occupying the Sales Site in question (i) for the basic office support services (if same have not previously been included in the Reimbursement Cost), and (ii) any additional office support services as may be agreed in accordance with the provisions of Section 2.1 hereof, and (iii) for any specially-ordered building services during normal business hours and for any overtime charges incurred at the Sales Site with respect to the use and occupancy of the Support Space by the Capital Entity outside normal business hours, where such specially-ordered and/or overtime services are charged on a per-use basis (or such other reasonable basis), for which all such payments should be due within 30 days of receipt of a periodic statement for such user and/or office service charges. The Company agrees for itself and the Company Entity or SBU at a Sales Site to render all 5 statements for any calendar year in a Support Space Term following the close of such calendar year, and the respective Capital Entity's obligation to pay statements so rendered shall survive the Support Space Term in question. The Reimbursement Cost payable on account of any partial calendar month, if any, during a Support Space Term shall be prorated on a per diem basis. ARTICLE V USE Section 5.1. Permitted Use. Capital for itself and the Capital Entities agrees that each Support Space shall be used only for the purpose for which the Sales Site is utilized by the Company Entity or SBU. ARTICLE VI DISPUTE RESOLUTION Section 6.1. Resolution of Disputes. Resolution of disputes regarding the terms or operation of this Agreement, either generally or with respect to any particular Support Space or Letter Supplement, shall be effected in accordance with the provisions of Operating Agreement Article X (Dispute Resolution). ARTICLE VII AT END OF TERM Section 7.1. At End of Support Space Term. Upon the expiration of the Support Space Term in accordance with the terms of this Agreement (as supplemented by any Letter Supplement with respect to the Support Space in question) or other termination of occupancy of any Support Space by a Capital Entity, such Capital Entity (i) shall vacate and surrender the Support Space to the Company Entity or SBU owning or controlling the Sales Site, "broom clean" and in good order, condition and repair, ordinary wear, tear and damage by the elements, fire or other casualty excepted, (ii) shall on or prior to such date, at the Capital Entity's sole cost and expense, remove from the Support Space any alterations and restore the Support Space as may be required under Section 8.1 hereof, (iii) shall also remove all of the Capital Entity's personal property, including but not limited to files and other business records and its owned furniture and business equipment, if any, (iv) shall remove and replace any hardware installed in accordance with the provisions of Section 9.3 hereof, and (v) shall repair or pay the cost of repairing all damages to the Support Space and/or the Sales Site caused by all such removals. Any personal property which shall remain in the Support Space at a date which is unreasonably beyond the date the space was vacated, may, at the option of the Company Entity or SBU, be deemed to have been abandoned and in such case may be retained or otherwise treated by the Company Entity or SBU as its property or may be disposed of, without accountability, in such manner as the Company Entity or SBU may determine, at the Capital Entity's expense, which expense shall be reimbursed to the Company Entity or SBU within ten (10) business days after demand. 6 ARTICLE VIII ALTERATIONS; FURNISHINGS AND EQUIPMENT Section 8.1. Alterations. Alterations to any Support Space shall be made only with the prior consent of the Company Entity or SBU, and, if required, the consent of the landlord of such Company Entity or SBU at a leased Sales Site. Any permitted alterations shall be made solely in conformity with the building maintenance and management requirements of the Support Space building owner or landlord, as the case may be, and shall be performed at the sole cost and expense of the Capital Entity. Any and all permitted alterations in the Support Space shall be removed, and the Support Space restored to its pre-alteration condition, at the Capital Entity's sole cost and expense, on or prior to the end of the Support Space Term, unless the Company Entity or SBU for such Support Space (and in buildings under lease thereto, the landlord under such lease) shall agree in writing that the alteration(s) in question need not be so removed. The Capital Entity's obligations to remove and restore hereunder shall survive the expiration or earlier termination of the Support Space Term, provided that, in the event the Capital Entity shall default in any obligation to effect such removal and restoration, the Company Entity or SBU shall give notice of such default not later than 180 days following such date of expiration or earlier termination. Section 8.2. Furnishings and Equipment. In the event the Capital Entity in question wishes to furnish its Support Space with office furnishings different than the standard office furnishing fitout provided to the Company Entities/SBU personnel at the Sales Site, the Capital Entity must first obtain the written permission of the Company Entity or SBU to do so, which permission shall not be unreasonably withheld, provided, however, that (i) such furnishings are purchased or leased by the Capital Entity, (ii) such furnishings are installed and at term's end removed at the Capital Entity's sole cost and expense and (iii) all such furnishings are reasonably consistent in style and quality with the furnishings in the Sales Site used by the Company Entity or SBU at such Sales Site. If such installation is reasonably necessary for the conduct of the Capital Entity's business at the Sales Site, the Capital Entity in question shall further be permitted to install business machinery and equipment in the Support Space, subject to the electrical capacity thereof (provided same are installed in conformity with the requirements of law and the requirements of the underlying space lease, if any), provided same shall be removed at the Support Space Term's end in accordance with the provisions of Section 7.1 hereof. Company Entities shall have no obligation to provide any additional or special electrical capacity or extra heating or air-conditioning with respect to any Capital Entity's business machinery or equipment referred to in the preceding sentence. ARTICLE IX ACCESS TO SUPPORT SPACE PREMISES Section 9.1. Sales Site Owner Access. With respect to any Support Space, the Company Entity or SBU and/or any building landlord thereof (each, a "Sales Site Owner") shall be and is hereby permitted access into the Support Space under the terms of this Agreement and/or of any space lease, ground lease or mortgage applicable to the Sales Site. Each Capital Entity occupying such Support Space shall have the right to secure its own business files and other proprietary information. The Company Entity or SBU in question shall have no responsibility for the security, maintenance or preservation of such Capital Entity business files and proprietary information. 7 Section 9.2. Capital Entity Access. The Company, for itself and each of the Company Entities and SBUs providing Support Spaces, covenants and agrees that each Capital Entity and its employees shall be provided access to its particular Support Space on the same basis as access is permitted to the Sales Site generally to the personnel of the Company Entity or SBU occupying the Sales Site in question. In the event that a restricted access Sales Site features a lobby guard, sign-in or pass system for such building access (whether within office hours on business days, or outside such time periods), Capital, for itself and each of the Capital Entities occupying such Support Space, covenants and agrees to conform to the building rules and regulations governing such access system from time to time. Section 9.3. Securing Support Space. Subject to the provisions of Sections 2.1 and 9.1 hereof, and subject to any more restrictive provisions of an underlying space lease with a Sales Site Owner, in which case the provisions of such space lease shall control, the Capital Entity shall be permitted to secure its separately demised Support Space with locking door hardware, provided always that (i) if the Support Space is not delivered with locking hardware, the cost of installation of locking hardware of the same general model and (at the Support Space Term's end) the cost of removal and replacement thereof shall be borne solely by the Capital Entity, and (ii) duplicate keys to such locks shall be delivered to all affected Sales Site Owners (Company Entity or SBU and the landlord, if any) at the Sales Site. ARTICLE X NO LEASE; NO CO-TENANCY; NO SUBLEASE Section 10.1. No Lease; No Co-tenancy; No Sublease. This Agreement is intended by the parties hereto to provide only for so-called "location support" or "desk space" for the provision of Financings and Ancillary Services by the Capital Entities to the Company Entities and SBUs. The Capital Entities, with respect to the Support Spaces occupied or to be occupied by each in the Sales Sites, do not purport or intend to be and are not to be deemed by the Company, by the Company Entities or the SBUs or their respective landlords, or by any third party, to be space or occupancy tenants, co-tenants or subtenants or lease assignees of any of the Support Spaces, and Capital and the Capital Entities shall have no rights or obligations with respect to such Support Spaces except as specifically provided for herein and in the applicable Letter Supplement(s). Nothing contained in this Agreement shall be construed in any manner to constitute this Agreement as an occupancy lease respecting the Support Space, or as a co-tenancy agreement with respect to any Sales Site (whether owned in fee or occupied under lease by the Company Entity or SBU in question), or as an occupancy sublease arising under any lease of a Sales Site by an Company Entity or SBU, or as an assignment to a Capital Entity of any lease or sublease of a Sales Site under which the Company Entity or SBU is tenant. Capital for itself and for all Capital Entities hereby waives, with respect to any Support Space provided hereunder, any and all rights appertaining to, or claims which might be made by, a tenant or co-tenant or subtenant or lease assignee of such premises. In the event that, at any Sales Site which is under lease or sublease to an Company Entity or SBU, the landlord thereof shall by notice or otherwise raise objection to the occupancy of the Support Space by a Capital Entity or the conduct of its business at the Sales Site, and such objection cannot be resolved, the affected Company Entity or SBU shall have the right to terminate the Support Space Term by written notice to the Capital Entity, which shall promptly pay any monies due the Company Entity or SBU for use of the Support Space and promptly vacate said 8 Support Space in accordance with the provisions of Section 7.1; provided however, that in the event such landlord is willing to consider a negotiated resolution of such objection (which resolution shall in no event require the payment of money or the increase in any obligation of the Company Entity or SBU under the lease), the Capital Entity shall be afforded the opportunity to reach such resolution with landlord prior to the service of any notice of termination hereunder. ARTICLE XI INDEMNIFICATION Section 11.1. Indemnification by Capital and Capital Entity. Capital and the Capital Entity occupying the Support Space in question each agrees to defend, indemnify and hold harmless each of the Company and the Company Entity or SBU controlling the Sales Site hosting the Support Space, and their respective directors, officers, agents and employees from and against any and all claims, demands, liability, loss, damage, costs and expenses (including reasonable attorneys' fees and disbursements) arising from or in connection with: (i) the conduct or management of the Support Space or of any business therein, or any work or act whatsoever done, or any condition created (other than by or at the direction of the Company, the Company Entity or SBU at the Sales Site, or any director, officer, agent or employee of any of the foregoing) in or about the Support Space or the Sales Site during the Support Space Term, or during any period of holdover occupancy after the expiration or earlier termination of this Agreement and/or any Letter Supplement with respect to such Support Space, by or at the direction of Capital or the Capital Entity; (ii) any act, omission or negligence of Capital or of the Capital Entity or of any of their respective directors, officers, agents, invitees, employees or contractors (but not business visitors to the Capital Entity which are directors, officers or employees of the hosting Company Entity or SBU); (iii) any accident, injury or damage whatsoever (unless caused by the gross negligence or willful misconduct of the Company or of the hosting Company Entity or SBU, or of any of their respective directors, officers, agents, third parties invitees or employees) occurring in or about the Support Space or the Sales Site caused by Capital or the Capital Entity, or any director, officer, agent or employee of either of the foregoing; and (iv) the holding over by the Capital Entity beyond the Support Space Term as to any particular Support Space. Section 11.2. Indemnification by the Company and the Company Entity or SBU. The Company and the Company Entity or SBU controlling the Support Space in question each agrees to defend, indemnify and hold harmless Capital and the Capital Entity occupying the Support Space, and their respective directors, officers, agents and employees from and against any and all claims, demands, liability, loss, damage, costs and expenses (including reasonable attorneys' fees and disbursements) arising from or in connection with: (i) the conduct or management of the Sales Site excluding the Support Space, or of any business therein, or any work or act whatsoever done, or any condition created (other than by or at the direction of Capital or the Capital Entity occupying the Support Space, or any director, officer, agent or employee of any of the foregoing) in or about the Sales Site or the Support Space during the Support Space Term, by or at the direction of the Company or the Company Entity or SBU; (ii) any act, omission or negligence of the Company and/or the Company Entity or SBU or of any of their respective directors, officers, agents, invitees, employees or contractors (but not business visitors to the Company Entity or SBU which are directors, officers or employees of the Capital Entity); and (iii) any accident, injury or damage whatsoever (unless caused by the gross negligence or willful misconduct of Capital or of the Capital Entity or of any of their respective 9 directors, officers, agents or employees) occurring in or about the Support Space or the Sales Site caused by the Company or the Company Entity or SBU, or any director, officer, agent, third parties invitees or employee of any of the foregoing. Section 11.3. Indemnification Claim Procedure. Each indemnified party under Section 11.1 or 11.2 hereof with respect to any claim to be made hereunder shall follow the procedure set forth in Section 9.3 of the Operating Agreement. Section 11.4. Survival of Indemnities. The indemnity agreements set forth in this Article 11 shall survive the expiration or any earlier termination of this Agreement and/or of any Letter Supplement with respect to any Support Space or Sale Site as to which indemnification is sought or claimed. ARTICLE XII NOTICES Section 12.1. Notices. A. All notices, consents, deliveries, demands, requests, approvals and other communications which are required or may be given hereunder and which affect more than one Support Space shall be in writing and shall be deemed to have been duly given if personally delivered (including courier service), telecopied or mailed certified first class mail, postage prepaid, addressed as follows: (a) if to the Company, to: _______________________________________ _______________________________________ _______________________________________ Telecopier Number:_____________________ Confirmation Number:___________________ Attention: with a copy to: _______________________________________ _______________________________________ _______________________________________ Telecopier Number:_____________________ Confirmation Number:___________________ Attention: 10 (b) If to Capital, to: AT&T Capital Corporation 44 Whippany Road Morristown, New Jersey 07960 Telecopier Number: 201-397-3220 Confirmation Number: 201-397-3187 Attention: Chief Executive Officer with a copy to: AT&T Capital Corporation 44 Whippany Road Morristown, New Jersey 07960 Telecopier Number: 201-397-3220 Confirmation Number: 201-397-3187 Attention: General Counsel B. All notices, consents, deliveries, demands, requests, approvals or other communications which are required or may be given hereunder and which affect only a particular Support Space shall be in writing and shall be deemed to have been duly given if personally delivered (including courier service), telecopied or mailed certified first class mail, postage prepaid, addressed to the Company Entity or SBU, or to the Capital Entity, as the case may be, at the address and to the attention of the person identified in the last-dated Letter Supplement delivered by the affected parties in connection with such Support Space. ARTICLE XIII AGREEMENT INCORPORATION AT SUPPORT SPACES; DISTRIBUTION Section 13.1. Letter Supplement Delivery and Agreement Incorporation. The Company and Capital agree that, upon identification from time to time of any Support Space to be occupied by a Capital Entity in a Sales Site, a Letter Supplement shall be prepared executed and delivered in counterparts between the affected Company Entity or SBU and the Capital Entity occupying or about to occupy such Support Space, setting forth (i) the floor or suite location thereof, (ii) the annualized Reimbursement Cost therefor and other office equipment or service charge rates, if any, (iii) the name and address for notices under Section 12.1 hereof, and (iv) such other Sales Site-specific provisions for such occupancy not otherwise covered hereby. The parties hereto further agree that this Agreement is intended to be incorporated by reference into the Letter Supplement except to the extent that certain terms hereof are explicitly stated to be overridden by differing provisions set forth in such Letter Supplement, and in the event of any other conflict between the terms of this Agreement and the terms of a Letter Supplement, the terms of this Agreement shall govern and be deemed to prevail. Notwithstanding the foregoing, it is further understood and agreed that, with respect to Capital Entities personnel presently situated in Sales Sites as at the date hereof, they shall be permitted to remain in place whether under the terms of such client commitment letters 11 between the affected entities as may be applicable, or otherwise, and the Company and Capital agree that they will cooperate in good faith to prepare, execute and deliver a Letter Supplement with respect to the Support Space for such Sales Sites. In no event shall such Capital Entities personnel be permitted to remain in place in a Sales Site under lease to an Company Entity or SBU for which landlord's consent has not been forthcoming as required under Section 2.4 hereof, and failure to vacate such Support Site promptly following notice that such landlord's consent has not been obtained shall be subject to indemnification for any costs or damages resulting therefrom under Section 11.1 hereof. The parties' agreement to cooperate in good faith to prepare, execute and deliver Letter Supplements shall not in any event delay the effective date of this Agreement as to any Sales Site, and all Sales Sites shall be governed by this Agreement from its effective date, notwithstanding the failure to have a Letter Supplement agreed by such date. ARTICLE XIV MISCELLANEOUS Section 14.1. Amendments. Any Capital Entity and Company Entity may by mutual consent from time to time vary the terms of this Agreement as it applies to such Capital Entity and either such Company Entity or one or more SBUs within such Company Entity. In such event, such varied terms will be deemed to amend this Agreement as it applies to such Capital Entity and such Company Entity (or such SBUs) for such period of time as such variance is agreed to by such Capital Entity and such Company Entity; provided that the variance(s) (i) are in writing, (ii) specifically reference this Agreement, and (iii) expressly state the intention of the parties thereto to vary the terms of this Agreement, which varied terms shall be identified with specificity. The parties hereto agree that a Letter Supplement containing the information described in clauses (i) through (iv) in Section 13.1 hereof, without reference to any variance from specific provisions of this Agreement, shall not be deemed a variance for amendment to this Agreement. Notwithstanding any such variance, this Agreement will continue to apply to all other Company Entities and Capital Entities (or, if applicable, all SBUs within the Company Entity that consents to such variance that are not made subject to such variance) as if such variance had not been effected. Notwithstanding the foregoing, this Agreement cannot be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties hereto (or by the applicable Company Entity and Capital Entity). Section 14.2. Successors and Assigns; Third Parties. (a) This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and assigns. (b) Except as set forth in Article XI, nothing in this Agreement, expressed or implied, is intended or will be construed to confer upon any Person (including Customers and Authorized Dealers, as such three capitalized terms are defined in the Operating Agreement) other than the parties (and the Company Entities and Capital Entities) and their successors and assigns any right, remedy or claim under or by reason of this Agreement. (c) The Company hereby represents and warrants to Capital that it has the requisite authority to commit and bind the other Company Entities to the applicable terms of this Agreement. 12 (d) Capital hereby represents and warrants to the Company that it has the requisite authority to commit and bind the other Capital Entities to the applicable terms of this Agreement. Section 14.3. Sales Sites Under Lease. In the event that any Sales Site is now or hereafter under lease to an Company Entity or SBU, the execution and delivery of this Agreement, and/or of any Letter Supplement with respect to Support Space at such Sales Site, shall not be deemed to amend or modify or otherwise affect any such lease, and in the event of any conflict with regard to the use and occupancy of the Support Space at such Sales Site between the provisions of this Agreement or such Letter Supplement and the provisions of the applicable lease, the provisions of such lease shall control. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. LUCENT TECHNOLOGIES INC. BY:______________________________ NAME: TITLE: AT&T CAPITAL CORPORATION BY:_______________________________ NAME: TITLE 13 SCHEDULE C The Company Entities traditionally have provided only the following types of interim Financings to Finance the acquisition of Products by Customers or Authorized Dealers: 1. Consumer Products offers an installment billing program to Customers. The installment sale product is only offered to Customers (both business and consumer) who acquire Product at a Consumer Products' Phone Center store. The Financing is a no interest financing - the Customer pays the purchase price in equal monthly installments over a term of 4, 8 or 12 months. The Customer also must pay a fixed application fee, which is based on the length of the term. (For example, the application fee for a 4 month installment sale is Fifteen Dollars, for an 8 month installment sale is Thirty Dollars, and for a 12 month installment sale is Forty-Five Dollars.). The gross receivable stream from such Financings is approximately $25 Million to $35 Million per year. Additionally, Consumer Products has discontinued its offer of 8 and 12 month installment sales in selected stores where it is trialing a replacement program offered by one of the Capital Entities. 2. Consumer Products offers 30 day payment terms to qualifying business Customers for purchases of Product acquired at a Consumer Products' Phone Center store. This Financing is only offered with respect to the types of equipment traditionally sold by Consumer Products to small businesses. 3. Consumer Products offers interim Financing to SNET and Rochester Telephone with respect to traditional consumer telephone equipment sold by Consumer Products and provided by the local telephone companies to consumers who obtain their local telephone service from them. Under this offering, Consumer Products provides such equipment to SNET and Rochester Telephone at $3.00 per unit for 24 months or $2.00 per unit for 36 months. Consumer Products provides approximately 50,000 phones per year to these entities. SCHEDULE D AT&T Paradyne traditionally has provided rental or service contracts (i.e., full pay-out financings with maintenance and service included) at a fixed monthly amount for terms of 12 months or greater with respect to data equipment manufactured by it. Such equipment consists of modems, VideoSpan(TM) multimedia technology, mulitplexers, CSU/DSUs, data service and channel service units, and channel extension products. Such Financing has been provided to Customers who acquire the Products directly from AT&T Paradyne and its Authorized Dealers, which typically are not Authorized Dealers of Products of other AT&T Entities. SCHEDULE E Network Systems traditionally has manufactured or marketed the following types of telecommunications equipment and systems, as well as associated installation and maintenance services, for incorporation into land-based and wireless telecommunication networks operated by public and private sellers of telecommunications services: Central office switching equipment and associated software, transmission systems, mobile switching centers, radio base stations, mini- and micro-cells, fixed-loop systems, wireless data products, optical fiber, electronic wire and cable products, wired and wireless terminal equipment. SCHEDULE F The following constitute the past practices of the Company Entities regarding their rental of Products to Customers on a daily, weekly, monthly or other periodic basis: 1. Consumer Products rents specific AT&T brand home telephones (i.e., Trimline(R), Princess(R), traditional, feature and cordless telephones, and answering systems) at a fixed monthly payment to Customers who are consumers. This is a true rental, and not a lease or sale, although Consumer Products markets this product as the "AT&T Lease Service Program". The rental is on a month-to-month basis. The Customer can obtain a replacement for free at any time and for any reason (i.e., "no questions asked") if the Customer delivers the telephone to a Consumer Products' Phone Center store or one of approximately 700 "AT&T authorized Service Agencies" in the United States. The replacement set generally is a refurbished set of the same model. In 1993, the gross revenues from the this rental product was approximately $740 Million, and these revenues are declining at a rate of approximately 15% per year. 2. Global Business Communications Systems (GBCS) offers its direct Customers a rental product known, interchangeable, as a "Term Plan" or "service contract." Under the Term Plan, GBCS offers selected telecommunications equipment (prior to 1993, key systems and Horizon(R) and Dimension(R) PBXs and key systems; after 1993, only Partner(R) and Legend(R) communications systems) to business Customers in the United States at fixed monthly payments on a month-to-month basis or for a specified period of time "Commitment Period"). The Commitment Periods offered by GBCS are 12, 24 and 48 months. If neither party terminates the Term Plan 30 days prior to the end of the Commitment Period, it is automatically renewed for the shortest Commitment Period then available at the price and terms then in effect. Except for the Partner and Legend systems rented under Term Plans, the only Terms Plans that remain on the books of GBCS are those that are in automatic renewal. In a Term Plan, GBCS retains title to the equipment, bears the risk of loss (except for loss caused by the Customer), and maintains the equipment at no additional charge. Term plans are not available to Customers who acquire the Product through an Authorized Dealer. SCHEDULE G GENERAL ALLOCATION OF RESPONSIBILITIES BETWEEN THE CAPITAL ENTITIES AND THE COMPANY ENTITIES TABLE OF CONTENTS SECTION SUBJECT MATTER ONE General Allocation of Responsibilities. TWO Methods and Procedures. ATTACHMENTS A. - Listing of Company Responsibilities. B. - Suggested Operational Procedures. C. - Remarketing Procedures. D. - Repurchase Calculation Methodology. E. - Calculating Net Book Value. F. - Post-Repurchase Allocation of Repurchase Monies. 2 GENERAL ALLOCATION OF RESPONSIBILITIES REGARDING TRANSACTIONS WHERE A CAPITAL ENTITY PROVIDES FINANCING Since 1985 Credit Holdings has been providing Financing to Customers and Authorized Dealers. Such services are now provided by the Capital Entities, including AT&T Credit. While the Company Entities and Capital Entities benefit from the provision of such Financings, it is recognized that the Company Entities and Capital Entities will not receive the full benefits of such Financings unless Customers and Authorized Dealers fulfill their related payment obligations. Because the revenue stream resulting from such Financings is adversely affected by the subsequent failure of Customers or Authorized Dealers to pay, it is appropriate to allocate the responsibility for subsequent billing, collection and account enforcement activity when such situations occur. Therefore, as between the Company Entities and the Capital Entities, the entities capable of controlling a particular risk or covering a particular risk in its pricing (Product or Financing), shall be responsible for subsequent billing, collection, and account enforcement activity relating to the Financing shortfall. For example, should a Financing shortfall occur as a result of a Customer's or Authorized Dealer's inability to pay, or failure to pay for reasons which are not related to a Company Responsibility, or should the Capital Entities, anticipated residual value for the Product not be attained -- the Capital Entities would be responsible. Should a Financing shortfall occur as a result of a Company Responsibility, then the SBU that markets or provides the related Product would be responsible for subsequent billing,-collection, and account enforcement activity. In order to implement this allocation policy, the attached Methods and Procedures, which are made a part of this General Allocation of Responsibilities, shall apply. Such Methods and Procedures are intended to further define and amplify the responsibilities of the Company Entities (including their SBUs) and Capital Entities and to establish procedures that will facilitate the expeditious resolution of issues between the Company Entities and the Capital Entities. Except as set forth in the attached Methods and Procedures, this General Allocation of Responsibilities will not apply in situations where the Product warranty has expired and the Customer or Authorized Dealer has 3 chosen not to avail itself of the various maintenance service contracts offered by the SBUs. This General Allocation of Responsibilities will not affect those programs or transactions where the Capital Entities and Company Entities agree (or have previously agreed), in writing, to different apportionment responsibilities or procedures. In order to provide continued flexibility for the future, the Capital Entities and Company Entities may modify this General Allocation of Responsibilities as they may mutually agree in writing. Moreover, this General Allocation of Responsibilities will apply to any successors of the parties subject to this allocation policy. It is understood and agreed that this General Allocation of Responsibilities refers in various contexts to obligations or agreements of SBUs (which may or may not be legal entities) because as a practical matter, the relevant obligation will be performed by a SBU or the relevant agreement will be entered into by personnel serving a SBU. In all events, any such obligations or agreements shall, in the case of SBUs that are not Company Entities, constitute obligations or agreements of the Company Entities of which such SBUs constitute a division or business grouping. NOTHING WITHIN THIS DOCUMENT PURPORTS TO EXTEND ADDITIONAL REPRESENTATIONS, WARRANTIES OR RIGHTS TO A CUSTOMER OR AUTHORIZED DEALER ABOVE AND BEYOND THOSE REPRESENTATIONS, WARRANTIES AND RIGHTS CONTAINED IN THE CONTRACT BETWEEN SUCH CUSTOMER OR AUTHORIZED DEALER AND THE RELEVANT COMPANY ENTITIES. 4 METHODS AND PROCEDURES REGARDING GENERAL ALLOCATION OF RESPONSIBILITIES OVERVIEW AND GENERAL STATEMENT The foregoing General Allocation of Responsibilities is intended to broadly define the circumstances in which responsibility for billing, collection and account enforcement activity is allocated to either a Capital Entity or the SBUs in situations where a Capital Entity provides Financing for a Customer or Authorized Dealer. The purpose of these Methods and Procedures is to further define and amplify the General Allocation of Responsibilities, and to establish procedures that will facilitate the resolution of issues between the Company Entities and the Capital Entities. These Methods and Procedures are comprised of the following: Attachment A - is a specific listing of circumstances wherein SBUs will assume responsibility for billing, collection, and account enforcement activity. Attachment B - sets forth the procedures to be followed when dealing with transactions that require SBUs to assume responsibility for billing, collection, and account enforcement activity. Attachment C - sets forth certain equipment remarketing procedures. Attachment D - sets forth the general repurchase calculation methodologies that will apply when SBUs assume the responsibility for billing, collection, and account enforcement activity. Attachment E - sets forth the procedures to be utilized in calculating net book value. In preparing these Methods and Procedures, the assumption is made that every possible action had' been taken, in accordance with the terms and conditions of the contract between the Customer or Authorized Dealer and the relevant Company Entities, to resolve issues raised by the Customer or Authorized Dealer relating to the Product or related service provided by the Company Entities, and that such actions have not caused the Customer or Authorized Dealer to honor its financial obligations relative to its Financing contract with the appropriate Capital Entity. 5 Any exception to these Methods and Procedures requires the consent of all parties to the foregoing General Allocation of Responsibilities affected by such change. 6 Attachment A LISTING OF COMPANY RESPONSIBILITIES The appropriate SBU will assume responsibility for billing, collection, and account enforcement activity of shortfall in a Financing provided by a Capital Entity when the customer or Authorized Dealer asserts that its failure to honor its financial obligation under the Financing contract with the Capital Entity is a result of one or more of circumstances constituting a Company Responsibility, provided, however, that customer assertions are subject to the review procedures set forth in Attachment B. SBU personnel may, on a case by case basis, conclude that enforcing the terms and conditions of the Financing contract between the Customer or Authorized Dealer and the appropriate Capital Entities, or the contract between the Customer or Authorized Dealer and the appropriate Company Entities, would be inappropriate. When this occurs, the transaction will be treated as a Company Responsibility. SBUs shall not be responsible for Financing shortfalls in situations where a Capital Entity provides Customer Financing that is arranged through an Authorized Dealer (but not including situations in which a Capital Entity provides Dealer Financing or customer Financing arranged directly by a Capital Entity or through a Company Entity), except in the following circumstances: (x) the Financing shortfall is caused by clause (iii) of the definition of "Company Responsibility" set forth in Section 7.2 of the Agreement; (y) the Product does not work or perform in accordance with any accompanying representation or warranty by a Company Entity; or (z) as a matter of law or equity the Company Entities are found to be responsible for the Customer's failure to honor its financial obligation to a Capital Entity. Except for the matters covered by clause (iii) of the definition of "Company Responsibility" set forth in Section 7.2 of the Agreement as well as the immediately preceding paragraphs, a Company Responsibility will only apply to matters that occur during the term of the warranty and during the term of any maintenance or service contract of a Company Entity. NOTHING WITHIN THIS DOCUMENT PURPORTS TO EXTEND ADDITIONAL REPRESENTATIONS, WARRANTIES OR RIGHTS TO A CUSTOMER OR AUTHORIZED DEALER ABOVE AND BEYOND THOSE REPRESENTATIONS, WARRANTIES OR RIGHTS CONTAINED IN THE CONTRACT BETWEEN SUCH CUSTOMER OR AUTHORIZED DEALER AND THE RELEVANT COMPANY ENTITIES. 7 Attachment B SUGGESTED OPERATIONAL PROCEDURES Within 10 business days of receipt of information of Customer or Authorized Dealer dissatisfaction and the actual withholding of, or notice from a Customer or Authorized Dealer of their intention to withhold, payment to the Capital Entity, the SBU or Capital Entity in receipt of such information will complete the Initial Equipment Problem Report ("Initial Report") appended hereto as Exhibit 1, and forward it to the other party. The SBU will then investigate the merits of any such Customer or Authorized Dealer assertions and will inform the Capital Entity, within 30 days of the Initial Report Date, if the SBU believes that (1) a Company Responsibility does exist or (2) further time is needed to investigate the Customer or Authorized Dealer's assertion. The SBU will advise the Capital Entity of the course of action it plans to pursue by completing the Investigatory Response section of the Initial Report, and by returning it to the Capital Entity within the 30 day time frame noted above. Thereafter, the Capital Entity and SBU will follow the Action Timetable appended hereto as Exhibit 2, whereby the SBU will provide the Capital Entity with a Status Report (Exhibit 3) in intervals of approximately 30 days. IN NO EVENT WILL SBU'S INVESTIGATION OF A CUSTOMER OR AUTHORIZED DEALER COMPLAINT BE DEEMED AN ACKNOWLEDGMENT THAT A COMPANY ENTITY OR SBU BEARS ANY RESPONSIBILITY WHATSOEVER FOR THE ALLEGED PROBLEM. If the SBU determines that a Company Responsibility exists ("Repurchase Determination"), the SBU will assume the responsibility for subsequent billing, collection and account enforcement by repurchasing the Financing contract from the Capital Entity pursuant to the reimbursement methodology set forth in Attachment D, and in accordance with the timetable outlined in Exhibit 2. The SBU will make its Repurchase Determination within 120 days of the date of the Initial Report, unless the SBU and the Capital Entity mutually agree to extend such date. Moreover, the SBU will make its Repurchase Determination at such earlier date as may be warranted by the situation, and will thereafter promptly repurchase the Financing contract from the Capital Entity pursuant to the reimbursement methodology set forth in Attachment D. 8 In instances where an Company Responsibility has, in the SBU's opinion, been corrected, but the Customer or Authorized Dealer continues to refuse to make Financing payments to the Capital Entity for the period that such Company Responsibility existed, in lieu of repurchasing the financing contract as set forth above, the SBU and the Capital Entity may implement some other mutually agreeable mechanism to compensate the Capital Entity for the cost of carrying the non-performing asset during the non-performance period. In the event that the SBU believes that an Company Responsibility does not exist, and the Capital Entity initiates enforcement action against the Customer or Authorized Dealer, and the Capital Entity is unsuccessful in attempting to enforce its Financing contract because of a determination by a court, arbitrator or other tribunal that there was an Company Responsibility, then the SBU will bear responsibility for future billing, collection, and account enforcement activity. While a particular case is under review by the SBU as set forth above, the Capital Entity will not initiate legal action against the Customer or Authorized Dealer unless it is necessary to preserve the Capital Entity's rights (in which case the Capital Entity will consult with the SBU before initiating such legal action). In the event that the Capital Entity believes that the SBU's decision as to whether an Company Responsibility exists is in error, the Capital Entity and the SBU will escalate the issue within their respective organizations. All inquiries's regarding such matters should be forwarded to the appropriate individuals within the respective organizations. In the unusual event that the designated SBU and the Capital Entity representatives cannot come to agreement as to how to allocate the responsibility for subsequent billing, collection, and account enforcement activity on a particular transaction, then such representatives will escalate the issue to the appropriate level of senior management of the applicable SBU and Capital Entity for resolution. Any unresolved disputes shall be resolved pursuant to the arbitration provisions set forth in Article X of the Agreement. Should a SBU sustain any loss resulting from an offset due to a genuine breach by a Capital Entity of its Financing contract with the Customer or Authorized Dealer, the Capital Entity will compensate the SBU for such loss pursuant to procedures specified herein. 9 The responsible SBU may request that the Capital Entity provide post-repurchase administrative services on transactions that fall under the terms of the General Allocation of Responsibilities. The Capital Entities shall perform such services at such terms as are mutually agreeable to both the Capital Entity and SBU. 10 Attachment C REMARKETING PROCEDURES In those instances where a Company Responsibility exists, the cost of deinstallation and remarketing the Financed Product falls to the SBU without contribution from the Capital Entity. In those instances where a Company Responsibility does not exist, the cost of deinstallation, refurbishment, and remarketing the Financed Product falls to the Capital Entity. The SBU shall have the first right of purchase for Financed Products that come into the possession of the Capital Entity for potential remarketing, at a price that is mutually agreed to by the parties. This right is contingent upon the establishment of mutually agreeable mechanisms, methods and procedures as to how the right of first offer will be implemented and managed on an ongoing basis. 11 Attachment D REPURCHASE CALCULATION METHODOLOGY As previously stated, the Capital Entities and Company Entities do not obtain the full benefit of a customer or Authorized Dealer Financing unless the Customer or Authorized Dealer fulfills its financial obligation under its Financing contract with the Capital Entity. Unless otherwise agreed to by an Company Entity or SBU and Capital Entity with respect to particular types of Financings, when a Company Responsibility exists, all of the Capital Entity's right, title and interest in, to and under the Financing and Financed Product will be repurchased by the SBU from the Capital Entity utilizing the following methodology to calculate the appropriate price to be paid to the Capital Entity: (a) Principal Balance Reimbursement: The Capital Entity shall be compensated for the entire original amount funded in the event that the Customer or Authorized Dealer made no payments under the Financing contract, or in cases where the Capital Entity received payments but is returning the payments to the Customer or Authorized Dealer as part of a negotiated settlement. The Capital Entity shall be compensated for the remaining unpaid principal balance for those transactions where Customer or Authorized Dealer payments were received and retained by the Capital Entity. The method to be used to amortize the Customer or Authorized Dealer transaction to arrive at the remaining unpaid principal balance, at any given point in time, is the Mortgage Method Adjusted. (b) Interest Reimbursement: The Capital Entity shall be compensated for the cost of funds expense that it incurred to fund a particular transaction. Therefore, for each transaction where the SBU repurchases a Product from the Capital Entity under the terms of this Agreement, the following procedures for calculating interest reimbursement will apply: 12 The cost of-funds rate is derived through the cost of funds report of the Capital Entity for the corresponding week during which the transaction was originally funded. The appropriate cost of funds rate can be determined by locating the term of the Financing under the applicable Financing contract, then locating the appropriate rate for the stated term. Assuming that there are no Customer or Authorized Dealer payments, or that whatever payment stream that was made to the Capital Entity is being returned to the Customer or Authorized Dealer, the Capital Entity shall receive compound interest for the number of interest periods from the date of funding to the anticipated date of repurchase by the SBU. In the event that Customer or Authorized Dealer payments are retained by the Capital Entity, interest reimbursement at the cost of funds rate should be calculated from the first interest period after the Capital Entity receives its final Customer or Authorized Dealer remittance, up to and including the interest period in which the SBU repurchases the Financing contract from the Capital Entity. Late charge income, as a method of compensating for the delay in the originally anticipated cash flow to the Capital Entity, will not apply to transactions that fall under the terms of this Schedule. (c) Sundry Expenses: The Capital Entity shall be compensated by the SBU for verifiable out of pocket expenses incurred for transactions that fall under the terms of this Schedule. This includes such things as litigation expense (where outside counsel is being retained), costs of collection such as on-sight asset inspection/inventory, collection agency expense, and deinstallation expense (if paid by the Capital Entity). The SBU will not be responsible for soft costs, such as reimbursement for the time and effort of the Capital Entity employees, consultants, or temporary employees in resolving such situations. (d) Other: It is agreed that, for all transactions that fall under the terms of this Schedule, the Capital Entity will in no event receive a repurchase price that is less than its 13 net book value, which is calculated in accordance with the description hereinafter contained. In some instances a Company Responsibility can be resolved by unwinding only a portion of the transaction, as opposed to a complete repurchase of the account by the responsible SBU. When this occurs the Capital Entity and SBU shall apply the methodologies contained in this Schedule on that percentage of the transaction that is being unwound, in order to arrive at the appropriate amount to be paid to the Capital Entity by the SBU. 14 Attachment E CALCULATING NET BOOK VALUE Net Book Value (NBV) is the remaining net investment in the lease recorded in accordance with generally accepted accounting principles as defined by the Financial Accounting Standards Board (FASB No. 13). More specifically, the methodologies utilized in the calculation of NBV vary depending upon the type of Financing being contemplated. The following is a description of the calculation methodologies by type of Financing: (a) Direct Finance Lease: NBV is calculated via Mortgage Method Adjusted amortization from the original amount Financed (less any advance Customer or Authorized Dealer payments), down to the accounting residual value, or the term of the Financing, at the true implicit rate (which is the internal rate of return of the anticipated accounting revenue stream). (b) Operating Lease: NBV is calculated by straight line depreciation, depreciating from the original Product cost down to the accounting residual value at the end of the firm term. Transactions for which no Customer or Authorized Dealer payments have been made will have a NBV as of Period 0. Transactions for which Customer or Authorized Dealer payments have been received and retained by the Capital Entity will have a NBV as of the period number which is equal to the total number of payments received and retained (i.e., if four (4) payments ire made and retained, NBV as of Period 4). Transactions for which Customer or Authorized Dealer payments have been made but will be returned to the Customer or Authorized Dealer by the Capital Entity will have a NBV as of the period number which is equal to the total number of payments made. In addition, the Capital Entity will be reimbursed for Customer or Authorized Dealer payments returned to the Customer or Authorized Dealer. The Capital Entities reserve the right to alter the methodology for calculation of NBV and income recognition as required by the Financial Accounting Standards Board and shall provide advance written notice to the appropriate SBU prior to the implementation of-any contemplated change. 15 Attachment F POST-REPURCHASE ALLOCATION OF REPURCHASE MONIES The General Allocation of Responsibilities defines, among other things, circumstances under which the SBUs will assume responsibility for the billing, collection, and account enforcement, which is accomplished via the repurchase of the Financing from the Capital Entity for transactions that are Company Responsibilities. The SBUs recognize that the assumption of the referenced responsibilities may result from problems under their direct control, or from problems under the direct control of some other SBU (i.e., selling SBU differs from Product-owning SBU). The SBUs shall negotiate, within a reasonable time frame after the date hereof, the methods and procedures necessary to allocate the repurchase price paid to the Capital Entity by the SBU which has been deemed to be responsible for the Financing shortfall. 16 Exhibit 1 PRODUCT / SERVICE PROBLEM REPORT FOR CAPITAL ENTITY FINANCED TRANSACTION *****INITIAL REPORT*****
- --------------------------------------------------------------------------------------------------------------------------- Initial Report Originator: [ ] Company Entity [ ] Capital Entity Date: (Name): Room Address: Branch Code (Company Entity) Address: Telephone: - ----------------------------------------------------------------------------------------------------------- Customer/Authorized Dealer Bill Name: Units: Address: Contact: Address: Telephone: Original Date Funded: Amount Funded: - ----------------------------------------------------------------------------------------------------------- PROBLEM TYPE: [ ] Product [ ] Service [ ] Warranty [ ]Other Date First Notified of Problem: By Whom: A Brief Description of Problem: Resolution/Recommendation/Comments: - ----------------------------------------------------------------------------------------------------------- INVESTIGATORY RESPONSE; Date: By (Name): Room Address: Branch Code (Company Entity) Address: Telephone:
17 Resolution/Recommendation/Comments: 18 Exhibit 2
- --------------------------------------------------------------------------------------------------------------- ACTION TIMETABLE - --------------------------------------------------------------------------------------------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- CASE DAYS CAPITAL ENTITY ACTION SBU ACTION REQUIRED ACTION DAYS - ----------- ---------------------------------- ---------------------------------- ----------------------------- 0 1) Becomes aware of alleged 1) Completion of Initial Report The Initial Report to be Product/service related if problem surfaces through c). prepared and forwarded problem, through: within 10 days of learning a) Collection efforts of the alleged problem. b) Customer or Authorized Dealer contact c) Contacted by SBU 2) Completion of Initial Report (Exhibit 1) if problem --------- surfaces through a) or b) above. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 1-30 Continue billing and collection Status Report to Capital Entity Within 30 days of first activity, unless otherwise via the Investigator Response Case Day. agreed. section of the Initial Report. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 31-60 Continue billing and collection Status Report to Capital Entity Within 60 days of first activity, unless otherwise if not resolved by day 60. Case Day. agreed. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 61-90 Continue billing and collection Status Report to Capital Entity Within 90 days of first activity, unless otherwise if not resolved by day 90. Case Day. agreed. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 91-120 Continue billing and collection (1) Status Report to Capital Within 120 days of first activity pending SBU decision. Entity if not resolved by Case Day. Case Day 120. (2) By Case Day 120 SBU will advise Capital Entity that is taking one of the following courses of action: a) continue problem resolution but SBU will assume the responsibility for billing, collection, and account enforcement until problem is resolved. b) SBU will assume the responsibilities stated in (a) above and will deal directly with the customer. c) inform Capital Entity that the
19 SBU has performed its obligations, and that an AT&T Responsibility does not exist. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 121-150 1) If SBU opts for a) or b) Within 150 days of first above, Capital Entity will Case Day. prepare a repurchase calculation worksheet and forward it to the SBU for payment processing (along with repurchase calculation backup and invoice). 2) If SBU chooses c) above, Capital Entity may take whatever action it deems appropriate, including enforcement action against the customer. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 151-180 If SBU has decided to assume the If SBU is to assume Within 180 days of first responsibility for billing, responsibility for billing, Case Day. collection, and account collection, and account enforcement activity, Capital enforcement, it will verify that Entity will close billing and the repurchase price is properly collection efforts upon receipt calculated, obtain necessary of the repurchase amount or 180 internal approvals and paperwork days from the first Case Day to generate the repurchase whichever occurs earlier. check, and forward the check to Capital Entity. - ----------- ---------------------------------- ---------------------------------- ----------------------------- - ----------- ---------------------------------- ---------------------------------- ----------------------------- 181-120 Upon receipt of SBU repurchase Retain Capital Entity documents Within 15 days of receipt check: for future use, if any. of repurchase check. (1) send all original documents to SBU; (2) execute an assignment form, transferring all right, title, and interest to SBU; and (3) execute the appropriate UCC documents to assign an perfected security interest to SBU. - ----------- ---------------------------------- ---------------------------------- -----------------------------
20 Exhibit 3 *****Status Report ***** ******************************************************************************************************************************** Initial Report Originator: ( ) Company Entity ( ) Capital Entity Date:______________________ By (Name): ______________________________________________________ Room #: _____________________________________________ Address: ______________________________________________________ Branch Code (Company Entity): __________________________ Address: ______________________________________________________ Telephone: _____________________________________________ ******************************************************************************************************************************** CUSTOMER/AUTHORIZED DEALER INFORMATION: Customer/Authorized Dealer Bill Name: _______________________________________________________ Units: ________________________________________________ Address: _______________________________________________________ Contact:________________________________________________ Address: _______________________________________________________ Telephone:______________________________________________ ******************************************************************************************************************************** FOLLOWUP INFORMATION: ( ) Problem Resolved ( ) No Problem Exists ( ) Problem Not Resolved ( ) Problem Resolution Expected By: ______________________________________________________________________________________ Brief Description of Current Efforts: ______________________________________________________________________________________ ________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ Resolution/Recombination/Comments: _____________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ ******************************************************************************************************************************** RECEIVERS RESPONSE (IF ANY): Date: ________________________________________________________ By (Name): _____________________________________________ Room #:________________________________________________________ Address: _____________________________________________ Branch Code (Company Entity):__________________________________ Address: _____________________________________________ Telephone:_____________________________________________________ Resolution/Recombination/Comments: _____________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ ********************************************************************************************************************************
EX-11 13 EXHIBIT 11 EXHIBIT 11 Form 10-K for 1995 File No. 1-11237 AT&T CAPITAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Thousands except per share data)
Year Ended December 31, 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------- Income before cumulative effect of accounting change $127,555 $100,336 $ 71,510 $ 73,572 $ 54,199 Cumulative effect on prior years of accounting change - - (2,914) - - - --------------------------------------------------------------------------- Net income $127,555 $100,336 $ 68,596 $ 73,572 $ 54,199 =========================================================================== Primary Average shares outstanding* 46,948 46,876 42,969 40,250 40,250 Net effect of dilutive stock options - based on the treasury method using average market price 234 30 33 - - - --------------------------------------------------------------------------- Total 47,182 46,906 43,002 40,250 40,250 =========================================================================== Per share amounts: Income before cumulative effect of accounting change $ 2.70 $ 2.14 $ 1.67 $ 1.83 $ 1.35 Cumulative effect on prior years of accounting change - - (.07) - - - --------------------------------------------------------------------------- Net income $ 2.70 $ 2.14 $ 1.60 $ 1.83 $ 1.35 ===========================================================================
1 EXHIBIT 11 Form 10-K for 1995 File No. 1-11237 AT&T CAPITAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Thousands except per share data) (Continued)
Year Ended December 31, 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------- Fully Diluted** Average shares outstanding* 46,948 46,876 42,969 40,250 40,250 Net effect of dilutive stock options - based on the treasury method using the greater of the average market price or year end price 507 30 33 - - - --------------------------------------------------------------------------- Total 47,455 46,906 43,002 40,250 40,250 =========================================================================== Per share amounts: Income before cumulative effect of accounting change $ 2.69 $ 2.14 $ 1.67 $ 1.83 $ 1.35 Cumulative effect on prior years of accounting change - - (.07) - - - --------------------------------------------------------------------------- Net income $ 2.69 $ 2.14 $ 1.60 $ 1.83 $ 1.35 ===========================================================================
* 1992 and 1991 shares are restated to give effect to a 402,500-for-one stock reclassification. ** This calculation is submitted in accordance with Regulation S-K item 601 (b) 11 although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3 %. 2 EX-12 14 EXHIBIT 12 EXHIBIT 12 Form 10-K for 1995 File No. 1-11237 AT&T CAPITAL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Thousands)
Year Ended December 31, 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------- Earnings from continuing operations: Income before income taxes and extraordinary loss $208,239 $173,614 $138,040 $114,875 $ 82,559 Deduct undistributed earnings on equity investments, net of losses - - - - (14) Add fixed charges included in income before income taxes and cumulative effect of accounting change 418,624 277,913 242,100 258,312 279,926 - --------------------------------------------------------------------------- Total earnings from continuing operations, as adjusted $626,863 $451,527 $380,140 $373,187 $362,471 - --------------------------------------------------------------------------- Total fixed charges* $418,624 $277,913 $242,100 $258,312 $279,926 Ratio of earnings to fixed charges 1.50 1.62 1.57 1.44 1.29 - ---------------------------------------------------------------------------
* Fixed charges include interest on indebtedness, preferred stock dividends and the portion of rentals representative of the interest factor. 1 EX-21 15 EXHIBIT 21 EXHIBIT 21 Form 10-K for 1995 File No. 1-11237 SUBSIDIARIES OF AT&T CAPITAL CORPORATION (AS OF DECEMBER 31, 1995)
STATE OR OTHER JURISDICTION OF INCORPORATION NAME OF SUBSIDIARY OR ORGANIZATION AT&T Automotive Services, Inc. Delaware AT&T Capital Canada, Inc.(1) Ontario, Canada Capita Canadian Trust Ontario, Canada AT&T Capital FSC, Inc. Barbados AT&T Capital Limited England & Wales AT&T Capital (Automotive Services) Limited England & Wales Keep Leasing Limited England & Wales AT&T Commercial Finance Corporation (2) Delaware ATMOR Properties Inc. (in trust) Delaware AT&T Capital Leasing Services, Inc. (3) Massachusetts The Lease Factor, Inc. Massachusetts Eaton Express Corporation Massachusetts AT&T Capital Services Corporation Delaware AT&T Systems Leasing Corporation Michigan AT&T Credit Corporation Delaware AT&T Credit International, Inc. Delaware AT&T Credit Consumer Finance Corporation Delaware AT&T Credit Corporation of Puerto Rico Delaware NCR Credit Corp. Delaware AT&T Small Business Lending Corporation Delaware Capita Beteiligungs AG Germany Capita Global Finance Corporation Delaware Capita Hungary Trading and Servicing Company Hungary Limited (also known as Capita Hungary Ltd.) Capita International L.L.C. Delaware Arrendadora Capita Corporation, S.A. de C.V. Mexico Capita Servicios, S.A. de C.V. Mexico The Capita Corporation de Mexico, S.A. de C.V. (4) Mexico Capita Resources, Inc. Delaware Capital Syndication Corporation Delaware The Capita Corporation Australia Limited (5) Australia Hunter Leasing Limited Australia Lonsfield Pty. Ltd (6) Australia The Capita Corporation Holding B.V. Netherlands Capita Holding France, S.A. France The Capita Corporation Finance France, S.N.C. France The Capita Corporation Location France, S.N.C. France
1 Capita Holdings U.K. Limited England & Wales AT&T Capital (Vendor Services) Limited England & Wales Capita Holding Germany GmbH Germany Capita AG & Co. Germany Capita Corporation Italy, S.p.A. Italy The Capita Corporation AG Switzerland The Capita Corporation NV/SA Belgium The Capita Corporation de Argentina S. A. Argentina The Capita Corporation Hong Kong Limited (7) Hong Kong The Capita Corporation New Zealand Limited New Zealand The Equipment Insurance Company Vermont
(*) All subsidiaries do business under their corporate names, and the other names indicated in the footnotes below. (1) Hyster Credit Company (2) Hyster Credit Company and JCB Finance Company (3) Eaton Financial Company (4) AT&T Capital de Mexico and The Capita Corporation (5) AT&T Capital Corporation and The Capita Corporation (6) The Capita Corporation Australia Limited (7) AT&T Capital Corporation 2 EX-23 16 EXHIBIT 23 Exhibit 23 Form 10-K for 1995 File No. 1-11237 CONSENT OF INDEPENDENT AUDITORS ------------------------------- We consent to the incorporation by reference in the registration statements of AT&T Capital Corporation and Subsidiaries on Forms S-3 (File No. 33-61003) and S-8 (File Nos. 33-49877 and 33-54315) of our reports dated January 25, 1996, which include explanatory paragraphs that describe the Company's change in its method of accounting for income taxes in 1993, on our audits of the consolidated financial statements and financial statement schedule of AT&T Capital Corporation and Subsidiaries as of December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. 1301 Avenue of the Americas New York, New York March 6, 1996 1 EX-24 17 EXHIBIT 24(A) EXHIBIT 24(a) Form 10-K for 1995 File No. 1-11237 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. Joseph J. Melone ------------------------- Joseph J. Melone Director STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 1st day of March, 1996, personally appeared before me, Joseph J. Melone, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Janet Hannon ----------------------- Notary Public Janet Hannon POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR. and EDWARD M. DWYER, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. Thomas C. Wajnert ------------------------- Thomas C. Wajnert Director, Chairman of the Board and Chief Executive Officer STATE OF NEW JERSEY ) ) ss.: COUNTY OF MORRIS ) On the 1st day of March, 1996, personally appeared before me, Thomas C. Wajnert, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Suzanne M. Queally ----------------------- Notary Public Suzanne M. Queally POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. John P. Clancey ------------------------- John P. Clancey Director STATE OF NORTH CAROLINA ) ) ss.: COUNTY OF MECKLENBURG ) On the 1st day of March, 1996, personally appeared before me, John P. Clancey, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Joanne L. Quiring ----------------------- Notary Public Joanne L. Quiring POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. William B. Marx, Jr. ------------------------- William B. Marx, Jr. Director STATE OF NEW JERSEY ) ) ss.: COUNTY OF UNION ) On the 1st day of March, 1996, personally appeared before me, William B. Marx, Jr., to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Janice Mitchell ----------------------- Notary Public Janice Mitchell POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. James P. Kelly ------------------------- James P. Kelly Director STATE OF GEORGIA ) ) ss.: COUNTY OF FULTON ) On the 1st day of March, 1996, personally appeared before me, James P. Kelly, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Linda E. Thornton ----------------------- Notary Public Linda E. Thornton POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. Gerald M. Lowrie ------------------------- Gerald M. Lowrie Director DISTRICT OF COLUMBIA ) ) ss.: ) On the 1st day of March, 1996, personally appeared before me, Gerald M. Lowrie, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Linda L. Mangum ----------------------- Notary Public Linda L. Mangum POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under her name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for her and in her name, place and stead, and in each of her offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 7th day of March, 1996. Marilyn J. Wasser ------------------------- Marilyn J. Wasser Director STATE OF NEW JERSEY ) ) ss.: COUNTY OF MORRIS ) On the 7th day of March, 1996, personally appeared before me, Marilyn J. Wasser, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that she executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 7th day of March, 1996. Ann E. McNee ----------------------- Notary Public POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. Richard A. McGinn ------------------------- Richard A. McGinn Director STATE OF NEW JERSEY ) ) ss.: COUNTY OF UNION ) On the 1st day of March, 1996, personally appeared before me, Richard A. McGinn, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1sr day of March, 1996. Janice Mitchell ----------------------- Notary Public Janice Mitchell POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. S. Lawrence Prendergast ------------------------- S. Lawrence Prendergast Director STATE OF NEW JERSEY ) ) ss.: COUNTY OF SOMERSET ) On the 1st day of March, 1996, personally appeared before me, S. Lawrence Prendergast, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Jacqueline C. Dawson ----------------------- Notary Public Jacqueline C. Dawson POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 4th day of March, 1996. Brooks Walker, Jr. ------------------------- Brooks Walker, Jr. Director STATE OF CALIFORNIA ) ) ss.: CITY & COUNTY OF SAN FRANCISCO ) On the 4th day of March, 1996, personally appeared before me, Brooks Walker, Jr., to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 4th day of March, 1996. Gail J. Strack ----------------------- Notary Public POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. Ramon Oliu, Jr. ------------------------- Ramon Oliu, Jr. Vice President and Controller STATE OF NEW JERSEY ) ) ss.: COUNTY OF MORRIS ) On the 1st day of March, 1996, personally appeared before me, Ramon Oliu, Jr., to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Ann E. McNee ----------------------- Notary Public Ann E. McNee POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR. and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. Edward M. Dwyer ------------------------- Edward M. Dwyer Senior Vice President and Chief Financial Officer STATE OF NEW JERSEY ) ) ss.: COUNTY OF MORRIS ) On the 1st day of March, 1996, personally appeared before me, Edward M. Dwyer, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Ann E. McNee ----------------------- Notary Public Ann E. McNee POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CAPITAL CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director, an officer, or both an officer and a director of the Company, as indicated below under his name: NOW, THEREFORE, the undersigned hereby constitutes and appoints RAMON OLIU, JR., EDWARD M. DWYER and THOMAS C. WAJNERT, and each of them, as attorneys for him and in his name, place and stead, and in each of his offices and capacities as a director, an officer, or both an officer and a director of the Company, to execute and file such annual report on Form 10-K, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, including the use or transmission of any personal identification numbers assigned to the undersigned by the Securities and Exchange Commission, as fully, for all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of March, 1996. Richard W. Miller ------------------------- Richard W. Miller Director STATE OF NEW JERSEY ) ) ss.: COUNTY OF MORRIS ) On the 1st day of March, 1996, personally appeared before me, Richard W. Miller, to me known, and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged that he executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 1st day of March, 1996. Ann E. McNee ----------------------- Notary Public Ann E. McNee EX-24 18 EXHIBIT 24(B) EXHIBIT 24(b) Form 10-K for 1995 File No. 1-11237 CERTIFICATE OF CORPORATE RESOLUTION I, Robert J. Ingato, an Assistant Secretary of AT&T Capital Corporation, hereby certify that the following resolutions were duly adopted by the Audit Committee of AT&T Capital Corporation's Board of Directors at a meeting held on March 1, 1996: RESOLVED: that the Company's Annual Report on Form 10-K for 1995 substantially in the form presented to the Committee at this meeting is approved, with such changes as the Chief Financial Officer may approve, provided that any material changes will also be approved by the General Counsel and the Chief Executive Officer and that the Audit Committee will be advised of any material changes made in the financial statements (or related notes) in the Form 10-K; and FURTHER RESOLVED: that the Chief Executive Officer, the Chief Financial Officer and the Controller are each severally authorized to sign the Form 10-K in the name and on behalf of the Company. Robert J. Ingato Dated: March 6, 1996 Robert J. Ingato EX-27 19 EXHIBIT 27
5 This schedule contains summary financial information primarily extracted from AT&T Capital Corporation's audited consolidated income statement and balance sheet for and at the year ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1995 DEC-31-1995 3,961 0 0 (223,220) 0 0 0 (642,728) 9,541,259 0 4,716,058 470 0 0 1,115,655 9,541,259 48,724 1,577,035 43,370 397,879 0 86,214 411,040 208,239 80,684 127,555 0 0 0 127,555 2.70 2.70 Accumulated depreciation relates to equipment under operating leases. This item is not applicable since the Company does not prepare a classified balance sheet. -----END PRIVACY-ENHANCED MESSAGE-----