Employee Benefits Agreement

Exhibit 10.3
EXECUTION COPY


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EMPLOYEE BENEFITS AGREEMENT


BY AND BETWEEN


LUCENT TECHNOLOGIES INC.


AND


AGERE SYSTEMS INC.


DATED AS OF FEBRUARY 1, 2001


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TABLE OF CONTENTS


Page
---- ARTICLE I. DEFINITIONS..................................................... 1


1.1. Agere......................................................... 1
1.2. Agere Committee............................................... 1
1.3. Agere Entity.................................................. 1
1.4. Agere Individual.............................................. 1
1.5. Agere Master Pension Trust.................................... 2
1.6. Agere Plans................................................... 2
1.7. Agere RIP..................................................... 2
1.8. Agere Stock Value............................................. 2
1.9. Agere WCP Claims.............................................. 2
1.10. Agreement..................................................... 2
1.11. ASO Contract.................................................. 3
1.12. Assigned Policies............................................. 3
1.13. Auditing Party................................................ 3
1.14. Award......................................................... 3
1.15. CECRA PLAN.................................................... 3
1.16. Change in Control............................................. 3
1.17. Close of the Distribution Date................................ 3
1.18. COBRA......................................................... 3
1.19. Code.......................................................... 3
1.20. Collective Bargaining Agreement............................... 3
1.21. CWA........................................................... 3
1.22. Deferral Plan................................................. 3
1.23. Distribution Date............................................. 4
1.24. DOL........................................................... 4
1.25. ERISA......................................................... 4
1.26. Executive Benefit Plans....................................... 4
1.27. First Transfer Date........................................... 4
1.28. FMLA.......................................................... 4
1.29. Group Life Program............................................ 4
1.30. HCFA.......................................................... 4
1.31. HCRA Plan..................................................... 4
1.32. Health and Welfare Plans...................................... 4
1.33. Health Plans.................................................. 5
1.34. HMO........................................................... 5
1.35. HMO Agreements................................................ 5
1.36. IBEW.......................................................... 5
1.37. Immediately after the Distribution Date....................... 5
1.38. Individual Agreement.......................................... 5
1.39. IPO........................................................... 5
1.40. IRS........................................................... 5


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1.41. Legally Permissible........................................... 5
1.42. LESOP......................................................... 5
1.43. LESOP Trust................................................... 5
1.44. LRIP.......................................................... 6
1.45. LTSSP......................................................... 6
1.46. Lucent........................................................ 6
1.47. Lucent Entity................................................. 6
1.48. Lucent Executive.............................................. 6
1.49. Lucent Executive and Non-Employee Director Life Insurance
Program....................................................... 6
1.50. Lucent Leave of Absence Programs.............................. 6
1.51. Lucent LTD VEBA............................................... 6
1.52. Lucent Master Pension Trust................................... 6
1.53. Lucent Pension Plan........................................... 6
1.54. Lucent Plans.................................................. 7
1.55. Lucent STD.................................................... 7
1.56. Lucent Stock Value............................................ 7
1.57. Lucent WCP.................................................... 7
1.58. Material Feature.............................................. 7
1.59. Medical Plans................................................. 7
1.60. MPA........................................................... 7
1.61. Non-Employee Director......................................... 8
1.62. Non-Employee Director Plan.................................... 8
1.63. Non-parties................................................... 8
1.64. Nonrepresented Employee....................................... 8
1.65. Nonrepresented Health VEBA.................................... 8
1.66. Non-U.S. Plan................................................. 8
1.67. Offering Date................................................. 8
1.68. Option........................................................ 8
1.69. Participating Company......................................... 8
1.70. Participation Commencement Date............................... 8
1.71. PBGC.......................................................... 8
1.72. Pension Plan.................................................. 8
1.73. Pension Plans................................................. 9
1.74. Pension Transfer Amount....................................... 9
1.75. Plan.......................................................... 9
1.76. Postretirement Life Trust..................................... 9
1.77. QDRO.......................................................... 9
1.78. QMCSO......................................................... 9
1.79. Rabbi Trust................................................... 9
1.80. Ratio......................................................... 9
1.81. Represented Employee.......................................... 9
1.82. Represented Health VEBA....................................... 10
1.83. Represented Transition Period................................. 10
1.84. RFA........................................................... 10
1.85. Savings Plans................................................. 10
1.86. Second Transfer Date.......................................... 10


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1.87. Separation and Distribution Agreement......................... 10
1.88. Short Term Incentive Plan..................................... 10
1.89. Stock Award Plan.............................................. 10
1.90. Stock Purchase Plan........................................... 11
1.91. Transferred Individual........................................ 11
1.92. Transition Individual......................................... 11
1.93. Trust-Owned Life Insurance (VEBA)............................. 11
1.94. U.S........................................................... 11
1.95. VEBA.......................................................... 12


ARTICLE II. GENERAL PRINCIPLES............................................. 12


2.1. Assumption of Liabilities..................................... 12
2.2. Agere Participation in Lucent Plans........................... 12
(a) Participation in Lucent Plans........................... 12
(b) Agere's General Obligations as Participating Company.... 12
(c) Termination of Participating Company Status............. 13
2.3. Establishment of Agere Plans.................................. 13
2.4. Terms of Participation by Agere Individuals and Transferred
Individuals in Agere Plans.................................... 13
2.5. Transition Individuals........................................ 14
(a) Mandatory Portability Agreement......................... 14
(b) Represented Interchange Agreement....................... 14


ARTICLE III. DEFINED BENEFIT PLANS......................................... 14


3.1. Establishment of Mirror Pension Trust......................... 14
3.2. Assumption of Pension Plan Liabilities and Allocation of
Interests in the Lucent Master Pension Trust.................. 15
(a) Assumption of Liabilities by Agere Pension Plans........ 15
(b) Asset Allocations and Transfers......................... 15
(c) Pension Transfer Amount................................. 16


ARTICLE IV. DEFINED CONTRIBUTION PLANS..................................... 17


4.1. Savings Plans................................................. 17
(a) Nonrepresented Savings Plan Trust....................... 17
(b) Assumption of Liabilities and Transfer of Assets........ 17
(c) Maintenance of Frozen Employer Security Funds........... 18
4.2. LTSSPs and LESOPs............................................. 18
(a) Represented Savings Plan Trust.......................... 18
(b) Assumption of LTSSP Liabilities......................... 18
(c) Leveraged Stock Ownership Plan.......................... 19


ARTICLE V. HEALTH AND WELFARE PLANS........................................ 20


5.1. Establishment of Mirror Health and Welfare Plan Trusts........ 20
5.2. Assumption of Health and Welfare Plan Liabilities............. 20
5.3. Lucent Represented Health VEBA Asset Transfer................. 22


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5.4. Postretirement Life Trust Asset Transfer; Transfer of
Retirement Funding Account Assets............................. 22
5.5. Vendor Contracts.............................................. 23
(a) Third-Party ASO Contracts............................... 23
(b) HMO Agreements.......................................... 24
5.6. Short-Term Disability......................................... 25
5.7. Group Life Programs........................................... 25
5.8. COBRA......................................................... 25
5.9. Leave of Absence Programs and FMLA............................ 25
5.10. Lucent Workers' Compensation Program.......................... 26
(a) Administration of Claims................................ 26
(b) Cooperation............................................. 26
(c) AT&T Liability.......................................... 26
5.11. Lucent Employee Assistance Program............................ 26
5.12. Unemployment Insurance Tax Management Program................. 26
5.13. Administration................................................ 27
(a) Coordination of Benefits for Spouses, Dependents and
Domestic Partners....................................... 27
(b) Other Post-Distribution Transitional Rules.............. 27
5.14. Application of Article V to Agere Entities.................... 27
5.15. Lucent Work & Family Programs................................. 28


ARTICLE VI. EXECUTIVE BENEFITS, NON-EMPLOYEE DIRECTOR BENEFITS, AND OTHER
STOCK-BASED COMPENSATION....................................... 28


6.1. Assumption of Obligations..................................... 28
6.2. Lucent Short Term Incentive Plan.............................. 28
6.3. Lucent Stock Award Plans...................................... 29
(a) Stock Options-General................................... 29
(b) Stock Options-Change in Control......................... 29
(c) Stock Options - Foreign Plans........................... 29
(d) Restricted Stock and Restricted Stock Units............. 30
(e) 1999 - 2001 Performance Share Payments.................. 30
6.4. Lucent Deferral Plan.......................................... 30
6.5. Rabbi Trust................................................... 30
(a) Establishment of Mirror Rabbi Trust..................... 31
(b) Funding of Agere Rabbi Trust............................ 31
6.6. Lucent Executive Life Insurance............................... 31
6.7. 162(m)........................................................ 32


ARTICLE VII. MISCELLANEOUS BENEFITS........................................ 32


7.1. Stock Purchase Plan Recordkeeping............................. 32
7.2. Service Anniversary and Retirement Award Program.............. 32
7.3. 2001 Incentive Compensation Payments.......................... 32


ARTICLE VIII. GENERAL AND ADMINISTRATIVE................................... 33


8.1. Actuarial and Accounting Methodologies and Assumptions........ 33


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8.2. Sharing of Participant Information............................ 33
8.3. Reporting, Disclosure and Communications to Participants...... 33
8.4. Non-Termination of Employment; No Third-Party Beneficiaries... 34
8.5. Plan Audits................................................... 34
(a) Audit Rights with Respect to the Allocation or Transfer
of Plan Assets.......................................... 34
(b) Audit Rights With Respect to Information Provided....... 35
(c) Audits Regarding Vendor Contracts....................... 35
8.6. Beneficiary Designations...................................... 35
8.7. Requests for IRS Rulings and DOL Opinions..................... 36
(a) Cooperation............................................. 36
(b) Applications............................................ 36
(c) Life Insurance.......................................... 36
8.8. Fiduciary Matters............................................. 36
8.9. Collective Bargaining......................................... 37
8.10. Consent of Third Parties...................................... 37
8.11. Quiet Periods................................................. 37
8.12. Lucent's and Agere's General Obligations as Plan Sponsors..... 38
8.13. Adjustments to Plan Transfers................................. 38


ARTICLE IX. MISCELLANEOUS.................................................. 38


9.1. Non-U.S. Plans................................................ 38
9.2. Effect If Distribution Does Not Occur......................... 38
9.3. Relationship of Parties....................................... 38
9.4. Affiliates.................................................... 38
9.5. Incorporation of Separation and Distribution Agreement
Provisions.................................................... 38


Signatures


Schedule I Lucent Plans Schedule II Description of Non-U.S. Plan Treatment Exhibit A Represented Interchange Agreement Between Lucent Technologies Inc.
and Agere


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EMPLOYEE BENEFITS AGREEMENT


This EMPLOYEE BENEFITS AGREEMENT, dated as of February 1, 2001, is by and between Lucent and Agere. Capitalized terms used herein (other than the formal names of Lucent Plans (as defined below) and related trusts of Lucent) and not otherwise defined shall have the respective meanings assigned to them in Article I hereof or as assigned to them in the Separation and Distribution Agreement (as defined below).


R E C I T A L S


WHEREAS, the Board of Directors of Lucent has determined that it is in the best interests of Lucent and its stockholders to separate Lucent's existing businesses into two independent businesses;


WHEREAS, in furtherance of the foregoing, Lucent and Agere have entered into a Separation and Distribution Agreement, dated as of the date hereof, (the "Separation and Distribution Agreement") and certain other agreements that will govern certain matters relating to the Separation, the Distribution and the relationship of Lucent and Agere and their respective Subsidiaries following the Distribution; and


WHEREAS, pursuant to the Separation and Distribution Agreement, Lucent and Agere have agreed to enter into this Agreement allocating assets, liabilities and responsibilities with respect to certain employee compensation and benefit plans and programs between them.


NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties, intending to be legally bound, agree as follows:


ARTICLE I. DEFINITIONS


For purposes of this Agreement the following terms shall have the following meanings:


1.1. AGERE. Agere means Agere Systems Inc.


1.2. AGERE COMMITTEE. Agere Committee means the Corporate Governance and Compensation Committee of the Agere Board of Directors, or such other committee as is appointed to administer the provisions of the Agere Stock Award Plans.


1.3. AGERE ENTITY. Agere Entity means any Person that is, at the relevant time, a Subsidiary of Agere or is otherwise controlled, directly or indirectly, by Agere.


1.4. AGERE INDIVIDUAL. Agere Individual means any individual who, regardless of any subsequent termination of employment or retirement, is (i) on the Offering Date, either actively employed by, or covered by a Lucent Leave of Absence Program (other than a transition leave of absence) while employed by, Agere or an Agere Entity, (ii) employed 8 by Lucent or a Lucent Entity and is assigned to Agere at any time between the Offering Date and the Close of the Distribution Date, in accordance with principles agreed by the parties prior to the date hereof, (iii) an employee assigned to Agere on the Offering Date who is under a Lucent force management program whose off-roll date is after the Offering Date, (iv) an employee assigned to Lucent on the Offering Date who is under a Lucent force management program who applies for, obtains and accepts employment with Agere after the Offering Date and before the Close of Distribution Date or (v) hired by Agere or an Agere Entity on or after the Participation Commencement Date and prior to the Distribution Date, without prior employment by Lucent or a Lucent Entity. Individuals who are on short-term disability on the Offering Date and who have been assigned to Agere on that date shall be Agere Individuals. For purposes of Section 5.10, individuals who have been receiving benefits under a workers compensation program who have been assigned to Agere as of the Participation Commencement Date shall be Agere Individuals. An alternate payee under a QDRO, an alternate recipient under a QMCSO, a beneficiary or a covered dependent, in each case of an employee described in any of the preceding three sentences shall also be an Agere Individual with respect to that employee's benefit under the applicable Plans. Such an alternate payee, alternate recipient, beneficiary, or covered dependent shall not otherwise be considered an Agere Individual with respect to his or her own benefits under any applicable Plans unless he or she is an Agere Individual by virtue of the first sentence of this definition.


1.5. AGERE MASTER PENSION TRUST. Agere Master Pension Trust is defined in Section 3.1.


1.6. AGERE PLANS. Agere Plans means the plans to be established by Agere described in Section 2.3.


1.7. AGERE RIP. Agere RIP means the Agere Retirement Income Plan.


1.8. AGERE STOCK VALUE. Agere Stock Value means a price for Agere Common Stock on the Distribution Date or, if such date is not a trading day on the NYSE, on the next preceding day that was a trading day on the NYSE, calculated using a methodology to be determined by Lucent. Notwithstanding the foregoing, if an adjustment is required under Article VI with respect to a Change in Control, Agere Stock Value shall mean the price at which shares of Agere Common Stock are offered to purchasers in the IPO. Unless Lucent has elected to convert all of its shares of Agere Class B Common Stock to shares of Agere Class A Common Stock prior to the date on which the IPO Registration Statement shall have become effective, Agere Common Stock, as used in the first sentence of this definition shall mean Agere Class B Common Stock. If Lucent has made such an election, references to Agere Common Stock shall mean Agere Class A Common Stock. References to Agere Common Stock in the second sentence of this definition shall mean Agere Class A Common Stock.


1.9. AGERE WCP CLAIMS. Agere WCP Claims is defined in Section 5.10(a).


1.10. AGREEMENT. Agreement means this Employee Benefits Agreement, including all the Schedules and Exhibits hereto.


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1.11. ASO CONTRACT. ASO Contract is defined in Section 5.5(a)(i).


1.12. ASSIGNED POLICIES. Assigned Policies is defined in Section 6.6.


1.13. AUDITING PARTY. Auditing Party is defined in Section 8.5(b)(i).


1.14. AWARD. Award means an award under a Stock Award Plan or a Short Term Incentive Plan.


1.15. CECRA PLAN. CECRA Plan, when immediately preceded by "Lucent," means the Lucent Child/Elder Care Reimbursement Account Plan. When immediately preceded by "Agere," CECRA means the child/elder care reimbursement account plan to be established by Agere pursuant to Section 2.3.


1.16. CHANGE IN CONTROL. Change in Control means (i) the occurrence, on or after the Offering Date and prior to the Distribution Date, of a "Change in Control" as such term is defined in the Lucent Technologies Inc. 1996 Long Term Incentive Program as amended through the date hereof, or (ii) of a "Change in Control" under the foregoing definition after substitution of the term "Agere" for the term "Company" in each place where it appears in such definition.


1.17. CLOSE OF THE DISTRIBUTION DATE. Close of the Distribution Date means 11:59:59 P.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the Distribution Date.


1.18. COBRA. COBRA means the continuation coverage requirements for "group health plans" under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Code Section 4980B and ERISA Sections 601 through 608.


1.19. CODE. Code means the Internal Revenue Code of 1986, as amended, or any successor federal income tax law. Reference to a specific Code provision also includes any proposed, temporary, or final regulation in force under that provision.


1.20. COLLECTIVE BARGAINING AGREEMENT. Collective Bargaining Agreement means the 1998 CWA/IBEW/Lucent National Memorandum of Understanding dated May 30, 1998, including all attachments, National Items and letters included as a part thereof, between Lucent, the CWA and IBEW in effect on the Distribution Date, and such local collective bargaining agreements for bargaining units of Agere Individuals into which the CWA/IBEW/Lucent National Memorandum of Understanding has been incorporated and which are in effect on the Distribution Date.


1.21. CWA. CWA means the Communications Workers of America, AFL-CIO.


1.22. DEFERRAL PLAN. Deferral Plan, when immediately preceded by "Lucent," means the Lucent Technologies Inc. Deferred Compensation Plan. When immediately preceded by "Agere", Deferral Plan means the deferred compensation plan to be established by Agere.


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1.23. DISTRIBUTION DATE. Distribution Date means the date determined pursuant to Section 4.3 of the Separation and Distribution Agreement when Agere Common Stock will be distributed to Lucent stockholders.


1.24. DOL. DOL means the United States Department of Labor.


1.25. ERISA. ERISA means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific provision of ERISA also includes any proposed, temporary, or final regulation in force under that provision.


1.26. EXECUTIVE BENEFIT PLANS. Executive Benefit Plans, when immediately preceded by "Lucent," means the executive benefit and nonqualified plans, programs, Individual Agreements and arrangements, other than Stock Award Plans and Stock Purchase Plans, established, maintained, agreed upon, or assumed by Lucent or a Lucent Entity for the benefit of one or more employees and former employees of Lucent or a Lucent Entity before the Close of the Distribution Date, including the plans and Individual Agreements listed in Schedule I, but excluding the Senior Management Ground Transportation Program. When immediately preceded by "Agere," Executive Benefit Plans means the executive benefit and nonqualified plans, programs, Individual Agreements and arrangements, other than Stock Award Plans and Stock Purchase Plans, to be established or assumed by Agere pursuant to Section 2.3 that corres ...