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FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

                                                             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

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: 1-8610

AT&T INC.

Incorporated under the laws of the State of Delaware

I.R.S. Employer Identification Number 43-1301883

208 S. Akard St., Dallas, Texas, 75202

Telephone Number 210-821-4105

Securities registered pursuant to Section 12(b) of the Act: (See attached Schedule A)

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X]  No [    ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [    ]  No [X]

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 whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 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]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

  Large accelerated filer [X]       Accelerated filer [    ]
  Non-accelerated filer [    ]       Smaller reporting company [    ]
        Emerging growth company [    ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [    ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [    ]    No [X]

Based on the closing price of $32.11 per share on June 30, 2018, the aggregate market value of our voting and non-voting common stock held by non-affiliates was $233 billion.

At February 12, 2019, common shares outstanding were 7,284,589,883.


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DOCUMENTS INCORPORATED BY REFERENCE

 

(1)

Portions of AT&T Inc.’s Annual Report to Stockholders for the fiscal year ended December 31, 2018 (Parts I and II).

 

(2)

Portions of AT&T Inc.’s Notice of 2019 Annual Meeting and Proxy Statement dated on or about March 11, 2019 to be filed within the period permitted under General Instruction G(3) (Parts III and IV).


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SCHEDULE A

Securities Registered Pursuant To Section 12(b) Of The Act:

 

                     Title of each class   

        Name of each exchange

             on which registered

Common Shares (Par Value $1.00 Per Share)

  

New York Stock Exchange

Floating Rate AT&T Inc.

  Global Notes due June 4, 2019

  

New York Stock Exchange

Floating Rate AT&T Inc.

  Global Notes due August 3, 2020

  

New York Stock Exchange

1.875% AT&T Inc.

  Global Notes due December 4, 2020

  

New York Stock Exchange

2.65% AT&T Inc.

  Global Notes due December 17, 2021

  

New York Stock Exchange

1.45% AT&T Inc.

  Global Notes due June 1, 2022

  

New York Stock Exchange

2.50% AT&T Inc.

  Global Notes due March 15, 2023

  

New York Stock Exchange

Floating Rate AT&T Inc.

  Global Notes due September 5, 2023

  

New York Stock Exchange

1.05% AT&T Inc.

  Global Notes due September 5, 2023

  

New York Stock Exchange

1.30% AT&T Inc.

  Global Notes due September 5, 2023

  

New York Stock Exchange

2.75% AT&T Inc.

  Global Notes due May 19, 2023

  

New York Stock Exchange

2.40% AT&T Inc.

  Global Notes due March 15, 2024

  

New York Stock Exchange

3.50% AT&T Inc.

  Global Notes due December 17, 2025

  

New York Stock Exchange

1.80% AT&T Inc.

  Global Notes due September 5, 2026

  

New York Stock Exchange

2.90% AT&T Inc.

  Global Notes due December 4, 2026

  

New York Stock Exchange


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SCHEDULE A – Continued

 

2.35% AT&T Inc.

  Global Notes due September 5, 2029

  

New York Stock Exchange

4.375% AT&T Inc.

  Global Notes due September 14, 2029

  

New York Stock Exchange

2.60% AT&T Inc.

  Global Notes due December 17, 2029

  

New York Stock Exchange

3.55% AT&T Inc.

  Global Notes due December 17, 2032

  

New York Stock Exchange

5.20% AT&T Inc.

  Global Notes due November 18, 2033

  

New York Stock Exchange

3.375% AT&T Inc.

  Global Notes due March 15, 2034

  

New York Stock Exchange

2.45% AT&T Inc.

  Global Notes due March 15, 2035

  

New York Stock Exchange

3.15% AT&T Inc.

  Global Notes due September 4, 2036

  

New York Stock Exchange

7.00% AT&T Inc.

  Global Notes due April 30, 2040

  

New York Stock Exchange

4.25% AT&T Inc.

  Global Notes due June 1, 2043

  

New York Stock Exchange

4.875% AT&T Inc.

  Global Notes due June 1, 2044

  

New York Stock Exchange

5.35% AT&T Inc.

  Global Notes due November 1, 2066

  

New York Stock Exchange

5.625% AT&T Inc.

  Global Notes due August 1, 2067

  

New York Stock Exchange


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TABLE OF CONTENTS

 

Item        Page  
    PART I       

1.

 

Business

     1  

1A.

 

Risk Factors

     13  

2.

 

Properties

     15  

3.

 

Legal Proceedings

     15  

4.

 

Mine Safety Disclosures

     15  
 

Executive Officers of the Registrant

     16  
    PART II       

5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     17  

6.

 

Selected Financial Data

     18  

7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     18  

7A.

 

Quantitative and Qualitative Disclosures about Market Risk

     18  

8.

 

Financial Statements and Supplementary Data

     18  

9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     18  

9A.

 

Controls and Procedures

     19  

9B.

 

Other Information

     20  
    PART III       

10.

 

Directors, Executive Officers and Corporate Governance

     20  

11.

 

Executive Compensation

     20  

12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     21  

13.

 

Certain Relationships and Related Transactions, and Director Independence

     22  

14.

 

Principal Accountant Fees and Services

     22  
    PART IV       

15.

 

Exhibits and Financial Statement Schedules

     22  


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AT&T Inc.

 

 

PART I

ITEM 1. BUSINESS

GENERAL

AT&T Inc. (“AT&T,” “we” or the “Company”) is a holding company incorporated under the laws of the State of Delaware in 1983 and has its principal executive offices at 208 S. Akard St., Dallas, Texas, 75202 (telephone number 210-821-4105). We maintain an internet website at www.att.com. (This website address is for information only and is not intended to be an active link or to incorporate any website information into this document.) We make available, free of charge, on our website our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). We also make available on that website, and in print, if any stockholder or other person so requests, our “Code of Ethics” applicable to all employees and Directors, our “Corporate Governance Guidelines,” and the charters for all committees of our Board of Directors, including Audit, Human Resources and Corporate Governance and Nominating. Any changes to our Code of Ethics or waiver of our Code of Ethics for senior financial officers, executive officers or Directors will be posted on that website.

History

AT&T, formerly known as SBC Communications Inc. (SBC), was formed as one of several regional holding companies created to hold AT&T Corp.’s (ATTC) local telephone companies. On January 1, 1984, we were spun-off from ATTC pursuant to an anti-trust consent decree, becoming an independent publicly-traded telecommunications services provider. At formation, we primarily operated in five southwestern states.

Following our formation, we have expanded our footprint and operations by acquiring various businesses, most significantly:

  ·  

Our subsidiaries merged with Pacific Telesis Group in 1997, Southern New England Telecommunications Corporation in 1998 and Ameritech Corporation in 1999, thereby expanding our wireline operations as the incumbent local exchange carrier (ILEC) into a total of 13 states.

  ·  

In November 2005 we merged one of our subsidiaries with ATTC, creating one of the world’s leading telecommunications providers. In connection with the merger, we changed the name of our company from “SBC Communications Inc.” to “AT&T Inc.”

  ·  

In December 2006 we merged one of our subsidiaries with BellSouth Corporation (BellSouth) making us the ILEC in an additional nine states. With the BellSouth acquisition, we also acquired BellSouth’s 40 percent economic interest in AT&T Mobility LLC (AT&T Mobility), formerly Cingular Wireless LLC, resulting in 100 percent ownership of AT&T Mobility.

  ·  

In 2014, we completed the acquisition of wireless provider Leap Wireless International, Inc. and sold our ILEC operations in Connecticut, which we had previously acquired in 1998.

  ·  

In 2015, we acquired wireless properties in Mexico, and in July 2015 we acquired DIRECTV, a leading provider of digital television entertainment services in both the United States and Latin America.

  ·  

In 2018, we completed the acquisition of Time Warner Inc. (Time Warner), a leader in media and entertainment that operates the Turner, Home Box Office (HBO) and Warner Bros. business units. We also acquired Otter Media Holdings and advertising platform AppNexus.

General

We are a leading provider of telecommunications, media and technology services globally. The services and products that we offer vary by market and utilize various technology platforms in a range of geographies. Our operating segments are organized as follows:

The Communications segment provides services to businesses and consumers located in the U.S., or in U.S. territories, and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:

  ·  

Mobility provides nationwide wireless service and equipment.

  ·  

Entertainment Group provides video, internet and voice communications services to residential customers.

  ·  

Business Wireline provides advanced IP-based services (referred to as “strategic services”), as well as traditional voice and data services to business customers.

 

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The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats. This segment contains the following business units:

  ·  

Turner primarily operates multichannel basic television networks and digital properties.

  ·  

Home Box Office primarily operates multichannel premium pay television services.

  ·  

War ner Bros. principally produces and distributes television shows, feature films and games.

The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:

  ·  

Vrio provides video services in Latin America primarily to residential customers using satellite technology.

  ·  

Mexico provides wireless service and equipment to customers in Mexico.

The Xandr segment provides advertising services. These services utilize data insights to develop higher-value targeted advertising.

Our Corporate and Other group reconciles our segment results to consolidated operating income and income before income taxes, and include:

  ·  

Corporate , which consists of: (1) businesses no longer integral to our operations or which we no longer actively market, (2) corporate support functions, (3) impacts of corporate-wide decisions for which the individual segments are not being evaluated, (4) the reclassification of the amortization of prior service credits, which we continue to report with segment operating expenses, to consolidated other income (expense) and (5) the recharacterization of programming intangible asset amortization, for programming acquired in the Time Warner acquisition, which we continue to report with WarnerMedia segment operating expense, to consolidated amortization expense.

  ·  

Acquisition-related items , which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets.

  ·  

Certain significant items , which includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment or impairment of assets and (3) other items for which the individual segments are not being evaluated.

  ·  

Eliminations and consolidations , which (1) removes transactions involving dealings between our segments, including content licensing between WarnerMedia and Communications and (2) includes adjustments for our reporting of the advertising business.

Areas of Focus

With continuing advances in technology and in response to changing demands from our customers, in recent years we have focused on providing enhanced broadband, video and voice services. We are also capitalizing on data insights from our direct-to-consumer relationships and our premium video and digital advertising inventory to provide advertising that matters. Our acquisitions over the past few years and our continued investment in a premier network experience make our customers’ lives more convenient and productive and foster competition and further innovation in the communications and entertainment industry. In 2019, we plan to focus on the areas discussed below.

Communications

As the communications industry continues to move toward internet-based technologies that are capable of blending wireline, satellite and wireless products, we are offering services that take advantage of these more sophisticated technologies. In particular, our focus is on expanding our high-speed internet and video offerings and on developing IP-based services that allow customers to integrate their home or business wireline services with their mobile service. During 2019, we will continue to develop and provide unique integrated video, mobile and broadband solutions. We believe offering integrated services facilitates our customers’ desire to view video anywhere on demand and encourages customer retention.

Wireless Service

We are experiencing rapid growth in data usage as consumers are demanding seamless access across their wireless and wired devices, and as more and more machines are being connected to the internet. We expect to continue to strengthen the reach and sophistication of our network facilities to offer a variety of wireless communications services.

Our 4G LTE technology covers over 400 million people in North America, and, in the United States, we cover all major metropolitan areas and almost 325 million people with our LTE technology. Our 3G network provides services to customers using older handsets and connected devices. We are contemplating the redeployment of spectrum currently used for our 3G services and project that we will discontinue service on our 3G network in early 2022, and will manage this process consistent with previous network upgrades. As of December 31, 2018, about 11% of our postpaid subscribers were using 3G

 

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handsets, and we expect them to transition to newer technologies. We do not expect this transition to have a material impact on our consolidated operating results.

We are currently beginning the deployment of the latest wireless technology (5G) in multiple U.S. cities. In late 2018, we were the first U.S. company to introduce mobile 5G service in parts of 12 cities and plan to expand that deployment nationwide by early 2020. The introduction of 5G service is largely dependent on the development of 5G standards. To that end, we are one of the top North American wireless carrier contributors into 3rd Generation Partnership Project’s (3GPP) work on 5G standards. We have been awarded the contract to provide national coverage for emergency personnel (first responders) by the First Responder Network Authority (FirstNet), which gives us access to a nationwide low band 20 MHz of spectrum. We will continue to invest in our wireless network as we look to provide future service offerings and participate in technologies such as 5G and millimeter-wave bands. The increased speeds and network operating efficiency expected with 5G technology should enable massive deployment of devices connected to the internet as well as faster delivery of data services. We expect that 5G will enhance our customers’ entire connected experience and not just provide faster speeds.

As the wireless industry has matured, future wireless growth will increasingly depend on our ability to offer innovative data services on a wireless network that has sufficient spectrum and capacity to support these innovations. We continue to invest significant capital in expanding our network capacity, as well as obtaining additional spectrum that meets our long-term needs. We have participated in recent FCC spectrum auctions and have been redeploying spectrum previously used for more basic services to support more advanced mobile internet services.

Internet Protocol (IP) Technology IP is generally used to describe the transmission of data, which can include voice (called voice over IP or VoIP), using a software-based technology rather than a traditional telephone network. Software-based technology presents cost-savings and growth opportunities by using bandwidth more efficiently than a legacy copper wire network and by improving our ability to provide data and video services to both fixed locations and mobile devices. We are rapidly converting to a software-based network and managing the migration of wireline customers to services using IP; we expect to continue this transition through at least 2020. Software-based technologies align with our global leadership in software defined network (SDN) and network function virtualization (NFV). This network approach, of which we are a global leader in our commitment to virtualize 75% of our network by 2020, delivers a demonstrable cost advantage in the deployment of next-generation technology over the traditional, hardware-intensive network approach. Our virtualized network will be able to support next-generation applications like 5G and IP-based services quickly and efficiently.

Media

We produce and distribute high-quality video content to take advantage of growing global demand. Our media businesses use their strong brands, distinctive intellectual property and global scale to produce and distribute quality content. As the television industry continues to evolve from a distribution system using satellite and cable offerings to individual streaming video services, we are well-positioned to address and capitalize on these changes, but we face risks and new sources of competition associated with these developments. We plan in 2019 to continue launching more personalized services offered directly to consumers.

Advertising

Our Xandr segment relies on using data (on an anonymous basis) from our more than 170 million customer relationships, to develop digital advertising that is more relevant to consumers. Advertisers are interested in capitalizing on our broad distribution and ability to offer more precise marketing to customers through a digital platform. We also are expanding relationships with other broadband and video providers to use our digital platform to reach their audiences. This segment experienced rapid growth in 2018, and we believe this growth will continue in 2019.

Latin America

We believe that the wireless model in the U.S., with accelerating demand for mobile internet service and the associated economic benefits, will be repeated around the world as companies invest in high-speed mobile networks. Due in part to changes in the legal and regulatory framework in Mexico in 2015, we acquired Mexican wireless operations to establish a seamless, cross-border North American wireless network covering over 400 million people and businesses in the United States and Mexico. During 2018, we largely completed building a 4G LTE network in Mexico which covers approximately 100 million people and businesses.

 

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BUSINESS OPERATIONS

OPERATING SEGMENTS

Our segments are strategic business units that offer different products and services over various technology platforms and/or in different geographies that are managed accordingly. We analyze our operating segments based on segment contribution, which consists of operating income, excluding acquisition-related costs and other significant items, and equity in net income (loss) of affiliates for investments managed within each operating segment. We have four reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin America and (4) Xandr.

Additional information about our segments, including financial information, is included under the heading “Segment Results” on pages 21 through 32 and in Note 4 of the Annual Report and is incorporated herein by reference pursuant to General Instruction G(2).

COMMUNICATIONS

Our Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. or in U.S. territories and businesses globally. Our Communications services and products are marketed under the AT&T, Cricket, AT&T PREPAID and DIRECTV brand names. The Communications segment provided approximately 84% of 2018 segment operating revenues and 84% of our 2018 total segment contribution. This segment contains the Mobility, Entertainment Group and Business Wireline business units.

Mobility – Our Mobility business unit provides nationwide wireless services to consumers and wholesale and resale wireless subscribers located in the United States or U.S. territories by utilizing our network to provide voice and data services, including high-speed internet over wireless devices. We classify our subscribers as either postpaid, prepaid, connected device or reseller. At December 31, 2018, we served 153 million Mobility subscribers, including 77 million postpaid, 17 million prepaid, 8 million reseller and 51 million connected devices. Our Mobility business unit revenue includes the following categories: service and equipment.

Wireless Services

We offer a comprehensive range of high-quality nationwide wireless voice and data communications services in a variety of pricing plans to meet the communications needs of targeted customer categories. Our wireless services also include advertising revenues generated from the subscriber relationships.

Wireless data services continue to be a growing area for this segment, representing an increasing share of overall subscriber revenue. We are experiencing solid growth in this area as an increasing number of our subscribers have upgraded their handsets to more advanced integrated devices, are using data-centric devices such as tablets and connected cars, and are utilizing the network to connect and control physical devices using embedded computing systems and/or software, commonly called the Internet of Things (IoT). We offer plans that include unlimited features allowing for the sharing of voice, text and data across multiple devices, which attracts subscribers from other providers and minimize subscriber churn. Customers in our “connected device” category (e.g., users of session-based tablets, monitoring devices and automobile systems) generally purchase those devices from third-party suppliers that buy data access supported by our network. We continue to upgrade our network and coordinate with equipment manufacturers and application developers to further capitalize on the continued growing demand for wireless data services.

We also offer nationwide wireless voice and data communications to certain customers who prefer to pay in advance. These services are offered under the Cricket and AT&T PREPAID SM brands and are typically monthly prepaid services.

Equipment

We sell a wide variety of handsets, wirelessly enabled computers (e.g., tablets and notebooks) and wireless data cards manufactured by various suppliers for use with our voice and data services. We also sell accessories, such as carrying cases and hands-free devices. We sell through our own company-owned stores, agents and third-party retail stores. Like other wireless service providers, we have historically provided postpaid contract subscribers substantial equipment subsidies to initiate, renew or upgrade service. We have now largely eliminated these subsidies and provide our customers with more service options, the ability to purchase handsets on an installment basis and the opportunity to bring their own device. With the elimination of most handset subsidies, our subscribers have been bringing their own devices or retaining their handsets for longer periods, which could impact future upgrade activity.

Entertainment Group – Our Entertainment Group business unit provides video, internet, voice communication and interactive and targeted advertising services to customers in the United States and U.S. territories by utilizing our IP-based

 

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and copper wired network and/or our satellite technology. Our Entertainment Group business unit revenue includes the following categories: video entertainment, high-speed internet, legacy voice and data services and other service and equipment.

Video Entertainment

Video entertainment revenues are comprised of subscription and advertising revenues. We offer video entertainment services using satellite and IP-based technologies (referred to as “linear”) as well as a streaming option that does not require either satellite or wired IP services (referred to as “over-the-top” or “OTT”). Our offerings are structured to provide customers with the best video experience both inside and outside of the home by offering subscribers attractive programming and state-of-the-art technology. Due to the rising cost of programming as well as higher costs to acquire new subscribers in an increasingly competitive industry, it is even more important to distinguish and elevate our video entertainment experience for our new and existing customers.

We provide approximately 24 million subscribers with access to hundreds of channels of digital-quality video entertainment and audio programming. In addition, our video entertainment subscribers have the ability to use the internet and/or our mobile applications from smartphones and tablets to view authorized content, search program listings and schedule DVR recordings.

We believe it is critical that we continue to extend our brand leadership as a premium pay-TV provider in the marketplace by providing the best video experience both at home and on mobile devices. With annual cash of over $4,000 million historically generated from the business, including synergies resulting from our DIRECTV acquisition, we are focused on providing content to subscribers when and where they want it and believe that our flexible platform that uses a combination of satellite, IP-based, and cloud infrastructure with a broadband and wireless connection is the most efficient way to transport that content. Through this integrated approach, we are able to optimize the use of storage in the home as well as in the cloud, while also providing a seamless service for consumers across screens and locations.

High-Speed Internet

We offer broadband and internet services to 13.7 million residential subscribers. Our IP-based technology provides high-speed internet services.

Legacy Voice and Data Services

Revenues from our traditional voice services continue to decline as customers switch to wireless or VoIP services provided by us, cable companies or other internet-based providers. We have responded by offering packages of combined voice and data services, including broadband and video, and intend to continue this strategy during 2019.

Business Wireline – Our Business Wireline business unit provides services to business customers, including multinational corporations, small and mid-sized businesses, governmental and wholesale customers. Our Business Wireline business unit revenue includes the following categories: strategic services, legacy voice and data services, and other services and equipment.

Strategic Services

Strategic services (previously known as strategic business services) are our most advanced business solutions. Our strategic services are made up of Strategic Data, Strategic Voice, Security and Cloud Solutions. Strategic Data services include our Virtual Private Networks (VPN), AT&T Dedicated Internet (ADI), and Ethernet and Broadband Services. These offerings allow our customers to create and manage their own internal networks and to access external data networks. Our Strategic Voice services include both premises-based Voice over IP (VOIP) and cloud-based voice solutions. Additionally, we provide collaboration services that utilize our IP infrastructure and allow our customers to utilize the most advanced technology to improve their productivity. We continue to reconfigure our wireline network to take advantage of the latest technologies and services. We have developed AT&T FlexWare, a service that relies on our SDN and NFV to enhance business customers’ digital agility in a rapidly evolving environment. We sell Cyber-Security services to our customers providing state-of-the-art security solutions like Threat Management, Intrusion Detection and other business security applications. We also offer Cloud Solutions and Wi-Fi services. Due to developing technology, our most advanced business solutions are subject to change periodically. We review and evaluate our strategic service offerings annually, which may result in an updated definition and the recast of our historical financial information to conform to the current period presentation. Any modifications will be reflected in the first quarter.

Legacy Voice and Data Services

Voice services include services provided to business and governmental customers, either directly or through wholesale arrangements with other service providers. Our circuit-based, traditional data products include switched and dedicated

 

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transport services that allow customers to transmit data at high speeds, as well as access to the internet using a DSL connection.

Other Services

Other service revenues include Outsourcing, Managed Services, Professional Services and Equipment. These services are typically large customer specific contracts where we provide many services including LAN & WAN management, consulting and other management services.

Additional information on our Communications segment is contained in the Annual Report in the “Overview” section beginning on page 22 and is incorporated herein by reference pursuant to General Instruction G(2).

WARNERMEDIA

Our WarnerMedia segment is comprised of leading media and entertainment businesses that principally develop, produce and distribute feature films, television content, and other content globally; operate cable networks, premium pay television and OTT services domestically and internationally; and operate digital media properties. The WarnerMedia segment includes Time Warner operations for the period subsequent to our June 14, 2018 acquisition and provided approximately 11% of 2018 segment operating revenues and 15% of our 2018 total segment contribution. This segment consists primarily of the Turner, Home Box Office and Warner Bros. business units.

Turner – The Turner business unit operates television networks and related properties that offer branded news, entertainment, sports and kids multi-platform content for consumers around the world. In the U.S., its networks and related businesses and brands include TNT; TBS; Adult Swim; truTV; Turner Classic Movies; Turner Sports; Cartoon Network; Boomerang; and CNN. Turner’s digital properties include Bleacher Report and the CNN digital network. Digital properties Turner manages or operates for sports leagues include NBA.com, NBA Mobile, NCAA.com and PGA.com.

Turner licenses programming to affiliates that have contracted to receive and distribute the programming to subscribers, sells advertising on its networks and its digital properties owned or managed for other companies, and licenses its original programming and brands and characters for consumer products and other business ventures. Turner revenue includes the following categories: subscription, advertising and content and other.

Subscription

Turner’s programming is primarily distributed by affiliates and is available to subscribers of the affiliates for viewing live and on demand on television and on various internet-connected devices through the affiliates’ services and Turner’s network apps.

Turner’s license agreements with its affiliates are typically multi-year arrangements that provide for annual service fee increases and have fee arrangements that are generally related to the number of subscribers served by the affiliate and the networks provided to the affiliate by Turner.

Advertising

Advertising arrangements for its networks generally have terms of one year or less. In the U.S., the advertising revenues depend on the size and demographics of a network’s audience delivered to an advertiser, the number of units of time sold and the price per unit. Turner sells some of its advertising inventory in the “upfront” market in advance each year and other inventory in the “scatter” market closer to the time a program airs. Outside the U.S., advertising is generally sold at a fixed rate for the unit of time sold, determined by the time of day and network.

Turner’s digital properties consist of its own assets and those it manages and/or operates for sports leagues where Turner holds the related programming rights. The CNN digital network is the leading digital news destination, based on the number of average monthly domestic multi-platform unique visitors and videostarts for the year ended December 31, 2018. Turner’s Bleacher Report is the leading digital sports publisher across Facebook, Instagram and Twitter (based on data for the year ended December 31, 2018 sourced from CrowdTangle).

Content and Other

Turner provides services for other business ventures and licenses certain owned original programming to international territories and to subscription VOD (referred to as “SVOD”) services. Turner also licenses its brands and characters for consumer products.

 

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Home Box Office – Our Home Box Office business unit owns and operates leading multichannel premium pay television services, HBO and Cinemax. Our Home Box Office business unit revenue includes the following categories: subscription and content and other.

Subscription

In the U.S., HBO and Cinemax programming is available to subscribers of traditional affiliates for viewing live and on demand on television and various internet-connected devices. Home Box Office has entered into arrangements with a number of digital distributors to provide their subscribers access to the HBO and Cinemax services and programming on digital platforms and devices. HBO NOW, a domestic stand-alone OTT service, is provided through digital distributors, such as Apple, Google, Amazon and Roku, as well as by some affiliates. At December 31, 2018, Home Box Office was the most widely distributed domestic multichannel premium pay television service. At December 31, 2018, after including the negative effect of a carriage dispute, Home Box Office had approximately 50 million domestic subscribers, including HBO NOW.

Home Box Office’s domestic license agreements with affiliates are typically multi-year arrangements that provide for annual service fee increases and marketing support. The relationship between subscriber totals and the amount of revenues earned under Home Box Office’s license agreements depends on the specific terms of the applicable agreement, which may include basic and/or pay television subscriber thresholds, volume discounts and other performance-based discounts.

Internationally, Home Box Office uses one or more of the following distribution models: premium pay and basic tier television services distributed by traditional affiliates, licensing of programming to third-party providers, OTT services distributed by third parties and direct-to-consumer OTT services. HBO- and Cinemax-branded premium pay, basic tier television and/or OTT services are distributed in over 70 countries in Latin America, Europe and Asia. Home Box Office had approximately 90 million international premium pay, basic tier television service and OTT service subscribers at December 31, 2018, including subscribers through Home Box Office’s unconsolidated joint ventures. The amount of its international subscription revenues depends on factors such as basic and/or pay television subscriber thresholds, performance-based or volume discounts, negotiated minimum guarantees or flat-fee arrangements.

Content and Other

Home Box Office licenses its original programming to television networks and OTT services in over 150 countries, including arrangements under which it licenses programming to television networks that are branded as the “Home of HBO” in countries such as the U.K., Australia, France and Germany and as “HBO Canada” in Canada. HBO’s original programming also is available to customers in both physical and digital formats in the U.S. and various international regions through a wide variety of digital storefronts and traditional retailers.

Warner Bros. – Our Warner Bros. business unit is one of the largest television and film studios in the world. Its businesses consist principally of the production, distribution and licensing of television programming and feature films and the distribution of home entertainment product in both physical and digital formats, as well as the production and distribution of games and consumer product and brand licensing.

At December 31, 2018, Warner Bros.’ vast content library consists of more than 100,000 hours of programming, including over 8,600 feature films and 5,000 television programs comprised of tens of thousands of individual episodes.

The home entertainment industry has been undergoing significant changes as it transitions from the distribution of film and television content via physical formats to digital formats. Consumer spending on home entertainment product in physical formats has declined as a result of several factors, including consumers shifting to OTT service subscriptions and, to a lesser degree, digital purchases and transactional VOD rentals of content; changing retailer initiatives and strategies (e.g., reduction in floor space devoted to home entertainment product in physical formats); retail store closures; increasing competition for consumer discretionary time and spending; and piracy. Consumer spending on film and television content in higher margin digital formats represents an increasing share of total home entertainment consumer spending in recent years, but has not offset declines in consumer spending on home entertainment product in physical formats.

In response to these dynamics, Warner Bros. has been focusing on increasing the more profitable electronic sell-through and transactional digital VOD rentals of its film and television content and participates in a variety of initiatives that are designed to make digital ownership more compelling for consumers.

Our Warner Bros. business unit revenue includes the following categories: theatrical product, television product, and games and other.

 

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Theatrical Product

Theatrical product consists of (1) rental fees paid by movie theaters for the initial exhibition of feature films produced (or co-produced) and/or distributed by Warner Bros., (2) licensing fees paid by television networks, premium pay television services and OTT services for the exhibition of feature films produced or co-produced by Warner Bros. and (3) revenues from the distribution of Warner Bros.’ and other companies’ feature films in physical and digital formats. Our feature films also support Warner Bros.’ key brands and franchises, which helps generate consumer product and brand licensing revenues based on Warner Bros.’ films and characters.

Warner Bros. was one of the top film studios in global box office receipts in 2018 and has been a leading film studio in domestic box office receipts for the past ten years.

Television Product

Television product consists of (1) fees for the initial broadcast of Warner Bros.’ television programming on U.S. broadcast and cable television networks and premium pay television and OTT services, (2) fees for the airing or other distribution of its television programming after its initial broadcast in secondary U.S. distribution channels (such as basic cable networks, local television stations and OTT services), (3) fees for the international distribution of Warner Bros.’ television programming for free-to-air television, basic tier television services, premium pay television services and OTT services, and (4) revenues from the sale of the television programming of Warner Bros. and other companies in physical and digital formats. Our television programming also supports Warner Bros.’ key brands and franchises, which helps generate consumer product and brand licensing revenues based on the programming for years beyond the initial airing of the programming on television.

Warner Bros. was a leading producer of primetime television series for the U.S. broadcast networks for the 2018-2019 television season, producing 35 series. In addition, Warner Bros. licenses its U.S. programming globally.

Games and Other

Warner Bros. develops, publishes and distributes games, including mobile and console games. Its games are based on intellectual property owned or licensed by Warner Bros. (including DC Entertainment properties, Harry Potter and Mortal Kombat).

Additional information on our WarnerMedia segment is contained in the Annual Report in the “Overview” section beginning on page 27 and is incorporated herein by reference pursuant to General Instruction G(2).

LATIN AMERICA

Our Latin America segment provides entertainment services in Latin America and wireless services in Mexico. The Latin America segment provided approximately 4% of 2018 segment operating revenues. Our Latin America services and products are marketed under the AT&T, DIRECTV, SKY and Unefon brand names. This segment contains the Vrio and Mexico business units.

Vrio – Video entertainment services are provided to primarily residential customers using satellite technology. We are a leading provider of digital television services throughout Latin America, providing a wide selection of local and international digital-quality video entertainment and audio programming under the DIRECTV and SKY brands. We provide one of the most extensive collections of programming available in the Latin America pay-TV market, including HD sports video content and the most innovative interactive technology across the region. In addition, we have the unique ability to sell superior offerings of our differentiated products and services on a continent-wide basis with an operational cost structure that we believe to be lower than that of our competition.

We have approximately 14 million video subscribers in Latin America. Our business encompasses pay television services with satellite operations serving Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay, Venezuela and parts of the Caribbean. Our operations also include our 41% equity method investment in Innova, S. de R.L. de C.V., or SKY Mexico. Sky Mexico financial results are accounted for as an equity-method investment.

Mexico – We utilize our regional and national wireless networks in Mexico to provide consumer and business customers with wireless data and voice communication services. We divide our revenue into the following categories: wireless service and wireless equipment.

We offer postpaid and prepaid wireless services in Mexico to approximately 18 million subscribers under the AT&T and Unefon brands. Postpaid services allow for (1) no annual service contract for subscribers who bring their own device or

 

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purchase a device on installment (the device must be paid in full if the customer chooses to drop their service from AT&T) and (2) service contracts for periods up to 24 months for subscribers who purchase their equipment under the traditional device subsidy model. All plans offer no roaming charges in the United States or Canada, unlimited minutes and messages to the extended AT&T community and unlimited data access to social networking. We also offer prepaid services to customers who prefer to pay in advance.

We sell a wide variety of handsets, including smartphones manufactured by various suppliers for use with our voice and data services. We sell through our own company-owned stores, agents and third-party retail stores.

Additional information on our Latin America segment is contained in the Annual Report in the “Overview” section beginning on page 29 and is incorporated herein by reference pursuant to General Instruction G(2).

XANDR

Our Xandr segment relies on using data from our more than 170 million customer relationships (on an anonymous basis), to develop digital advertising that is more relevant to consumers. The Xandr segment provided approximately 1% of 2018 segment operating revenues and 3% of our 2018 total segment contribution. Advertisers are interested in capitalizing on our broad distribution and ability to offer more precise marketing to customers through a digital platform. We also are expanding relationships with other broadband and video providers to use our digital platform to reach their audiences. This segment experienced rapid growth in 2018, and we believe this growth will continue in 2019.

Additional information on our Xandr segment is contained in the Annual Report in the “Overview” section beginning on page 32 and is incorporated herein by reference pursuant to General Instruction G(2).

MAJOR CLASSES OF SERVICE

The following table sets forth the percentage of total consolidated reported operating revenues by any class of service that accounted for 10% or more of our consolidated total operating revenues in any of the last three fiscal years:

 

     

 

Percentage of Total

Consolidated Operating Revenues

 
      2018     2017     2016  

Communications Segment

      

Wireless service 1

     32  %      36  %      36  % 

Subscription 2, 3

     19       23       22  

Advanced data 4

     12       12       11  

Equipment

     10       9       9  

WarnerMedia Segment

      

Subscription

     4       -       -  

Latin America Segment

      

Subscription 2

     3       3       3  

Wireless service

     1       1       1  

Equipment

 

     1       -       -  

1 2018 excludes $232 million of advertising revenues included as Wireless service in our Mobility business unit.

2 Subscription is reported as Video in our Entertainment Group and Vrio business units.

3 2018 excludes $1,595 million of advertising revenues included as Video in our Entertainment Group business unit.

4 Advanced data is reported as High-speed internet and Strategic services in our Entertainment Group and Business Wireline business units, respectively.

Additional information on our geographical distribution of revenues is contained in the Annual Report in the “Segment Information” section beginning on page 72 and is incorporated herein by reference pursuant to General Instruction G(2).

 

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GOVERNMENT REGULATION

Wireless communications providers must be licensed by the U.S. Federal Communications Commission (FCC) to provide communications services at specified spectrum frequencies within defined geographic areas and must comply with the rules and policies governing the use of the spectrum as adopted by the FCC. The FCC’s rules have a direct impact on whether the wireless industry has sufficient spectrum available to support the high-quality, innovative services our customers demand. Wireless licenses are issued for a fixed time period, typically ten years, and we must seek renewal of these licenses. While the FCC has generally renewed licenses given to operating companies such as us, the FCC has authority to both revoke a license for cause and to deny a license renewal if a renewal is not in the public interest. Additionally, while wireless communications providers’ prices and service offerings are generally not subject to regulation, the federal government and various states are considering new regulations and legislation relating to various aspects of wireless services.

The Communications Act of 1934 and other related acts give the FCC broad authority to regulate the U.S. operations of our satellite services, which are licensed by the FCC, and some of WarnerMedia’s businesses are also subject to obligations under the Communications Act and related FCC regulations. In addition, states representing a majority of our local service access lines have adopted legislation that enables us to provide IP-based video service through a single statewide or state-approved franchise (as opposed to the need to acquire hundreds or even thousands of municipal-approved franchises) to offer a competitive video product. We also are supporting efforts to update and improve regulatory treatment for retail services. Regulatory reform and passage of legislation is uncertain and depends on many factors.

In February 2015, the FCC released an order classifying both fixed and mobile consumer broadband internet access services as telecommunications services, subject to Title II of the Communications Act. This order, which represented a departure from longstanding bipartisan precedent, significantly expanded the FCC’s authority to regulate broadband internet access services, as well as internet interconnection arrangements. AT&T and several other parties appealed the FCC’s order. In June 2016, a divided panel of the District of Columbia Court of Appeals upheld the FCC’s rules by a 2-1 vote, and petitions for rehearing en banc were denied in May 2017. Petitions for a writ of Certiorari at the U.S. Supreme Court remain pending. Meanwhile, in December 2017, the FCC reversed its 2015 decision by reclassifying fixed and mobile consumer broadband services as information services and repealing most of the rules that were adopted in 2015. In lieu of broad conduct prohibitions, the order requires internet service providers to disclose information about their network practices and terms of service, including whether they block or throttle internet traffic or offer paid prioritization. Several parties, including several state Attorneys General, net neutrality advocacy groups and others, have appealed the FCC’s December 2017 decision. Those appeals, which initially were consolidated in the U.S. Court of Appeals for the Ninth Circuit, were transferred at the request of the parties to the D.C. Circuit. Although the FCC order expressly preempted inconsistent state or local measures, a number of states are considering or have adopted legislation that would reimpose the very rules the FCC repealed, and in some cases, establish additional requirements that go beyond the FCC’s February 2015 order. Additionally, some state governors have issued executive orders that effectively re-impose the repealed requirements. Suits have recently been filed concerning laws in California and Vermont, and other lawsuits are possible. We will continue to support congressional action to codify a set of standard consumer rules for the internet.

On April 20, 2017, the FCC adopted an order that maintains light touch pricing regulation of packet-based services like Ethernet and extends this “light touch” approach to high-speed TDM transport services and to most of our TDM channel termination services, based on the application of a competitive market test for such services. For those services that do not qualify for light touch regulation, the order allows companies to offer volume and term discounts, as well as contract tariffs. Several parties appealed the FCC’s decision. In August 2018, the U.S. Court of Appeals for the Eighth Circuit largely upheld the FCC decision, but found that the FCC had not provided adequate notice of the possibility that it might apply light touch regulation to all transport services. The FCC has since remedied that notice deficiency and has proposed to reinstate its light touch approach for transport services.

Privacy-related legislation has been considered in a number of states. The policy environment is complex and rapidly evolving. Legislative and regulatory action could result in increased costs of compliance, claims against broadband internet access service providers, content owners and others, and increased uncertainty in the value and availability of data. In June 2018, the State of California enacted comprehensive privacy legislation that gives California consumers the right to know what personal information is being collected about them, to know whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives consumers the right to opt-out of the sale of personal information. The law applies the same rules to all companies that collect consumer information. The new law could significantly affect how data markets operate and will impose implementation costs and challenges. We will continue to support congressional action to codify a set of standard consumer rules of the internet, including a federal privacy framework.

 

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Our ILEC subsidiaries are subject to regulation by state governments, which have the power to regulate intrastate rates and services, including local, long-distance and network access services, provided such state regulation is consistent with federal law. Some states have eliminated or reduced regulations on our retail offerings. These subsidiaries are also subject to the jurisdiction of the FCC with respect to intercarrier compensation, interconnection, and interstate and international rates and services, including interstate access charges. Access charges are a form of intercarrier compensation designed to reimburse our wireline subsidiaries for the use of their networks by other carriers.

WarnerMedia creates, owns and distributes intellectual property, including copyrights, trademarks and licenses of intellectual property. To protect its intellectual property, WarnerMedia relies on a combination of laws and license agreements. Outside the U.S., laws and regulations relating to intellectual property protection and the effective enforcement of these laws and regulations vary greatly from country to country. The European Union Commission is pursuing legislative and regulatory initiatives that could impair Warner Bros.’ current country-by-country licensing approach in the European Union. Piracy, particularly of digital content, continues to threaten revenues from WarnerMedia’s products and services, as well as revenues from our pay TV business, and we work to limit that threat through a combination of approaches, including technological and legislative solutions. Outside the U.S., various laws and regulations, as well as trade agreements with the U.S., also apply to the distribution or licensing of feature films for exhibition in theaters and on broadcast and cable networks. For example, in certain countries, including China, laws and regulations limit the number of foreign films exhibited in such countries in a calendar year.

Our subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the market where service is provided.

Additional information relating to regulation of our subsidiaries is contained in the Annual Report under the headings “Operating Environment Overview” beginning on page 37 and “Regulatory Developments” beginning on page 39 and is incorporated herein by reference pursuant to General Instruction G(2).

IMPORTANCE, DURATION AND EFFECT OF LICENSES

Certain of our subsidiaries own or have licenses to various patents, copyrights, trademarks and other intellectual property necessary to conduct business. Many of our subsidiaries also hold government-issued licenses or franchises to provide wireline, satellite or wireless services. Additional information relating to regulation affecting those rights is contained in the Annual Report under the heading “Operating Environment Overview,” beginning on page 37, and is incorporated herein by reference pursuant to General Instruction G(2). We actively pursue patents, trademarks and service marks to protect our intellectual property within the United States and abroad. We maintain a significant global portfolio of patents, trademarks and service mark registrations. We have also entered into agreements that permit other companies, in exchange for fees and rights, and subject to appropriate safeguards and restrictions, to utilize certain of our patents, trademarks and service marks. As we transition our network from a switch-based network to an IP, software-based network, we have increasingly entered into licensing agreements with software developers.

We periodically receive offers from third parties to obtain licenses for patents and other intellectual rights in exchange for royalties or other payments. We also receive notices asserting that our products or services sold to customers or software-based network functions infringe on their patents and other intellectual property rights. These claims, whether against us directly, such as network functions or against third-party suppliers of products or services that we, in turn, sell to our customers, such as wireless handsets, could require us to pay damages, royalties, stop offering the relevant products or services and/or cease network functions or other activities. While the outcome of any litigation is uncertain, we do not believe that the resolution of any of these infringement claims or the expiration or non-renewal of any of our intellectual property rights would have a material adverse effect on our results of operations.

MAJOR CUSTOMERS

No customer accounted for 10% or more of our consolidated revenues in 2018, 2017 or 2016.

COMPETITION

Information relating to competition in each of our operating segments is contained in the Annual Report under the heading “Competition” beginning on page 41, and is incorporated herein by reference pursuant to General Instruction G(2).

 

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RESEARCH AND DEVELOPMENT

AT&T scientists and engineers conduct research in a variety of areas, including IP networking, advanced network design and architecture, network and cyber security, network operations support systems, satellite technology, video platform development and data analytics. The majority of the development activities are performed to create new services and to invent tools and systems to manage secure and reliable networks for us and our customers. Research and development expenses were $1,194 million in 2018, $1,503 million in 2017, and $1,649 million in 2016.

EMPLOYEES

As of January 31, 2019, we employed approximately 268,000 persons. Approximately 40% of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of the agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached. A contract now covering approximately 8,300 traditional wireline employees in our Midwest region expired in April 2018 and employees are working under the terms of the prior contract, including benefits, while negotiations continue. In addition, a contract now covering approximately 3,300 traditional wireline employees in our legacy AT&T Corp. business also expired in April 2018. Those employees are working under the terms of their prior contract, including benefits, while negotiations continue. Other contracts covering approximately 26,000 employees are scheduled to expire during 2019.

At December 31, 2018, we had approximately 548,000 retirees and dependents that were eligible to receive retiree benefits.

RECENT DEVELOPMENTS

A putative stockholder class action lawsuit has been filed in connection with statements made in the registration statement and prospectus on Form S-4 (S-4), filed by AT&T with the SEC in connection with our acquisition of Time Warner Inc. The action, Hoffman v. Stephenson et al. (the “Hoffman Complaint”), filed on February 7, 2019 in the Supreme Court of the State of New York, County of New York, alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, by AT&T and certain of AT&T’s current officers and directors based on alleged misrepresentations and omissions in the S-4 relating to trends in its then Entertainment Group segment and in particular with respect to the number of subscribers to our DIRECTV NOW service. The plaintiff in the Hoffman Complaint seeks damages, attorneys’ fees and costs, rescission, disgorgement and other and further relief. We believe the claims in the Hoffman Complaint are without merit and will vigorously defend our legal position in court.

 

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ITEM 1A. RISK FACTORS

Information required by this Item is included in the Annual Report under the heading “Risk Factors” on pages 54 through 58 which is incorporated herein by reference pursuant to General Instruction G(2).

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the “Risk Factors” section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.

The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:

·  

Adverse economic and/or capital access changes in the markets served by us or in countries in which we have significant investments, including the impact on customer demand and our ability and our suppliers’ ability to access financial markets at favorable rates and terms.

·  

Changes in available technology and the effects of such changes, including product substitutions and deployment costs.

·  

Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality assumptions; adverse medical cost trends; and unfavorable or delayed implementation or repeal of healthcare legislation, regulations or related court decisions.

·  

The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review, if any, of such proceedings) involving issues that are important to our business, including, without limitation, special access and business data services; pending Notices of Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; wireless equipment siting regulations; E911 services; competition policy; privacy; net neutrality; multichannel video programming distributor services and equipment; content licensing and copyright protection; availability of new spectrum, on fair and balanced terms; IP licensing, and wireless and satellite license awards and renewals.

·  

The final outcome of state and federal legislative efforts involving topics that are important to our business, including deregulation of IP-based services, relief from Carrier of Last Resort obligations and elimination of state commission review of the withdrawal of services, internet regulation and privacy issues.

·  

Enactment of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.

·  

Potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the FCC could negatively impact WarnerMedia’s ability to deliver linear network feeds of its domestic cable networks to its affiliates, and in some cases, WarnerMedia’s ability to produce high-value news and entertainment programming on location.

·  

U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent are complex and rapidly evolving and could result in impact to our business plans, increased costs, or claims against us that may harm our reputation.

·  

Our ability to absorb revenue losses caused by increasing competition, including offerings that use alternative technologies or delivery methods (e.g., cable, wireless, VoIP and over-the-top video service), subscriber reluctance to purchase new wireless handsets, and our ability to maintain capital expenditures.

·  

The extent of competition including from governmental networks and other providers and the resulting pressure on customer totals and segment operating margins.

·  

Our ability to develop attractive and profitable product/service offerings to offset increasing competition and increasing fragmentation of customer viewing habits.

·  

The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, including non-regulation of comparable alternative technologies (e.g., VoIP and data usage).

·  

The continued development and delivery of attractive and profitable video and broadband offerings; the extent to which regulatory and build-out requirements apply to our offerings; our ability to match speeds offered by our competitors and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.

·  

Our continued ability to maintain margins, attract and offer a diverse portfolio of video, wireless service and devices and device financing plans.

 

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·  

Our ability to generate advertising revenue from attractive video content, especially from WarnerMedia, in the face of unpredictable and rapidly evolving public viewing habits.

·  

The availability, cost and our ability to adequately fund additional wireless spectrum and network upgrades; and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.

·  

Our ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.

·  

The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties.

·  

The impact from major equipment failures on our networks, including satellites operated by DIRECTV; the effect of security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; and in the case of satellites launched, timely provisioning of services from vendors; or severe weather conditions including flooding and hurricanes, natural disasters including earthquakes and forest fires, pandemics, energy shortages, wars or terrorist attacks.

·  

The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards.

·  

The U.S. Department of Justice prevailing on its appeal of the court decision permitting our acquisition of Time Warner Inc.

·  

Our ability to successfully integrate our WarnerMedia operations, including the ability to manage various businesses in widely dispersed business locations and with decentralized management.

·  

Our ability to take advantage of the desire of advertisers to change traditional video advertising models.

·  

Our increased exposure to foreign economies, including foreign exchange fluctuations as well as regulatory and political uncertainty.

·  

Changes in our corporate strategies, such as changing network-related requirements or acquisitions and dispositions, which may require significant amounts of cash or stock, to respond to competition and regulatory, legislative and technological developments.

·  

The uncertainty surrounding further congressional action to address spending reductions, which may result in a significant decrease in government spending and reluctance of businesses and consumers to spend in general.

Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.

 

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ITEM 2. PROPERTIES

Our properties do not lend themselves to description by character and location of principal units. At December 31, 2018, of our total property, plant and equipment, central office equipment represented 29%; outside plant (including cable, wiring and other non-central office network equipment) represented approximately 22%; satellites represented 1%; other equipment, comprised principally of wireless network equipment attached to towers, furniture and office equipment and vehicles and other work equipment, represented 28%; land, building and wireless communications towers represented 12%; and other miscellaneous property represented 8%.

For our Communications segment, substantially all of the installations of central office equipment are located in buildings and on land we own. Many garages, administrative and business offices, wireless towers, telephone centers and retail stores are leased. Property on which communication towers are located may be either owned or leased.

For our WarnerMedia segment, we own or leases offices; studios; technical, production and warehouse spaces; communications facilities and other properties in numerous locations globally.

ITEM 3. LEGAL PROCEEDINGS

We are a party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. As of the date of this report, we do not believe any pending legal proceedings to which we or our subsidiaries are subject are required to be disclosed as material legal proceedings pursuant to this item.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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EXECUTIVE OFFICERS OF THE REGISTRANT

(As of February 1, 2019)

 

                 Name   

Age

  

Position

   Held Since

Randall L. Stephenson

   58   

Chairman of the Board, Chief Executive Officer and President

   6/2007

William A. Blase Jr.

   63   

Senior Executive Vice President – Human Resources

   6/2007

John M. Donovan

   58   

Chief Executive Officer, AT&T Communications, LLC

   8/2017

David S. Huntley

   60   

Senior Executive Vice President and Chief Compliance Officer

   12/2014

Lori M. Lee

   53    Chief Executive Officer-AT&T Latin America and Global Marketing Officer    8/2017

Brian D. Lesser

   44   

Chief Executive Officer-Xandr, AT&T Services, Inc.

   9/2017

David R. McAtee II

   50   

Senior Executive Vice President and General Counsel

   10/2015

John T. Stankey

   56   

Chief Executive Officer, Warner Media, LLC

   6/2018

John J. Stephens

   59   

Senior Executive Vice President and Chief Financial Officer

   6/2011

All of the above executive officers have held high-level managerial positions with AT&T or its subsidiaries for more than the past five years, except for Mr. Lesser who was previously CEO of GroupM in North America from November 2015 to September 2017 and CEO of Xaxis from January 2011 to November 2015. Executive officers are not appointed to a fixed term of office.

 

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Our common stock is listed on the New York Stock Exchange. The number of stockholders of record as of December 31, 2018 and 2017 was 937,230 and 968,119. The number of stockholders of record as of February 12, 2019, was 933,461. We declared dividends, on a quarterly basis, totaling $2.01 per share in 2018 and $1.97 per share in 2017.

Other information required by this Item is included in the Annual Report under the headings “Quarterly Financial Information” on page 87, “Selected Financial and Operating Data” on page 14, and “Stock Trading Information” on the back cover, which are incorporated herein by reference pursuant to General Instruction G(2).

(c) Our Board of Directors approved authorizations in both March 2013 and 2014 to repurchase up to 300 million shares of our common stock. For the year ended December 31, 2018, we repurchased 13 million shares for distribution through our employee benefit plans, totaling $419 million under the March 2013 authorization. For the year ended December 31, 2017, we repurchased 7 million shares totaling $279 million under the March 2013 authorization. Excluding the impact of acquisitions, the emphasis of our 2019 financing activities will be the refinancing and/or repayment of debt and the payment of dividends, subject to approval by our Board of Directors. We plan to fund our financing uses of cash through a combination of cash from operations, debt issuances and asset sales. The timing and mix of any debt issuance will be guided by credit market conditions and interest rate trends.

To implement these authorizations, we used open market repurchase programs, relying on Rule 10b5-1 of the Securities Exchange Act of 1934 where feasible.

We will continue to fund any share repurchases through a combination of cash from operations, borrowings dependent on market conditions, or cash from the disposition of certain non-strategic investments.

A summary of our repurchases of common stock during the fourth quarter of 2018 is as follows:

 

ISSUER PURCHASES OF EQUITY SECURITIES             

 

 
                Period   

(a)

 

 

 

 

Total Number of
Shares (or Units)
Purchased 1,2,3

    

(b)

 

 

 

 

 

Average Price Paid
Per Share (or Unit)

    

(c)

 

 

Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans  or Programs 1  

    

 

(d)

 

Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) That May Yet  Be
Purchased Under The
Plans or Programs

 

 

October 1, 2018 -

October 31, 2018

     528,852        $                30.88                -        375,662,000    

November 1, 2018 -

November 30, 2018

     112,236        30.67                -        375,662,000    

December 1, 2018 -

December 31, 2018

     1,055,525        28.80                -        375,662,000    

 

Total

     1,696,613        $                29.57                -           
                                     
  1

In March 2014, our Board of Directors approved an authorization to repurchase up to 300 million shares of our common stock. In March 2013, our Board of Directors approved an authorization to repurchase up to 300 million shares of our common stock. The authorizations have no expiration date.

  2  

Of the shares purchased, 1,031,328 shares were acquired through the withholding of taxes on the vesting of restricted stock or through the payment in stock of taxes on the exercise price of options.

  3  

Of the shares repurchased or transferred, 665,285 shares were transferred from the AT&T maintained Voluntary Employee Benefit Association (VEBA) trusts.

 

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ITEM 6. SELECTED FINANCIAL DATA

Information required by this Item is included in the Annual Report under the heading “Selected Financial and Operating Data” on page 14, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information required by this Item is included in the Annual Report on pages 15 through 48, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this Item is included in the Annual Report under the heading “Market Risk” on page 40, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information required by this Item is included in the Annual Report on pages 49 through 87, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

During our two most recent fiscal years, there has been no change in the independent accountant engaged as the principal accountant to audit our financial statements, and the independent accountant has not expressed reliance on other independent accountants in its reports during such time period.

 

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ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the SEC’s rules and forms. The Chief Executive Officer and Chief Financial Officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of December 31, 2018. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the registrant’s disclosure controls and procedures were effective as of December 31, 2018.

Internal Control Over Financial Reporting

(a) Management’s Annual Report on Internal Control over Financial Reporting

The management of AT&T is responsible for establishing and maintaining adequate internal control over financial reporting. AT&T’s internal control system was designed to provide reasonable assurance as to the integrity and reliability of the published financial statements. AT&T management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2018. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 framework). We have excluded from the scope of our assessment of internal control over financial reporting the operations and related assets of Warner Media, LLC (formerly Time Warner Inc. and referred to as “Warner Media”) which we acquired in 2018. At December 31, 2018 and for the period from acquisition through December 31, 2018, total assets and operating revenues subject to Warner Media’s internal control over financial reporting represented 24.1% and 9.7% of AT&T’s consolidated total assets and total revenues as of and for the year ended December 31, 2018. Based on its assessment, AT&T management believes that, as of December 31, 2018, the Company’s internal control over financial reporting is effective based on those criteria.

(b) Attestation Report of the Independent Registered Public Accounting Firm

The independent registered public accounting firm that audited the financial statements included in the Annual Report containing the disclosure required by this Item, Ernst & Young LLP, has issued an attestation report on the Company’s internal control over financial reporting. The attestation report issued by Ernst & Young LLP is included in the Annual Report on page 89, which is incorporated herein by reference pursuant to General Instruction G(2).

 

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ITEM 9B. OTHER INFORMATION

There is no information that was required to be disclosed in a report on Form 8-K during the fourth quarter of 2018 but was not reported.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate disclosure at the end of Part I of this report since the registrant did not furnish such information in its definitive proxy statement prepared in accordance with Schedule 14A. Information regarding directors required by Item 401 of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s definitive proxy statement, dated on or about March 11, 2019 (Proxy Statement) under the heading “Management Proposal Item No. 1. Election of Directors.”

Information required by Item 405 of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”

The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the committee are Messrs. Di Piazza, Jr. and McCallister, and Mses. Taylor and Tyson. The additional information required by Item 407(d)(5) of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the heading “Audit Committee.”

The registrant has adopted a code of ethics entitled “Code of Ethics” that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer, or controller or persons performing similar functions. The additional information required by Item 406 of Regulation S-K is provided in this report under the heading “General” under Part I, Item 1. Business.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the headings “Director Compensation,” “CEO Pay Ratio,” and the pages beginning with the heading “Compensation Discussion and Analysis” and ending with, and including, the pages under the heading “Potential Payments upon Change in Control.”.

Information required by Item 407(e)(5) of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Compensation Committee Report” and is incorporated herein by reference pursuant to General Instruction G(3) and shall be deemed furnished in this Annual Report on Form 10-K and will not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 

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ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by Item 403 of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Common Stock Ownership,” which is incorporated herein by reference pursuant to General Instruction G(3).

Equity Compensation Plan Information

The following table provides information as of December 31, 2018, concerning shares of AT&T common stock authorized for issuance under AT&T’s existing equity compensation plans.

 

                         Equity Compensation Plan Information
Plan Category

Number of securities to

be issued upon

exercise of

outstanding options,

warrants and rights

(a)

Weighted average

exercise price of

outstanding

options, warrants

and rights

(b)

Number of securities  

remaining available for  

future issuance under  

equity compensation plans  

(excluding securities  

reflected in column (a))  

(c)

Equity compensation plans approved by security holders

  40,468,244  (1)     $ 26.28   312,109,777  (2)       

Equity compensation plans not approved by security holders

  0     0 0        

Total

  40,468,244  (3)     $ 26.28 312,109,777  (2)       

 

(1)  

Includes the issuance of stock in connection with the following stockholder approved plans: (a) 3,188,886 stock options under the Stock Purchase and Deferral Plan ( SPDP ), (b) 1,861,950 phantom stock units under the Stock Savings Plan ( SSP ), 12,658,357 phantom stock units under the SPDP, 3,216,681 restricted stock units under the 2011 Incentive Plan, 1,604,712 restricted stock units under the 2016 Incentive Plan and 30,014 restricted stock units under the 2018 Incentive Plan, (c) 4,886,946 target number of stock-settled performance shares under the 2011 Incentive Plan, 10,047,502 target number of stock-settled performance shares under the 2016 Incentive Plan, and 31,185 target number of stock-settled performance shares under the 2018 Incentive Plan. At payout, the target number of performance shares may be reduced to zero or increased by up to 150%. Each phantom stock unit and performance share is settleable in stock on a 1-to-1 basis. The weighted-average exercise price in the table does not include outstanding performance shares or phantom stock units.

The SSP was approved by stockholders in 1994 and then was amended by the Board of Directors in 2000 to increase the number of shares available for purchase under the plan (including shares from the Company match and reinvested dividend equivalents). Stockholder approval was not required for the amendment. To the extent applicable, the amount shown for approved plans in column (a), in addition to the above amounts, includes 2,160,838 phantom stock units (computed on a first-in-first-out basis) that were approved by the Board in 2000. Under the SSP, shares could be purchased with payroll deductions and reinvested dividend equivalents by mid-level and above managers and limited Company partial matching contributions. No new contributions may be made to the plan.

(2)  

Includes 41,538,764 shares that may be issued under the SPDP, 249,157,068 shares that may be issued under the 2018 Incentive Plan, and up to 2,889,674 shares that may be purchased through reinvestment of dividends on phantom shares held in the SSP.

(3)  

Does not include certain stock options issued by companies acquired by AT&T that were converted into options to acquire AT&T stock. As of December 31, 2018, there were 26,970,020 shares of AT&T common stock subject to the converted options, having a weighted-average exercise price of $18.96. Also, does not include 8,214,489 outstanding phantom stock units that were issued by companies acquired by AT&T that are convertible into stock on a 1-to-1 basis, along with an estimated 114,352 shares that may be purchased with reinvested dividend equivalents paid on the outstanding phantom stock units. No further phantom stock units, other than reinvested dividends, may be issued under the assumed plans. The weighted-average exercise price in the table does not include outstanding performance shares or phantom stock units.

 

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by Item 404 of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Related Person Transactions,” which is incorporated herein by reference pursuant to General Instruction G(3). Information required by Item 407(a) of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Director Independence,” which is incorporated herein by reference pursuant to General Instruction G(3).

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Item is included in the registrant’s Proxy Statement under the heading “Principal Accountant Fees and Services,” which is incorporated herein by reference pursuant to General Instruction G(3).

Part IV

ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as a part of the report:

 

   Page   

(1) Report of Independent Registered Public Accounting Firm

   *   

Financial Statements covered by Report of Independent Registered Public Accounting Firm:

     

Consolidated Statements of Income

  

*

  

Consolidated Statements of Comprehensive Income

  

*

  

                             

Consolidated Balance Sheets

  

*

  

Consolidated Statements of Cash Flows

  

*

  

Consolidated Statements of Changes in Stockholders’ Equity

  

*

  

Notes to Consolidated Financial Statements

  

*

  

*  Incorporated herein by reference to the appropriate portions of the registrant’s Annual Report to Stockholders for the fiscal year ended December 31, 2018. (See Part II.)

   Page   

(2) Financial Statement Schedules:

     

II - Valuation and Qualifying Accounts

   27   

Financial statement schedules other than those listed above have been omitted because the required information is contained in the financial statements and notes thereto, or because such schedules are not required or applicable.

(3) Exhibits:

Exhibits identified in parentheses below, on file with the SEC, are incorporated herein by reference as exhibits hereto. Unless otherwise indicated, all exhibits so incorporated are from File No. 1-8610.

 

Exhibit
Number
    
2    Agreement and Plan of Merger, dated as of October  22, 2016, among AT&T Inc., Time Warner Inc. and West Merger Sub, Inc. ( Exhibit 10.1 to Form 8-K filed on October  24, 2016 )
3-a    Restated Certificate of Incorporation, filed with the Secretary of State of Delaware on December 13, 2013 ( Exhibit 3.1 to Form 8-K filed on December  16, 2013 )
3-b    Bylaws ( Exhibit 3 to Form 8-K filed on December  18, 2015 )
4-a    No instrument which defines the rights of holders of long-term debt of the registrant and all of its consolidated subsidiaries is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), except for the instruments referred to in 4-b, 4-c, 4-d, 4-e, 4-f below. Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument not filed herewith to the SEC upon request.

 

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4-b    Guaranty of certain obligations of Pacific Bell Telephone Co. and Southwestern Bell Telephone Co. ( Exhibit 4-c to Form 10-K for the period ending December  31, 2011 )
4-c    Guaranty of certain obligations of Ameritech Capital Funding Corp., Indiana Bell Telephone Co. Inc., Michigan Bell Telephone Co., Pacific Bell Telephone Co., Southwestern Bell Telephone Company, Illinois Bell Telephone Company, The Ohio Bell Telephone Company, The Southern New England  Telephone Company, Southern New England Telecommunications Corporation, and Wisconsin Bell, Inc. ( Exhibit 4-d to Form 10-K for the period ending December  31, 2011 )
4-d    Guarantee of certain obligations of AT&T Corp. ( Exhibit 4-e to Form 10-K for the period ending December  31, 2011 )
4-e    Indenture, dated as of May  15, 2013, between AT&T Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (Exhibit 4.1 to Form 8-K filed on May  15, 2013 )
4-f    Indenture dated as of November 1, 1994 between SBC Communications Inc. and The Bank of New York, as Trustee ( Exhibit 4-h to Form 10-K for the period ending December  31, 2013 )
10-a    2018 Incentive Plan (Exhibit 10-a to Form 10-K for the period ending December  31, 2017 )
10-b    2016 Incentive Plan ( Exhibit 10-a to Form 10-Q for the period ending March  31, 2016 )
  

10-b(i)    Resolution Regarding John Donovan ( Exhibit 10-a to Form 10-Q for the period ending September   30, 2017 )

  

10-b(ii)     Resolution Regarding John Stankey ( Exhibit 10-b to Form 10-Q for the period ending September  30, 2017 )

  

10-b(iii)    Resolution Regarding John Stephens ( Exhibit 10-c to Form 10-Q for the period ending September  30, 2017 )

10-c    2011 Incentive Plan ( Exhibit 10-a to Form 10-Q for the period ending September  30, 2015 )
10-d    Short Term Incentive Plan ( Exhibit 10.1 to Form 8-K filed on February  2, 2018 )
10-e    Supplemental Life Insurance Plan ( Exhibit 10-e to Form 10-Q for the period ending September  30, 2015 )
10-f    Supplemental Retirement Income Plan ( Exhibit 10-e to Form 10-K for the period ending December  31, 2013 )
10-g    2005 Supplemental Employee Retirement Plan ( Exhibit 10.1 to Form 8-K filed on October   4, 2017 )
10-h    Salary and Incentive Award Deferral Plan ( Exhibit 10-k to Form 10-K for the period ending December  31, 2011 )
10-i    Stock Savings Plan ( Exhibit 10-l to Form 10-K for the period ending December  31, 2011 )
10-j    Stock Purchase and Deferral Plan ( Exhibit 10-a to Form 10-Q for the period ending September  30, 2018 )

 

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10-k

   Cash Deferral Plan ( Exhibit  10-b  to   Form  10-Q  for  the  period  ending  September  30, 2018 )

10-l

   Master Trust Agreement for AT&T Inc. Deferred Compensation Plans and Other Executive Benefit Plans and subsequent amendments dated August 1, 1995 and November  1, 1999 ( Exhibit 10-dd to Form 10-K for the period ending December   31, 2009 )

10-m

   Officer Disability Plan ( Exhibit 10-i to Form 10-Q for the period ending June  30, 2009 )

10-n

   AT&T Inc. Health Plan ( Exhibit 10-a to Form 10-Q for the period ending June  30, 2018 )

10-o

   Pension Benefit Makeup Plan No.1 ( Exhibit 10-n to Form 10-K for the period ending December  31, 2016 )

10-p

   AT&T Inc. Equity Retention and Hedging Policy ( Exhibit 10.2 to Form 8-K filed on December  16, 2011 )

10-q

   Administrative Plan ( Exhibit 10-p to Form 10-K for the period ending December  31, 2016 )

10-r

   AT&T Inc. Non-Employee Director Stock and Deferral Plan

10-s

   AT&T Inc. Non-Employee Director Stock Purchase Plan ( Exhibit 10-t to Form 10-K for the period ending December  31, 2013 )

10-t

   AT&T Inc. Board of Directors Communications Concession Program ( Exhibit 10-aa to Form 10-K for the period ending December  31, 2012 )

10-u

   Form of Indemnity Agreement, effective July  1, 1986, between Southwestern Bell Corporation (now AT&T Inc.) and its directors and officers. ( Exhibit 10-bb to Form 10-K for the period ending December  31, 2011 )

10-v

   AT&T Executive Physical Program ( Exhibit 10-ff to Form 10-K for the period ending December  31, 2016 )

10-w

   Equalization Agreement for John Stankey ( Exhibit 10.1 to Form 8-K filed on August  20, 2015 )

10-x

   Agreement between Robert Quinn and AT&T Inc. ( Exhibit 10-b to Form 10-Q for the period ending June  30, 2018 )

10-y

   Attorney Fee Payment Agreement for John Stankey ( Exhibit 10.1 to Form 8-K filed on July  3, 2018 )

10-z

   $12,000,000,000 Amended and Restated Credit Agreement, dated December 11,  2015, among AT&T, certain lenders named therein and Citibank, N.A., as administrative agent. ( Exhibit 10 to Form 8-K filed on December  15, 2015 )
  

10-z(i)      

   $7,500,000,000 Amended and Restated Credit Agreement, dated as of December 11,  2018, among AT&T Inc., certain lenders named therein and Citibank, N.A., as agent. ( Exhibit 10.1 to Form 8-K filed on December  13, 2018 )

 

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10-aa    $7,500,000,000 Five Year Credit Agreement, dated as of December 11, 2018, among AT&T Inc., certain lenders named therein and Citibank, N.A., as agent ( Exhibit 10.2 to Form 8-K filed on December 13, 2018 )
10-bb    $10,000,000,000 Term Loan Credit Agreement, dated as of November  15, 2016, among AT&T Inc., the lenders named therein and JPMorgan Chase Bank, N.A., as Agent ( Exhibit 10.1 to Form 8-K filed on November 15, 2016 )
   10-bb(i)    Letter Amendment, dated as of February  2, 2018, among AT&T Inc., the lenders named therein and JPMorgan Chase Bank, N.A., as Agent. ( Exhibit 10.1 to Form 8-K filed on February  5, 2018 )
10-cc    $2,250,000,000 Term Loan Credit Agreement, dated as of September  29, 2017, among AT&T Inc., certain lenders named therein and The Bank of Nova Scotia, as Administrative Agent ( Exhibit 10-f to Form 10-Q for the period ending September 30, 2017 )
10-dd    $3,550,000,000 Term Loan Credit Agreement, dated as of November  20, 2018, among AT&T Inc., certain lenders named therein and Bank of America, N.A., as agent ( Exhibit 10.1 to Form 8-K filed on November 21, 2018 )
10-ee    Amended and Restated Contribution Agreement
10-ff    Fourth Amended and Restated Limited Liability Company Agreement of Mobility II LLC
10-gg    First Amendment to the Fourth Amended and Restated Limited Liability Company Agreement of Mobility II LLC
10-hh    Second Amendment to the Fourth Amended and Restated Limited Liability Company Agreement of Mobility II LLC
10-ii    Amended and Restated Registration Rights Agreement by and among AT&T Inc. and The SBC Master Pension Trust and Brock Fiduciary Services LLC
12    Computation of Ratios of Earnings to Fixed Charges
13    Portions of AT&T’s Annual Report to Stockholders for the fiscal year ended December 31, 2018. Only the information incorporated by reference into this Form 10-K is included in the exhibit.
21    Subsidiaries of AT&T Inc.
23    Consent of Ernst & Young LLP
24    Powers of Attorney
31    Rule 13a-14(a)/15d-14(a) Certifications
31.1    Certification of Principal Executive Officer
31.2    Certification of Principal Financial Officer
32    Section 1350 Certification
99    Supplemental Interim Financial Information
101    XBRL Instance Document

 

 

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We will furnish to stockholders upon request, and without charge, a copy of the Annual Report to Stockholders and the Proxy Statement, portions of which are incorporated by reference in the Form 10-K. We will furnish any other exhibit at cost.

 

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Schedule II - Sheet 1

AT&T INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Allowance for Doubtful Accounts

Dollars in Millions

 

COL. A    COL. B      COL. C      COL. D      COL. E  
            Additions                
            (1)      (2)      (3)                
     

Balance at

Beginning of

Period

    

Charged to

Costs and

Expenses (a)

    

Charged to

Other

Accounts (b)

     Acquisitions
(c)
     Deductions (d)     

Balance at End

of Period

 

 

  Year 2018

   $ 663        1,791            -            179            1,726          $ 907      

  Year 2017

   $ 661        1,642            -            -            1,640          $ 663      

  Year 2016

   $

 

704

 

 

 

    

 

1,474    

 

 

 

    

 

-    

 

 

 

    

 

-    

 

 

 

    

 

1,517    

 

 

 

   $

 

661    

 

 

 

 

(a)

Includes amounts previously written off which were credited directly to this account when recovered. Excludes direct charges and credits to expense for nontrade receivables in the consolidated statements of income.

(b)

Includes amounts related to long-distance carrier receivables which were billed by AT&T.

(c)

Acquisition of Time Warner in 2018.

(d)

Amounts written off as uncollectible, or related to divested entities.

 

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Schedule II - Sheet 2

AT&T INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Allowance for Deferred Tax Assets

Dollars in Millions

 

COL. A    COL. B      COL. C      COL. D      COL. E  
            Additions                
            (1)     (2)     (3)                
     

Balance at

Beginning of

Period

    

Charged to

Costs and

Expenses

   

Charged to

Other

Accounts (a)

   

Acquisitions

(b)

     Deductions (c)     

Balance at End

of Period

 

 

  Year 2018

   $ 4,640        (210     (53 )          211        -          $ 4,588      

  Year 2017

   $ 2,283        2,376       (19 )          -        -          $ 4,640      

  Year 2016

   $

 

2,141

 

 

 

    

 

81

 

 

 

   

 

61

 

 

 

   

 

-

 

 

 

    

 

-    

 

 

 

   $

 

2,283    

 

 

 

 

(a)

Includes current year reclassifications from other balance sheet accounts.

(b)

Acquisition of Time Warner in 2018.

(c)

Reductions to valuation allowances related to deferred tax assets.

 

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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, on the 20 th day of February, 2019.

AT&T INC.

 

  

/s/ John J. Stephens

  
  

John J. Stephens

Senior Executive Vice President

  and Chief Financial 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 date indicated.

Principal Executive Officer:

Randall Stephenson*

Chairman of the Board, Chief Executive Officer

   and President

Principal Financial and Accounting Officer:

John J. Stephens

Senior Executive Vice President

   and Chief Financial Officer

 

  

/s/ John J. Stephens

 
  

John J. Stephens, as attorney-in-fact

and on his own behalf as Principal

Financial Officer and Principal

Accounting Officer

 

        February 20, 2019

 

  Directors:

    

  Randall L. Stephenson*

  

Michael B. McCallister*

  Samuel A. Di Piazza, Jr.*

  

Beth E. Mooney*

  Richard W. Fisher*

  

Joyce M. Roché*

  Scott T. Ford*

  

Matthew K. Rose*

  Glenn H. Hutchins*

  

Cynthia B. Taylor*

  William E. Kennard*

  

Laura D’Andrea Tyson*

  

Geoffrey Y. Yang*

* by power of attorney

Exhibit 10-r

AT&T INC.

NON-EMPLOYEE DIRECTOR STOCK

AND DEFERRAL PLAN

As amended through November 2, 2018

 

 

1


AT&T Inc.

Non-Employee Director Stock and Deferral Plan

Article 1. Purpose

The purpose of the Non-Employee Director Stock and Deferral Plan (the “Plan”) (formerly the Deferred Compensation Plan for Non-Employee Directors) is to promote the achievement of long-term objectives of AT&T Inc. by linking the personal interests of Non-Employee Directors to those of the Company’s stockholders and to attract and retain Non-Employee Directors of outstanding competence.

Article 2. Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the defined meaning is intended, the initial letter of the word is capitalized:

 

  (a)

“Annual Retainer” or “Retainer” means the payments made to Directors for their annual Board service. It includes any additional Retainer paid to Committee Chairpersons or the Lead Director. “Base Annual Retainer” means the Annual Retainer without any additional amounts for Committee Chairpersons, Lead Directors or otherwise.

  (b)

“Award” means, individually or collectively, an award under this Plan of Stock Units.

  (c)

“Board” means the Board of Directors of the Company.

  (d)

Business Day ” means any day that the Company is open for the regular transaction of business.

  (e)

“Company” means AT&T Inc., a Delaware corporation.

  (f)

“Director” means any individual who is a member of the Board, including Advisory Directors.

  (g)

“Employee” means any full-time, nonunion, salaried employee of the Company or of the Company’s directly or indirectly held subsidiaries. For purposes of the Plan, an individual whose only employment relationship with the Company is as a Director shall not be deemed to be an Employee.

  (h)

“Fair Market Value” or “FMV” means the closing price on the New York Stock Exchange (“NYSE”) for Shares on the relevant date, all as determined by the Company. In lieu of the foregoing, the Board may select any other index or measurement to determine the FMV of Shares under the Plan.

  (i)

“Non-Employee Director” means any individual who is a member of the Board but who is not otherwise an Employee, nor has otherwise been an Employee.

  (j)

“Participant” means a person who is entitled to participate in the Plan.

  (k)

“Shares” means shares of common stock of the Company, par value one dollar ($1.00) per share.

  (l)

“Stock Unit” or “Unit” means an Award acquired by a Participant as a measure of participation under the Plan, and having a value equal to one (1) Share.

  (m)

“Trading Day” means any day that the Shares are traded on the NYSE.

 

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Article 3. Eligibility and Administration

3.1           Eligibility . Persons eligible to participate in the Plan are limited to Non-Employee Directors.

3.2           The Committee . The Plan shall be administered by the Corporate Governance and Nominating Committee of the Board (the “Committee”), subject to the restrictions set forth in the Plan.

3.3           Administration by the Committee . The Committee shall have the full power, discretion, and authority to interpret and administer the Plan in a manner consistent with the Plan’s provisions. However, in no event shall the Committee have the power to determine Plan eligibility, or to determine the number, the value, the vesting period, or the timing of Awards to be made under the Plan (all such determinations being automatic pursuant to the provisions of the Plan).

3.4           Decisions Binding . All determinations and decisions made by the Committee pursuant to the Plan, and all related orders or resolutions of the Committee shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Participants, and their estates and beneficiaries.

Article 4. Shares Previously Acquired Under Plan

Effective December 31, 2008, no Shares may be issued under this Plan. However, any Shares previously acquired by a Director under this Plan may not be sold for one year after acquisition. Thereafter, such Shares shall only be sold pursuant to an effective registration statement or pursuant to an exemption from the Securities Act of 1933, including sales pursuant to Rule 144 thereunder. The Company may place a legend on the certificates for such Shares evidencing this restriction.

Article 5. Award of Deferred Stock Units for Non-Employee Directors

5.1           Award of Deferred Stock Units for Non-Employee Directors . Effective the day of each annual meeting of the Company’s stockholders, each continuing Non-Employee Director shall be granted that number of Stock Units that is equal to $220,000divided by the Fair Market Value of a Share on the last Trading Day in the calendar month in which such Award is made.    Each Award is intended to be in consideration for service until the next annual meeting of stockholders, but will be fully earned on the date of the Award and credited to the Non-Employee Director’s account on the day the number of Stock Units is determined. Provided, however, if the Director terminates service on or before the day of the annual meeting of stockholders, the related Award to be earned on such meeting date will not be made.

5.2           Deferral of Retainers into Stock Units . Each Non-Employee Director may elect to defer all (100%) or fifty percent (50%) of the Director’s Annual Retainer earned during the relevant calendar year into Stock Units. The number of Stock Units acquired shall equal the portion of the Annual Retainer being deferred into Stock Units in a calendar month, divided by the Fair Market Value of a Share on the last Trading Day in such calendar month, and such Stock Units shall be

 

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credited to the Non-Employee Director’s account effective the day the number of Stock Units is determined. Amounts are deferred at the time they otherwise would have been paid were it not for the relevant deferral election.

Any deferral election under this Section 5.2 shall be made prior to the beginning of, and will be effective for, the calendar year in which such payments would be earned. Unless the Non-Employee Director notifies the Secretary of the Company otherwise prior to the beginning of each subsequent calendar year, each election hereunder will renew automatically for an additional calendar year.

5.3           Payout of Deferred Stock Units . Each Stock Unit shall be paid out in cash equal to the Fair Market Value of a Share; a fractional Share Unit shall be entitled to cash equal to the equivalent fraction of a Share.

The Participant shall elect the timing of the payout for Stock Unit Awards no later than the last day of the calendar year prior to the first scheduled payment of such Stock Units. Notwithstanding the foregoing:

(i) persons who become Directors after November 19, 2004, shall elect the timing of the payout of their Stock Units (their “Post 2004 Stock Units”) no later than the time they first make a deferral election into Stock Units or thirty (30) days after their original election to the Board, whichever is sooner (the Corporate Governance and Nominating Committee may extend only the 30 day deadline and may do so only so long as such extension is permitted by Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”)); and

(ii) each Participant in the Plan as of November 19, 2004 who has not irrevocably elected the timing of the payout of Stock Units shall make such an election by December 31, 2004 with respect to all Stock Units from deferrals of Awards made or Annual Retainer or fees earned after December 31, 2004 (also known as “Post 2004 Stock Units”).

One election will apply to all Post 2004 Stock Units, whether from deferrals, annual Awards or otherwise, and Stock Units earned thereon (each such payout schedule is hereinafter referred to as a “Stock Unit Schedule”); and a separate election shall apply to all other Stock Units and earnings thereon. Stock Units acquired under this Plan shall, with respect to each Stock Unit Schedule (if more than one), be paid out in a lump sum payment or in up to fifteen (15) annual installments, as elected by the Participant. The lump sum payment or the first installment, as the case may be, for each Stock Unit Schedule shall be payable on the first Business Day of February of the year following the calendar year of the termination of the Participant’s service as a Director. Each subsequent annual installment shall be payable on the first Business Day of February. If the Director fails to make a timely election as to the number of installments for any Stock Unit Schedule, such Stock Units shall be paid out in four (4) annual installments.

For Participants electing a payout (or payouts, as the case may be) of Stock Units in installments, the number of Stock Units to be paid out for each Stock Unit Schedule in each installment shall equal the number of Stock Units available for payout under such Stock Unit Schedule, divided by the number of remaining installments (including the installment being made).

 

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5.4           Stock Units . Each Stock Unit shall represent an unfunded and unsecured promise by the Company to issue cash equal in value to the Stock Unit. Participants holding Stock Units (or fractions thereof) shall earn dividend equivalents paid in the form of additional Stock Units added to their account. The number of Stock Units so added shall equal the dividend on a Share multiplied by the number of Stock Units held by the Participant on the record date for such dividend, divided by the Fair Market Value of a Share on the last Trading Day in the calendar month in which the record date for such dividend occurs. The Stock Units shall be credited to a Participant’s account on the day the number of Stock Units is determined.

Article 6. Cash Deferral Account

6.1           Cash Deferral Account . A cash deferral account (the “Cash Deferral Account”) shall be established and maintained by the Company for each Participant that makes a cash deferral election under the Plan. Each Cash Deferral Account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Participant and shall be credited to reflect the interest return thereon until paid. The establishment and maintenance of such Cash Deferral Accounts, however, shall not be construed as entitling any Participant to any specific assets of the Company and shall represent an unfunded and unsecured promise of the Company with respect to the amounts due thereunder.

6.2           Cash Deferral Elections . Effective for payments on or after January 1, 1998, each Non-Employee Director may elect to defer all (100%) or fifty percent (50%) of the Director’s Annual Retainer earned during the relevant calendar year into the Director’s Cash Deferral Account. Amounts are deferred at the time they otherwise would have been paid were it not for the relevant deferral election.

Any deferral election under this Section 6.2 shall be made prior to the beginning of, and will be effective for, the calendar year in which such payments would be earned. Unless the Non-Employee Director notifies the Secretary of the Company otherwise prior to the beginning of each subsequent calendar year, each election hereunder will renew automatically for an additional calendar year.

Deferral elections under the Plan made prior to November 21, 1997, shall be credited to the Cash Deferral Account and continue to earn interest in accordance with Section 6.3.

6.3           Interest on Cash Deferral Accounts . The annual rate of interest on amounts in the Cash Deferral Accounts for 1997 and subsequent calendar years shall be Moody’s Long-Term Corporate Bond Yield Average as published by Moody’s Investor Service, Inc. (or any successor thereto) for the month of September before the calendar year in question (if such yield is no longer published, a substantially similar average selected by the Committee) or such other rate as the Committee shall determine prior to the year for which the interest rate would be applicable. Such interest shall be compounded quarterly, in arrears, on all unpaid amounts and shall be recorded on Participant’s statements quarterly.

 

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6.4           Form and Timing of Payout of Cash Deferral Accounts . Cash Deferral Accounts shall be paid out in cash. The Participant shall elect the timing of the payout for the Participant’s Cash Deferral Account no later than the last day of the calendar year prior to the first scheduled payment thereof. Notwithstanding the foregoing:

(i) persons who become Directors after November 19, 2004, shall elect the timing of the payout of their Cash Deferral Account (their “Post 2004 CDA Deferrals”) no later than the time they first make a deferral election into their Cash Deferral Account; and

(ii) each Participant in the Plan as of November 19, 2004 who has not irrevocably elected the timing of the payout of his or her Cash Deferral Account shall make such an election by December 31, 2004 with respect to all amounts from deferrals into such Participant’s Cash Deferral Account of Annual Retainers or fees earned after December 31, 2004 (the “Post 2004 CDA Deferrals”).

One election shall apply to a Participant’s Post 2004 CDA Deferrals and earnings thereon (each such payout schedule is hereinafter referred to as a “Cash Account Schedule”); and a separate election shall apply to amounts that are not Post 2004 CDA Deferrals and earnings thereon.

A Participant’s Cash Deferral Account shall, with respect to each Cash Account Schedule (if more than one), be paid out in a lump sum payment or in up to fifteen (15) annual installments, as elected by the Participant. The lump sum payment or the first installment, as the case may be, for each Cash Account Schedule shall be payable on the first Business Day of February of the year following the calendar year of the termination of the Participant’s service as a Director. Each subsequent annual installment shall be payable on the first Business Day of February. If the Director fails to make a timely election as to the number of installments for any Cash Account Schedule, the Participant’s Cash Deferral Account shall be paid out in four (4) annual installments. Each installment shall equal the amount available for payout under such Cash Account Schedule, divided by the number of remaining installments (including the installment being made).

6.5           Conversion of Non-Employee Director’s Cash Deferral Account to Deferred Stock Units . Each year, on or before the close of trading in Shares on the NYSE on the tenth day (if the tenth day is not a Trading Day, then the next preceding Trading Day) following the Company’s public release of its annual summary statement of earnings (typically in January of each year) (such Trading Day to be the “Conversion Date”), a Non-Employee Director may elect to convert all or part of the balance of his or her Cash Deferral Account into Stock Units. Notwithstanding the foregoing, however, no such conversion of Post 2004 CDA Deferrals shall be permitted unless the payout schedules for such Participant’s Post 2004 CDA Deferrals and Post 2004 Stock Units are identical. Each such election shall become irrevocable as of the last time such election may be made. A Non-Employee Director who elects to convert his or her Cash Deferral Account shall receive the number of Stock Units found by dividing the Non-Employee Director’s balance in the Cash Deferral Account, together with all accrued but not yet credited interest, or such lesser amount of the Cash Deferral Account elected by the Non-Employee Director, by the Fair Market Value of a Share on the Conversion Date. Upon such conversion, the Participant’s Cash Deferral Account shall be reduced by the amount so converted.

 

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Article 7. Amendment, Modification, and Termination

7.1           Amendment, Modification, and Termination . Subject to the terms set forth in this Article 7, the Board may terminate, amend, or modify the Plan at any time and from time to time.

7.2           Awards Previously Granted . Unless required by law, no termination, amendment, or modification of the Plan shall in any material manner adversely affect any Award previously provided under the Plan, without the written consent of the Participant holding the Award.

Article 8. Miscellaneous

8.1           Elections . All elections and notices of any kind hereunder shall be in writing and provided to the Secretary of the Company in a form prescribed by the Secretary. Unless marked as irrevocable, an election may be modified or revoked at any time prior to, and shall not be effective until, the deadline for making such election.

8.2           Assignment . Except as otherwise expressly provided herein, no rights under this Plan may be assigned by a Participant.

8.3           Savings Clause. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. Notwithstanding any provision to the contrary in this Plan, each provision in this Plan shall be interpreted to permit the deferral of compensation in accordance with Section 409A of the Internal Revenue Code of 1986, as amended, and any provision that would conflict with such requirements shall not be valid or enforceable.

8.4           Death of a Director/Beneficiary Designation . Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named primarily or contingently) to whom any benefit under the Plan is to be paid in the event of his or her death. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Secretary of the Company, and will be effective only when provided by the Participant in writing to the Secretary during such Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

In the event of the death of a Participant before full payment of all amounts due hereunder, the balance shall be paid in a lump sum as soon as administratively possible in accordance with the foregoing. Notwithstanding this, if the Participant so elects as part of the Participant’s deferral elections, the Stock Units and/or the Cash Deferral Account will be paid out in the number of annual installments elected by the Participant, beginning on the first Business Day of February following the calendar year of the Participant’s death and occurring annually thereafter; provided, however, if distributions to the Participant have already commenced at the time of the Participant’s death, then under this election, distributions will continue as scheduled.

8.5           No Right of Nomination . Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Director for reelection by the Company’s stockholders.

 

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8.6           Successors . All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

8.7           Requirements of Law . The granting of Awards under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

8.8           Governing Law . The Plan and all agreements hereunder, shall be construed in accordance with and governed by the internal, substantive laws of the State of Texas.

8.9           Adjustments. In the event of a merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number of outstanding Stock Units as may be determined to be appropriate and equitable by the Board, in its sole discretion, to prevent dilution or enlargement of rights.

 

8

Exhibit 10-ee

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

This Amended and Restated Contribution Agreement (the “Agreement”) is entered into as of the 15 th day of October, 2018, by and among Brock Fiduciary Services LLC (the “Independent Fiduciary”); JP Morgan Chase Bank, N.A., as directed trustee of the SBC Master Pension Trust (the “Trustee”); AT&T Inc.; and AT&T Mobility II LLC, an indirect wholly owned subsidiary of AT&T Inc. (the “Issuer”).

RECITALS

WHEREAS, AT&T Inc., formerly known as SBC Communications Inc., is a holding company incorporated under the laws of the State of Delaware;

WHEREAS, on September 9, 2013, AT&T Inc. made an in-kind contribution (the “Contribution”) of 320 million cumulative perpetual preferred membership interests (each a “Preferred Interest” and collectively, the “Preferred Interests”) of the Issuer to the SBC Master Pension Trust (the “Trust”), which holds assets of the AT&T Pension Benefit Plan (the “Plan”) pursuant to the terms of a Contribution Agreement between the Independent Fiduciary, Trustee, AT&T Inc., and Issuer, dated as of August 30, 2013 (the “Initial Agreement”);

WHEREAS, on September 9, 2013, the Independent Fiduciary and AT&T Inc. entered into a Supplemental Contribution Agreement which added certain provisions to the Initial Agreement (the “Supplement”);

WHEREAS, the U.S. Department of Labor (“Labor Department”) issued a Prohibited Transaction Exemption (the “PTE”) with respect to the Contribution;

WHEREAS, on September 30, 2014 the Independent Fiduciary, AT&T Inc., Issuer, and AT&T Services, Inc., entered into a Letter Agreement, acknowledged by Trustee, which further modified and clarified certain terms under the Initial Agreement (the “Side Letter”).

WHEREAS, in connection with the making of the Contribution, AT&T Services, Inc. retained the Independent Fiduciary as named fiduciary and investment manager with respect to the Preferred Interests to be held by the Trust pursuant to an Independent Fiduciary Agreement dated as of May 1, 2012, as amended (the “Independent Fiduciary Agreement”), and an Investment Management Agreement dated as of August 30, 2013 (the “Investment Management Agreement”); and

WHEREAS, simultaneously with the execution of this Agreement, the members of Issuer are entering into the Fourth Amended and Restated Limited Liability Company Agreement of AT&T Mobility II LLC (the “LLC Agreement”);

WHEREAS , in connection with entering into this Agreement, AT&T Inc. has agreed to make a payment to the Trust in the amount of $80 million; and

WHEREAS , the parties desire to amend and restate the Initial Agreement as modified by the Side Letter and the Supplement, to, among other things, remove AT&T Inc.’s right to call the

 

1


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Preferred Interests and otherwise to replace the Initial Agreement, Side Letter and Supplement with this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

1.      The parties hereby acknowledge and agree that, pursuant to the Initial Agreement, Side Letter and Supplement: (a) AT&T Inc. contributed the Preferred Interests to the Trust, as an addition to the Plan’s assets and in consideration of a reduction of AT&T Inc.’s funding obligation with respect to the Plan, effective as of September 9, 2013 (the “Contribution Date”); and (b) the Independent Fiduciary agreed, effective as of the Contribution Date, to accept the Preferred Interests on behalf of the Trust on the Contribution Date and, in its capacity as an “investment manager” (as such term is defined under section 3(38) of ERISA) to the Plan, directed the Trustee to take any and all action as it determined was necessary or appropriate to consummate such acceptance.

2.      AT&T Inc. and the Issuer each represents and warrants to the Independent Fiduciary as of the date of this Agreement, that:

(a)      The Issuer has been duly formed and is existing as a limited liability company in good standing under the laws of the State of Delaware and has all requisite power and authority of a limited liability company to own, lease and operate its assets and to carry on its business as it is now being conducted. The Issuer is duly qualified to do business as a foreign limited liability company, as applicable, and is in good standing under the laws of each state or other jurisdiction in which the nature of the activities conducted by it or the ownership or leasing of its properties requires such qualification, other than in such jurisdictions where the failure to so qualify or be in good standing, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on its business operations;

(b)      The authorized and outstanding capital classes of the Issuer, as of the date hereof, is as set forth in the Issuer’s unaudited financial statements for the calendar year ended December 31, 2016, copies of which have been delivered to the Independent Fiduciary;

(c)      The Preferred Interests have been duly authorized and are and will remain validly issued; under the Delaware Limited Liability Company Act, neither AT&T Inc. not the Trust has any obligation to make future payments with respect to the Preferred Interests solely by reason of their status as members;

(d)      This Agreement has been duly authorized, executed and delivered by each of AT&T Inc. and the Issuer and constitutes a valid and legally binding agreement of AT&T Inc. and the Issuer enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles;


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(e)      The contribution of the Preferred Interests to the Trust, the compliance by AT&T Inc. and the Issuer with all of the provisions of the Initial Agreement and this Agreement, and the consummation of the transactions contemplated in the Initial Agreement and this Agreement did not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any material indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which AT&T Inc. or any of its subsidiaries, including the Issuer, is now (or was at the Contribution Date) a party or by which AT&T Inc. or any of its subsidiaries, including the Issuer, is now (or was at the Contribution Date) bound, nor did any such action result in any violation of the provisions of the Amended and Restated Articles of Incorporation or the amended and restated Bylaws of AT&T Inc. or the LLC Agreement, or the charter, bylaws, or LLC operating agreements of any of their respective subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over AT&T Inc., the Issuer or any of their respective subsidiaries or any of their respective properties;

(f)      AT&T Inc. is subject to section 13 or 15(d) of the Securities Exchange Act of 1934, as amended;

(g)      Neither the Issuer nor any person acting on its behalf has offered or sold the Preferred Interests by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act of 1933 (the “1933 Act”).

(h)      No commission, within the meaning of section 408(e)(2) of ERISA, or brokerage fee will become due or payable in connection with the execution and delivery of this Agreement or the transactions contemplated hereby; and

(i)      Subject to compliance by the Independent Fiduciary with Section 3 of the Initial Agreement and the accuracy of the Independent Fiduciary’s representations stated therein, it was not necessary in connection with the offer, sale and delivery of the Preferred Interests at the Contribution Date by the Issuer to AT&T Inc. or by AT&T Inc. to the Trust to register the Preferred Interests under the 1933 Act.

3.      The Independent Fiduciary, acting on behalf of the Trust:

(a)      Represents and warrants that it has the authority to act on behalf of the Trust and that all action necessary on the part of the Independent Fiduciary, including its direction to the Trustee, to authorize the execution and delivery of this Agreement on behalf of the Trust has been taken;

(b)      Represents and warrants that its directions to the Trustee are pursuant to the Independent Fiduciary’s authority as an “investment manager” (as such term is defined under section 3(38) of ERISA) to the Plan;

(c)      Acknowledges that the Preferred Interests have not been registered under the 1933 Act and were contributed to the Trust in reliance upon an exemption from such registration under the 1933 Act;


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(d)      Acknowledges that the Trust is an institutional “accredited investor” within the meaning of Rule 501 under the 1933 Act;

(e)      Confirms that the Independent Fiduciary has been informed that the Preferred Interests (i) are not subject to any registration rights and (ii) are “restricted securities” under the 1933 Act and may not be resold or transferred except in accordance with the terms of the LLC Agreement;

(f)      Is aware of the adoption of Rule 144 under the 1933 Act (“Rule 144”) by the U.S. Securities and Exchange Commission, which permits limited public resale of securities of an issuer acquired in a nonpublic offering, subject to the satisfaction of certain conditions, including, among other things: (i) the availability of certain current public information about such issuer, (ii) such public resale being through a broker in an unsolicited “broker’s transaction”, with a “market maker” or in a “riskless principal transaction” and (iii) the amount of securities being sold during any three month period not exceeding specified limitations;

(g)      Represents that, (i) prior to accepting the Contribution on behalf of the Trust, it acquired sufficient information about the Issuer to reach an informed and knowledgeable decision to accept the Contribution, (ii) it had such knowledge and experience in financial and business matters as to make it capable of evaluating the risks to the Trust of accepting the Contribution and to make an informed decision with respect thereto and (iii) the Trust was able to bear the economic risk of accepting the Contribution;

(h)      Agrees that the Issuer shall not be required (i) to transfer on its books any Preferred Interests that have been assigned, sold or otherwise transferred in violation of the provisions of this Agreement or the LLC Agreement nor (ii) to treat as the owner of the Preferred Interests, or otherwise to accord voting, distribution or other rights to, or admit as a member of the Issuer, any person to whom the Preferred Interests have been assigned, sold or otherwise transferred in contravention of this Agreement or the LLC Agreement; and further agrees that the Preferred Interests are subject to the provisions of the LLC Agreement (a copy of which the Independent Fiduciary has received and reviewed);

(i)      Agrees that the Trust shall make no disposition of the Preferred Interests that is contrary to the terms of the Preferred Interests, this Agreement or the LLC Agreement, and shall not pledge or grant any security interest in the Preferred Interests; provided, however, that the Independent Fiduciary shall have the authority under Section 2(c) of the Investment Management Agreement relating to swap transactions; and

(j)      Acknowledges that, in order to reflect the restrictions on the transfer or other disposition of the Preferred Interests, the Preferred Interests will either be issued in certificated form and held in custody by the Trustee on behalf of the Trust or issued in uncertificated form and evidenced on the Issuer’s or its transfer agent’s books (at the Issuer’s option), in either case in the name and under the authority of the Trustee, subject to the direction of the Independent Fiduciary, and subject to restrictive legends or restrictive notations in such books indicating that the Preferred Interests are subject to the provisions of this Agreement and the LLC Agreement (in addition to such other legends or


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notations contemplated by the LLC Agreement), as the same may be amended from time to time hereafter in accordance with the provisions set forth therein and Delaware law.

4.      The Preferred Interests shall, pursuant to the LLC Agreement, continue to accrue cumulative distributions of $1.75 per Preferred Interest per annum, payable quarterly upon declaration by the Issuer and pursuant to the LLC Agreement. At any time when distributions on any outstanding Preferred Interests are in arrears for purposes of the LLC Agreement: (a) the Issuer shall not be permitted to make any transfer of cash to AT&T Inc. or any other member of the Issuer, whether pursuant to a loan, equity distribution or any other arrangement, and (b) AT&T Inc. shall not be permitted to declare any dividends on or make any repurchases of its common stock.

5.      The Independent Fiduciary acknowledges that the aggregate fair market value of the Preferred Interests upon their delivery to the Trustee on the Contribution Date was $9.2032 billion. AT&T Inc. agrees that such valuation of the Preferred Interests as of the Contribution Date for purposes of the minimum amount required to meet the funding requirements of sections 412 and section 430 of the Code (without regard to any subsequent adjustments required by such funding requirements with respect to interest accrual or investment experience) did not exceed $9.2032 billion.

6.      The price for each Preferred Interest (“Option Price”) in the event of an exercise of a Put Option (described below) is the greater of:

(a)      the fair market value of the Preferred Interest, determined by the Independent Fiduciary as of the last date of the calendar quarter preceding the date of exercise of a Put Option or, for the portion of the Preferred Interests that cannot be purchased due to the Put 12-Month Cap (defined in Section 8 below), the fair market value of the Preferred Interest, determined by the Independent Fiduciary as of the last date of the calendar quarter immediately preceding the date such portion of the Preferred Interest is actually purchased by AT&T Inc., and

(b)      the sum of: (i) $25.00, plus (ii) any accrued and unpaid distributions.

For purposes of the foregoing, “the fair market value of the Preferred Interest”

(x)      in cases of exercise of the Put Option on or after September 9, 2020 (other than an exercise prior to September 9, 2022 as the result of a Contingent Event (defined below)), an amount determined based upon $25.00 plus any accrued and unpaid distributions and market conditions at the time, and

(y)      in cases of exercise of the Put Option prior to September 9, 2022 as the result of a Contingent Event, an amount determined based upon the sum of:

(i)      $25.00 plus any accrued and unpaid distributions, and

(ii)      the present value of future distributions (excluding accrued and unpaid distributions accounted for in (i) immediately above) through and ending on September 9, 2022.


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For purposes of the foregoing, “Contingent Event” means an event described in Section 8(a), (b) or (c).

7.       [Reserved].

8.      AT&T Inc. and the Issuer hereby grant to the Trust the right to require AT&T Inc. to purchase the Preferred Interests (the “Put Option”), at a price per Preferred Interest equal to the Option Price, at any time and from time to time on or after the earliest of (a) the first date that the Issuer’s debt-to-total-capitalization ratio (as defined below) exceeds that of AT&T Inc., (b) the date on which AT&T Inc. is rated below investment grade for two consecutive calendar quarters by at least two of the following rating agencies: (x) Standard & Poor’s, (y) Moody’s, or (z) Fitch Group, (c) a “Change of Control” as described in Section 9 (and subject to the additional terms of such Section 9), or (d) September 9, 2020. The Put Option may be exercised as many number of times, and in each case for the number of Preferred Interests, as the Trust elects; provided, however, that except in the event of a Change of Control, AT&T Inc. and its affiliates shall not be required to purchase more than 106,666,667 Preferred Interests in any twelve-month period (the “Put 12-Month Cap”) pursuant to this Agreement or the LLC Agreement. For purposes of this Section 8, the Issuer’s “debt-to-total-capitalization ratio” is defined as the Issuer’s “Debt” (defined below) divided by the sum of the Issuer’s Debt and total members’ equity including outstanding Preferred Interests (as taken directly from the Issuer’s most recently prepared US GAAP balance sheet), and AT&T Inc.’s “debt-to-total-capitalization ratio” is defined as AT&T Inc.’s Debt divided by the sum of AT&T Inc.’s Debt and total shareholders’ equity (as taken directly from AT&T Inc.’s most recently prepared US GAAP balance sheet). For purposes of this Section 8, “Debt” of any Person means, without duplication, (x) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, and (y) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments. Upon the Independent Fiduciary’s request, as of the end of any calendar quarter, AT&T Inc. shall, within forty-five (45) calendar days after the end of such calendar quarter, certify as to whether the Issuer’s debt-to-total-capitalization ratio exceeds that of AT&T Inc. In the event of an exercise pursuant to clause (d) above, the Put Option may only be exercised upon written notice from the Trust delivered to AT&T Inc. during a period beginning on the 15 th Business Day prior to the end of each fiscal quarter of AT&T Inc. and ending on the 15 th Business Day of the subsequent fiscal quarter of AT&T Inc. The obligation to purchase the Preferred Interests upon exercise of the Put Option may be consummated by, at the sole election of AT&T Inc., any of (or any combination of) AT&T Inc., its wholly-owned, direct or indirect, subsidiaries or Issuer (each, a “Permitted Purchaser”).

9.      For purposes of Section 8 hereof, a “Change of Control” means (a) the occurrence of any merger, reorganization or other transaction that results in AT&T Inc., directly or indirectly, owning less than fifty percent of the capital or profits interests (where the Issuer remains taxable as a partnership), or equity (if the Issuer becomes taxable as a corporation), of the Issuer exclusive of the Preferred Interests or (b) a transfer of fifty percent or more of the Plan liabilities and Trust assets to an entity not under common control with AT&T Inc. Upon a Change of Control, the Put Option shall become exercisable in full, thereby giving the Independent Fiduciary the right to require AT&T Inc. to purchase all or any portion of the Preferred Interests at the Option Price, except that (i) the limitation on the number of Preferred Interests that AT&T Inc. may be required to purchase in any twelve-month period as described in Section 8 shall not apply and (ii) AT&T Inc. shall have a period of up to one year to pay the Option Price.


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10.      At the sole election of AT&T Inc. or other Permitted Purchaser, as the case may be, payment of the Option Price may be made in (a) fully paid and non-assessable shares of AT&T Inc. common stock (“AT&T Shares”), (b) cash, or (c) any combination of AT&T Shares and cash. Any AT&T Shares delivered to satisfy all or a portion of the Option Price shall be valued at the average closing price of the 20 trading days preceding the date of delivery of the applicable notice of exercise of the Put Option by the Trust (or, in the case of a delayed payment pursuant to the one-year payment period described in Section 9 above in connection with a Change of Control, the 20 trading days preceding the actual date of payment). AT&T Inc., the Independent Fiduciary and the Trustee have executed and delivered an Amended and Restated Registration Rights Agreement, dated as of the date hereof, incorporated herein for all purposes, providing for the registration of the AT&T Shares under the 1933 Act and other matters as provided therein.

11.      Notwithstanding anything herein to the contrary, in no event shall AT&T Inc. or any other Permitted Purchaser, as the case may be, be required to deliver more than 250 million AT&T Shares (the “Capped Number”) to the Trust in settlement of the Option Price for the Preferred Interests; provided, however, AT&T Inc. may, in its sole and absolute discretion (subject to the last sentence of this Section 11), deliver (or cause any other Permitted Purchase to delivery) more than the Capped Number of AT&T Shares. AT&T Inc. represents and warrants that the Capped Number is equal to or less than the number of authorized but unissued AT&T Shares that are not reserved for future issuance on the date of this Agreement. In the event AT&T Inc., through delivery of the Capped Number of AT&T Shares and AT&T Shares in addition to the Capped Number of AT&T Shares, if any, shall not have delivered the full number of AT&T Shares otherwise deliverable in settlement of the Option Price for the Preferred Interests, AT&T Inc. will use its best efforts to authorize and deliver additional AT&T Shares. AT&T Inc. may elect, solely at its option, to settle the Option Price, in whole or in part, by delivering cash. In the event of a merger, reorganization, consolidation, recapitalization, separation, split-up, liquidation, share combination, stock split, stock dividend, or other change in the corporate structure of AT&T Inc. affecting the AT&T Shares (including a conversion of the AT&T Shares into cash or other property), an adjustment may be made in the number and class of shares that may be delivered in settlement of the Option Price for the Preferred Interests, as determined by AT&T Inc. to prevent dilution or accretion with respect to the Capped Number and reflect such changes in corporate structure (e.g., substitution of successor shares), provided, that, if AT&T does not make any such adjustment or the Independent Fiduciary disagrees with the adjustment, the Independent Fiduciary can request that AT&T modify its determination and if AT&T fails to do so, the parties shall resolve the matter in accordance with the dispute resolution procedures specified in the Investment Management Agreement. In the event AT&T Inc., through delivery of the Capped Number of AT&T Shares and AT&T Shares in addition to the Capped Number of AT&T Shares, if any, shall not have delivered the full number of AT&T Shares otherwise deliverable in settlement of the Option Price for the Preferred Interests (resulting in a shortfall), the Preferred Interests for which neither AT&T Shares nor cash have been delivered shall remain outstanding, in accordance with their terms.

12.      AT&T Inc. and the Issuer shall be solely responsible for (a) determining the proper treatment of the Preferred Interests, any distributions or other payments with respect thereto, or any proceeds of any redemption or conversion thereof for tax or financial accounting purposes; (b) any and all regulatory reporting or filings required in connection with or as a result of the Contribution or the Trust’s ownership or disposition of the Preferred Interests; (c) the payment of


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any franchise or similar fees or taxes with respect to the Preferred Interests; and (d) any transfer agency or similar fees or expenses relating to the issuance or transfer of the Preferred Interests.

13.      [Reserved]

14.      This Agreement shall be binding upon, and inure solely to the benefit of, the Trust, the Trustee, the Independent Fiduciary, AT&T Inc., the Issuer and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No assignee, purchaser or any other transferee of any Preferred Interests from the Trust shall be treated as a successor or assign of the Trust for the purpose of this Section 14 by reason of such assignment, purchase or other transfer.

15.      This Agreement may be amended only by mutual written agreement of the parties.

16.      This Agreement shall terminate upon the later of the disposition of all Preferred Interests by the Trust and on such date when the PTE (or any successor thereto) shall no longer be necessary for the Trust to hold or dispose of the Preferred Interests or any AT&T Shares received in exchange therefor pursuant to this Agreement. In addition, in the event of partial disposition of Preferred Interests by the Trust, this Agreement shall terminate with respect to, and no provisions of this Agreement (including without limitation, the Put Option and the registration rights associated with the right to receive AT&T Shares) shall apply to, the Preferred Interests that are no longer held by the Trust, effective upon such Preferred Interests ceasing to be held by the Trust.

17.      In the event of the termination or resignation of the Independent Fiduciary, the AT&T Inc. Benefit Plan Investment Committee (the “Committee”), shall appoint a successor independent fiduciary in accordance with the terms of the Investment Management Agreement. Such successor independent fiduciary shall acknowledge in writing the assignment to it of this Agreement and its acceptance of all rights and responsibilities of the Independent Fiduciary hereunder. In the event of a termination or resignation by the Independent Fiduciary, the Independent Fiduciary shall reasonably cooperate with any successor independent fiduciary appointed by the Committee in transitioning its work-in-progress under this Agreement, which cooperation shall include, but shall not be limited to, providing copies of all records regarding the Independent Fiduciary’s activities pursuant to this Agreement, if and to the extent requested by the successor independent fiduciary.

18.      This Agreement shall be governed and construed according to the laws of the State of Delaware without regard to its conflicts of laws provisions, except as superseded and preempted by ERISA or other laws of the United States.

19.      The Preferred Interests described herein have been issued pursuant to, and are subject to the provisions of, the LLC Agreement. In the case of a conflict between this Agreement (including Schedule A hereto) and the LLC Agreement with respect to terms and conditions of the Preferred Interests (including rights and obligations thereto), the LLC Agreement shall control.

20.      This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument.


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21.      Any disputes arising under this Agreement shall be resolved in accordance with the dispute resolution procedures specified in the Investment Management Agreement.

22.      AT&T Inc. hereby agrees that in the event any governmental authority undertakes to impose or collect any tax with respect to the acquisition, holding or disposition of any Preferred Interests by the Trust (including, without limitation, any Shares received by the Trust in exchange for Preferred Interests), or with respect to any distribution to the Trust by the Issuer in connection with the Preferred Interests (or such Shares), AT&T Inc. shall, subject to Section 23 of this Agreement, make additional cash contributions to the Trust in the full amount of any resulting tax, any interest or penalties thereon, and any legal, accounting or other expenses of the Trust, including any such amounts as may be incurred by the Independent Fiduciary that are reimbursed by the Trust, to the extent reasonably incurred in connection therewith. The Independent Fiduciary shall reasonably cooperate with AT&T Inc. or any of its affiliates in challenging, disputing, settling or compromising any such asserted tax liability. The parties hereto acknowledge that the Company, or such other person to whom authority with respect to this matter is delegated by the Company, but not the Independent Fiduciary, shall, in its sole discretion be responsible for directing the Trustee with respect to challenging, disputing, settling or compromising the asserted tax liability on behalf of the Trust.

23.      Payment of the contributions contemplated by Section 22 shall be made at such time as AT&T Inc. shall determine so long as the Trust is actively disputing or negotiating the asserted liability, provided that the contributions contemplated herein shall be due and payable as soon as practicable upon the imposition of any final judgment or lien against the Trust, or in the event that the Company directs the Trust to pay a tax liability.

24.      Anything herein to the contrary notwithstanding, no contribution(s) shall be required hereunder to the extent that both (a) the Plan would be deemed to be fully funded (within the meaning Section 7 of this Agreement) after payment of the asserted tax liability and (b) such contribution(s) would be subject to excise tax as excess contributions pursuant to section 4972 of the Code.

[Signature Page Follows]


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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement to be effective as of the date set forth above.

 

AT&T INC.

By:

   
 

Name: George B. Goeke

 

Title: Senior Vice President and Treasurer

 

AT&T MOBILITY II LLC

By:

 

AT&T MOBILITY CORPORATION, its sole Manager

      

 

  By:

 
   

 

   

Name: George B. Goeke

   

Title: Treasurer

 

BROCK FIDUCIARY SERVICES LLC

By:  

 

Brock Capital Group LLC, its Managing Member

 

By:

  Charles Brock LLC, its Managing Member

      

 

      

 

  By:

   
     

Name:

     

Title:

 

JP MORGAN CHASE BANK, N.A.,

as directed trustee of the SBC Master Pension Trust

By:

   
 

Name:

 

Title:

Signature Page to

Amended and Restated Contribution Agreement

Exhibit 10-ff

FOURTH AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

AT&T MOBILITY II LLC

This Fourth Amended and Restated Limited Liability Company Agreement (this “ Agreement ”) is entered into effective as of the date specified herein by and among New Cingular Wireless Services, Inc., a Delaware corporation (“ NCWS ”), AT&T Mobility LLC, a Delaware limited liability company (“ Mobility ”), AT&T Corp, a New York corporation (“ AT&T Corp. ”), SBC Master Pension Trust (“ Trust ”) and BellSouth Mobile Data, Inc., a Georgia corporation (“ BSMD ”), as the members (the “ Members ”), and AT&T Mobility Corporation, a Delaware corporation, as the manager (the “ Manager ”) of AT&T Mobility II LLC (f/k/a Cingular Wireless II LLC) (the “ Company ”), which has been formed as a limited liability company pursuant to the Delaware Limited Liability Company Act (6 Del . C . § 18 101, et seq .) (the “ Act ”) upon the following terms and conditions.

WHEREAS, NCWS, Mobility, BSMD and Manager are parties to an Amended and Restated Limited Liability Company Agreement of the Company with an effective date of January 16, 2008, 6:01 P.M. Eastern Standard Time, which amended and restated the Prior Agreement, and that certain First Amendment to the Amended and Restated Limited Liability Company Agreement of the Company dated August 25, 2009 by and among NCWS, Mobility and BSMD, as the members, and Manager as the manager of the Company (as amended, the “ Original Amended and Restated Agreement ”);

WHEREAS, on January 1, 2010, Centennial Cellular Operating Co LLC (“ CCOC ”) contributed certain assets to Mobility II in exchange for a 1.2721165% interest in Mobility II and at such time, and in connection with such contribution, the assets of Mobility II were revalued;

WHEREAS, on July 1, 2010, CCOC merged with Centennial Communications Corp., a Delaware corporation (“ Centennial ”) and as a result of such merger, the Mobility II interest held by CCOC was transferred to Centennial and Centennial was admitted as a member of the Company;

WHEREAS, on September 9, 2013, the then existing membership interests in the Company were recapitalized into Common Interests (defined below);

WHEREAS, on September 9, 2013, AT&T Inc. contributed a promissory note to the Company (the “ Series A Contribution ”) pursuant to a Contribution, Assignment and Assumption Agreement, dated as of August 30, 2013 (which agreement is being amended and restated at or around the date of this Agreement) (as amended and restated, the “ Contribution Agreement ”) in exchange for 320,000,000 Series A Preferred Interests (defined below) and the Amended and Restated Agreement was amended and restated and superseded by the Second Amended and Restated Limited Liability Company Agreement (the “ Second Amended and Restated Agreement ”) to provide, among other things, for the issuance of the Series A Preferred Interests to AT&T Inc.;


WHEREAS, on September 9, 2013, 4:30 P.M. Eastern Daylight Time, AT&T Inc. contributed 320,000,000 Series A Preferred Interests in the Company to the Trust and the Trust was admitted as a member of the Company and the Second Amended and Restated Limited Liability Company Agreement was amended and restated and superseded by the Third Amended and Restated Limited Liability Company Agreement (the “ Third Amended and Restated Agreement ”);

WHEREAS, on January 1, 2016, Centennial merged with AT&T Corp. and as a result of such merger, the Company interest held by Centennial was transferred to AT&T Corp. by operation of law, and AT&T Corp. was admitted as a member of the Company and the Third Amended and Restated Agreement was amended (the “ First Amendment to Third Amended and Restated Agreement ”);

WHEREAS, on December 30, 2016, the Third Amended and Restated Agreement, as amended, was amended to reflect changes to Section 13 and Section 15 of that agreement (the “ Second Amendment to Third Amended and Restated Agreement ”);

WHEREAS, on May 31, 2017, NCWS and Mobility redeemed a portion of their common interests in the Company (the “ Membership Redemption ”) and the Third Amended and Restated Agreement as amended, was amended to reflect the Membership Redemption and make certain changes in connection therewith (the “ Third Amendment to Third Amended and Restated Agreement ”);

WHEREAS, effective May 31, 2017, the Third Amended and Restated Agreement as amended, was amended to update the final Percentage Interests of the Members resulting from the Membership Redemption based on the finalized valuation received from Duff & Phelps (the “ Fourth Amendment to Third Amended and Restated Agreement ”);

WHEREAS, on October 15, 2018, the Third Amended and Restated Agreement as amended, was amended to remove the requirement that the Manager approve transfers of Series A Preferred Interests (the “ Fifth Amendment to Third Amended and Restated Agreement ”);

WHEREAS, the Members and the Manager desire to amend and restate the Third Amended and Restated Agreement, as amended, to provide, among other things, additional rights with respect to any transferee of the Series A Preferred Interests and otherwise to replace the Third Amended and Restated Agreement and First through Fifth Amendments thereof with this Agreement.

NOW, THEREFORE, in consideration of the premises, and the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows:

1.         Certain Definitions . For the purposes of this Agreement, the following terms shall have the following meanings:

Act ” has the meaning set forth in the Recitals.

 

2


Adjusted Capital Account Balance ” means, with respect to any Member as of the date of any determination, the balance in such Member’s Capital Account at such time, after such balance is:

(a)        Increased by any amounts that such Member is obligated to restore under the standards set by Treasury Regulation Section 1.704-1(b)(2)(ii) (c) (taking into account the extent to which the Member bears the economic risk of loss for Company liabilities (other than Member Nonrecourse Debt) as determined in accordance with Code Section 704(b) and the Treasury Regulations thereunder and Treasury Regulation Section 1.752-2) or is deemed obligated to restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5); and

(b)        Decreased by the amount of the items described in Regulations Sections 1.704-1(b)(2)(ii) (d)(4), 1.704-1(b)(2)(ii) (d)(5) and 1.704-1(b)(2)(ii) (d)(6) .

The foregoing definition of Adjusted Capital Account Balance is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii) (d) and shall be interpreted consistently therewith.

Adjusted Capital Account Deficit ” means, with respect to each Member, the deficit balance, if any, of such Member’s Adjusted Capital Account Balance as of the end of the relevant Allocation Period.

Agreement ” has the meaning set forth in the Recitals.

Allocation Period ” means (a) any period commencing on January 1 and ending on the following December 31 or (b) any portion of the period described in clause (a) for which the Company is required to allocate Net Income, Net Loss and other items of Company income, gain, loss or deduction pursuant to Section 14.

AT&T Common Stock ” means the common stock, $1.00 par value per share, of AT&T Inc. and any successor equity securities issued in lieu thereof by any successor of AT&T Inc.

AT&T Corp .” has the meaning set forth in the Recitals.

AT&T Shares ” means AT&T Inc. Common Stock that may become deliverable pursuant to Section 8(e)(iii) of this Agreement.

AT&T Inc.’s Debt-to-Total-Capitalization Ratio ” means AT&T Inc.’s Debt divided by the sum of AT&T Inc.’s Debt and total shareholders’ equity (as taken directly from AT&T Inc.’s most recently prepared US GAAP balance sheet).

BSMD ” has the meaning set forth in the Recitals.

Business Day ” means any day other than a Saturday, Sunday, federal holiday or a day on which banks in The City of New York are authorized or obligated by law to close.

 

3


Capital Account ” means the account established and maintained for each Member on the books of the Company pursuant to Section 15, as said Capital Account may be increased or decreased from time to time. Any reference to Capital Account of a Member shall include the Capital Account of a predecessor holder of the interest of the Member, or a proportionate share of that Capital Account if the Member has succeeded to less than all of the predecessor’s interest.

Capital Contribution ” means, with respect to any Member, the amount by which (a) the aggregate amount of money and the initial Carrying Value of any property (other than money) contributed to the Company by such Member (or its predecessors in interest) with respect to the LLC Interest in the Company held by such Member exceeds (b) the initial Carrying Value of any liabilities to which such contributed property is subject or that are assumed from such Member in connection with such contribution.

Carrying Value ” means, with respect to any Company asset or liability (which shall include, for purposes of this Agreement, the Company’s interest in any asset or liability owned through one or more partnerships) as of the date of any determination, the value at which the asset or liability is properly reflected on the books and records of the Company as of such date in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv) as follows:

(a)        The initial Carrying Value of any asset or liability contributed or transferred by a Member to the Company shall be the fair market value of such asset or liability as agreed to by the transferring Member and the Manager;

(b)        The Carrying Values of all Company assets and liabilities shall, except as otherwise provided herein, be adjusted to equal their respective Fair Market Values immediately prior to the following events: (i) immediately prior to a contribution to the Company of more than a de minimis amount of cash or other property, or a Member’s assumption of more than a de minimis amount of Company liabilities, in exchange for an interest in the Company, the issuance of an interest (other than a de minimis interest) in the Company in consideration of the performance of services, or the issuance of a Noncompensatory Option (other than an option for a de minimis interest); (ii) the distribution by the Company to a Member of more than a de minimis amount of money or other property in retirement of all or any portion of its LLC Interest; (iii) the liquidation of the Company within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g); and (iv) any other event to the extent determined by the Manager to be permitted and necessary to properly reflect Carrying Values in accordance with the standards set forth in Treasury Regulation Section 1.704-1(b)(2)(iv); provided , however , that in the event of the issuance of an interest in the Company pursuant to the exercise of a Noncompensatory Option where the right to share in Company capital represented by such LLC Interest differs from the consideration paid to acquire and exercise such option, the Carrying Value of each Company property immediately after the issuance of such LLC Interest shall be adjusted upward or downward in a manner consistent with Treasury Regulation Section 1.704-1(b)(2)(iv)(s);

(c)        The Carrying Value of any Company asset distributed to any Member or any Company Liability assumed or taken subject to by any Member shall, except as

 

4


otherwise provided herein, be the Fair Market Value of such asset (or, in the case of cash, shall be its face amount) or liability as of the date of such distribution or assumption;

(d)        The Carrying Values of Company assets shall, except as otherwise provided herein, be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv) (m) and subparagraph (f) of the definition of “Net Income” and “Net Loss” or Section 14(c)(vii); provided , however , that Carrying Values shall only be adjusted pursuant to this subparagraph (d) to the extent that the adjustment would be allowable under Treasury Regulation Section 1.704-1(b)(2)(iv) (m)(5) after taking into account any adjustment to Carrying Value required pursuant to subparagraph (b) as a result of the same transaction that would otherwise result in an adjustment pursuant to this subparagraph (d);

(e)        If the Carrying Value of a Company asset has been determined or adjusted pursuant to subparagraph (a), (b), or (d) or Section 15, such Carrying Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of the allocations made pursuant to Section 14; and

(f)        If the Carrying Value of a Company Liability has been determined or adjusted pursuant to subparagraph (a) or (b) or Section 15, such Carrying Value shall thereafter be adjusted based on the method adopted under subparagraph (e) of the definition of “Net Income” and “Net Loss” to determine the extent to which the Carrying Value of such liability is treated as satisfied or otherwise taken into account.

Change of Control ” means the occurrence of any merger, reorganization or other transaction that results in AT&T Inc., directly or indirectly, owning less than fifty percent of the capital or profits interests (where the Company remains taxable as a partnership), or equity (if the Company becomes taxable as a corporation), of the Company exclusive of the Series A Preferred Interests.

Code ” means the Internal Revenue Code of 1986 (as amended from time to time, or any successor statute).

Common Interests ” shall mean the common membership interests of the Company, having the powers, preferences, rights, qualifications, limitations and restrictions set forth in Section 7(b) of this Agreement.

Common Percentage Interest ” of a Member holding Common Interests shall mean such Member’s aggregate Common Interests’ economic percentage interest in the Company as determined by dividing the Common Interests of such Member by the total Common Interests of all Members, as set forth on Schedule  A and as may be adjusted from time to time.

Company ” has the meaning set forth in the Recitals.

 

5


Company’s Debt-to-Total-Capitalization Ratio ” means the Company’s Debt divided by the sum of the Company’s Debt and total members’ equity including outstanding Series A Preferred Interests (as taken directly from the Company’s most recently prepared US GAAP balance sheet).

Company Liability ” means any Obligation of the Company.

Contingent Event ” means an event described in Section 8(e)(i)(a), (b) or (c).

Contribution Agreement ” has the meaning set forth in the Recitals.

Debt ” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, and (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments.

Depreciation ” means, for each Allocation Period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such Allocation Period, except that (a) with respect to any asset whose Carrying Value differs from its adjusted tax basis for United States federal income tax purposes and which difference is being eliminated by use of the “remedial method” defined by Treasury Regulation Section 1.704-3(d), Depreciation for such Allocation Period shall be the amount of book basis recovered for such Allocation Period under the rules prescribed by Treasury Regulation Section 1.704-3(d)(2) and (b) with respect to any other asset whose Carrying Value differs from its adjusted basis for federal income tax purposes at the beginning of such Allocation Period, Depreciation shall be an amount which bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Allocation Period bears to such beginning adjusted tax basis; provided , however , that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Allocation Period is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the Manager.

Distribution Payment Date ” has the meaning set forth in Section 16(a)(i).

Distribution Period ” has the meaning set forth in Section 16(a)(i).

Effective Time ” means the time specified in Section 3.

Fair Market Value ” means (a) as of the date of any revaluation of Company property in accordance with Section 15, the fair market value of each Company asset and liability and (b) as of the date of any distribution of Company property or a Member’s assumption or taking subject to a Company Liability, the fair market value of each Company asset or liability, in each case as determined reasonably and in good faith by the Manager using such reasonable methods of valuation as it may adopt; provided , however , that if at the time of any revaluation of Company property in accordance with Section 15, the Company has an outstanding Noncompensatory Option, the fair market value of Company property shall be adjusted as provided in Treasury Regulation Section 1.704-1(b)(2)(iv) (h)(2) .

 

6


Fifth Amendment to Third Amended and Restated Agreement ” has the meaning set forth in the Recitals.

First Amendment to Third Amended and Restated Agreement ” has the meaning set forth in the Recitals.

Fourth Amendment to Third Amended and Restated Agreement ” has the meaning set forth in the Recitals.

Guaranteed Payment Amount ” of a particular Series A Preferred Return quarterly amount means an amount equal to (a) the Series A Preferred Return quarterly amount less (b) the Series A Preferred Interest Return of Capital Amount for such Series A Preferred Return quarterly amount, and such amount shall be treated as a guaranteed payment within the meaning of section 707(c) of the Code.

Indemnified Party ” has the meaning set forth in Section 24(b)(v).

Liquidation Amount of the Series A Preferred Interests ” means $25.00 per Series A Preferred Interest.

Liquidation Preference ” means the Liquidation Amount of the Series A Preferred Interests, plus the Unpaid Series A Preferred Interest Return of Capital Amount, plus any accrued but unpaid Series A Preferred Return.

LLC Interest ” means a Member’s entire limited liability company interest in the Company at any particular time, evidenced by Common Interests and Series A Preferred Interests.

Manager ” has the meaning set forth in the Recitals.

Members ” means those Persons executing this Agreement as Members of the Company, including any substitute Members or additional Members, in each such person’s capacity as a Member of the Company.

Member Nonrecourse Deductions ” has the same meaning as the term “partner nonrecourse deductions” in Treasury Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2).

Member Nonrecourse Debt ” has the same meaning as the term “partner nonrecourse debt” in Treasury Regulation Section 1.704-2(b)(4).

Member Nonrecourse Debt Minimum Gain ” means an amount, with respect to each Member Nonrecourse Debt, equal to the Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Treasury Regulation Section 1.704-2(i)(3).

Minimum Gain ” has the meaning given the term “partnership minimum gain” in Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).

 

7


Mobility ” has the meaning set forth in the Recitals.

NCWS ” has the meaning set forth in the Recitals.

Net Income ” and “ Net Loss ” mean, for each Allocation Period, an amount equal to the Company’s taxable income or loss for such Allocation Period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

(a)        Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Net Income” and “Net Loss” shall be added to such taxable income or loss;

(b)        Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv) (i) , and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of “Net Income” and “Net Loss” shall be subtracted from such taxable income or loss;

(c)        Gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Carrying Value of such property, notwithstanding that the adjusted tax basis of such property differs from its Carrying Value;

(d)        In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Allocation Period, computed in accordance with the definition of “Depreciation;”

(e)        Income, gain, deduction or loss resulting from the satisfaction or accrual for federal income tax purposes of a Company Liability with a Carrying Value that differs from its adjusted issue price (if any) shall be computed by reference to the Carrying Value of such liability, with the extent to which the Carrying Value of such liability is treated as satisfied or otherwise taken into account being determined under any reasonable method adopted by the Manager; and

(f)        Notwithstanding anything to the contrary in subparagraphs (a) through (e) above, any items which are specially allocated pursuant to Section 14(c) or (d) shall not be taken into account in computing Net Income or Net Loss.

The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Section 14 shall be determined by applying rules analogous to those set forth in subparagraphs (a) through (e) above.

Noncompensatory Option ” has the meaning set forth in Treasury Regulation Section 1.721-1(f).

 

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Nonrecourse Deductions ” has the meaning set forth in Treasury Regulation Sections 1.704-2(b)(1) and 1.704-2(c).

Nonrecourse Liability ” has the meaning set forth in Treasury Regulation Section 1.704-2(b)(3).

Obligation ” has the meaning assigned to that term in Treasury Regulation Section 1.752-1(a)(4)(ii).

Option Price ” means, for each Series A Preferred Interest, the greater of.

(a)        the fair market value of the Series A Preferred Interest as of the last date of the calendar quarter preceding the date of exercise of a Redemption Option or a Put Option, as the case may be or, for the portion of the Series A Preferred Interests that cannot be purchased due to the Put 12-Month Cap, the fair market value of the Series A Preferred Interest as of the last date of the calendar quarter immediately preceding the date such portion of the Series A Preferred Interest is actually redeemed by the Company, and

(b)        the Liquidation Amount of the Series A Preferred Interests plus any accrued and unpaid distributions.

For purposes of the foregoing, “the fair market value of the Series A Preferred Interest” means:

(x)        in cases of exercise of the Put Option on or after September 9, 2020 (other than an exercise prior to September 9, 2022 as the result of a Contingent Event) OR upon exercise of the Redemption Option on or after September 9, 2022, an amount determined based upon the Liquidation Amount of the Series A Preferred Interests plus any accrued and unpaid distributions and market conditions at the time, and

(y)        in cases of exercise of the Put Option prior to September 9, 2022 as the result of a Contingent Event OR upon exercise of the Redemption Option prior to September 9, 2022, an amount determined based upon the sum of:

(i)        the Liquidation Amount of the Series A Preferred Interests plus any accrued and unpaid distributions, and

(ii)        the present value of future distributions (excluding accrued and unpaid distributions accounted for in (i) immediately above) through and ending on September 9, 2022.

The independent fiduciary with respect to Series A Preferred Interests held by the SBC Master Pension Trust shall determine “the fair market value of the Series A Preferred Interests” with respect to Series A Preferred Interests held by the SBC Master Pension Trust.

 

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Original Amended and Restated Agreement ” has the meaning set forth in the Recitals.

Person ” means any natural person, partnership (whether general or limited), trust, estate, association, corporation, custodian, nominee or any other individual or entity in its own or any representative capacity, in each case, whether domestic or foreign, or a limited liability company or foreign limited liability company.

Plan ” means the AT&T Pension Benefit Plan.

Public Indebtedness ” means the Cingular Wireless LLC 7.125% Senior Notes, due December 2031 in the principal amount of $510 million; and the AT&T Wireless Services, Inc. 8.75% Senior Notes, due March 2031 in the principal amount of $896 million.

Put 12-Month Cap ” has the meaning set forth in Section 8(e)(i).

Put Option ” has the meaning set forth in Section 8(e)(i).

Put Option Period ” means any period, from time to time, after the Put Option becomes exercisable hereunder, beginning on the 15 th Business Day prior to the end of each fiscal quarter of AT&T Inc. and ending on the 15 th Business Day of the subsequent fiscal quarter of AT&T Inc.

Redemption Option ” has the meaning set forth in Section 8(e)(ii).

Redemption Period ” means the period, from time to time, after the Redemption Option becomes exercisable hereunder, beginning on the 26th Business Day of each fiscal quarter of AT&T Inc. and ending on the 35th Business Day of each fiscal quarter of AT&T Inc.

Registration Rights Agreement ” means the Amended and Restated Registration Rights Agreement dated October 15, 2018 among AT&T Inc., Brock Fiduciary Services LLC and the Trust, as may be amended from time to time.

Revised Partnership Audit Procedures ” shall mean the provisions of Subchapter C of Subtitle A, Chapter 63 of the Code, as amended by the Bipartisan Budget Act of 2015, P.L. 114-74 (together with any subsequent amendments thereto, Treasury Regulations promulgated thereunder, and published administrative interpretations thereof).

Second Amended and Restated Agreement ” has the meaning set forth in the Recitals.

Second Amendment to Third Amended and Restated Agreement ” has the meaning set forth in the Recitals.

Series A Contribution ” has the meaning set forth in the Recitals.

Series A Preferred Interest Return of Capital Amount ” means, with respect to each Series A Preferred Interest, (a) for each quarter in the first five (5) years following the

 

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issuance of the Series A Preferred Interests an amount equal to the quotient where (i) the difference between (A) the Capital Contribution of the Series A Preferred Interest and (B) the Liquidation Amount of the Series A Preferred Interest is the numerator and (ii) twenty (20) is the denominator, and (b) in all other years zero.

Series A Preferred Interests ” means the series A cumulative perpetual preferred membership interests, having the powers, preferences, rights, qualifications, limitations and restrictions set forth in Section 7(c) of this Agreement.

Series A Preferred Return ” means, with respect to each Series A Preferred Interest, a distribution of $1.75 per annum, payable quarterly. A portion of the Series A Preferred Return shall be treated as the Guaranteed Payment Amount and a portion of the Series A Preferred Return shall be treated as the Series A Preferred Interest Return of Capital Amount.

Special Rights ” means, with respect to any Series A Preferred Interests, the rights set forth in Section 7(c), Section 8 and Section 23 of this Agreement as applicable to such interests.

Tax Matters Representative ” has the meaning set forth in Section 20.

Third Amended and Restated Agreement ” has the meaning set forth in the Recitals.

Third Amendment to Third Amended and Restated Agreement ” has the meaning set forth in the Recitals.

Transfer ” means (a) when used as a verb, to give, sell, exchange, assign, transfer, pledge, hypothecate, bequeath, devise or otherwise dispose of or encumber, and (b) when used as a noun, the nouns corresponding to such verbs, in either case voluntarily or involuntarily, by operation of law or otherwise.

Treasury Regulations ” means the Income Tax Treasury Regulations, including Temporary Treasury Regulations, promulgated under the Code, as such regulations are amended, modified or supplemented from time to time.

Trust ” has the meaning set forth in the Recitals.

Unpaid Series A Preferred Interest Return of Capital Amount ” means, with respect to each Series A Preferred Interest, an amount equal to (a) the Capital Contribution of the Series A Preferred Interest, minus (b) the Liquidation Amount of the Series A Preferred Interest, minus (c) payments of the Series A Preferred Return treated as the Series A Preferred Interest Return of Capital Amount of the Series A Preferred Interest.

Unrealized Gain ” attributable to any item of Company property means, as of any date of determination, the excess, if any, of (a) the Fair Market Value of such property as of such date over (b) the Carrying Value of such property as of such date. With respect to any Company Liability, Unrealized Gain shall mean, as of any date of determination, the excess, if any, of

 

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(a) the Carrying Value of such liability as of such date, over (b) the Fair Market Value of such liability as of such date.

Unrealized Loss ” attributable to any item of Company property means, as of any date of determination, the excess, if any, of (a) the Carrying Value of such property as of such date, over (b) the Fair Market Value of such property as of such date. With respect to any Company Liability, Unrealized Loss shall mean, as of any date of determination, the excess, if any, of (a) the Fair Market Value of such liability as of such date over (b) the Carrying Value of such liability as of such date.

2.         Name . The name of the limited liability company formed hereby is AT&T Mobility II LLC. The Company may do business under that name or any other name approved by the Manager.

3.         Effectiveness . This Agreement shall, upon the execution by all parties hereto, be fully effective on October 15, 2018.

4.         Termination of Limited Liability Company Agreement . All prior limited liability company agreements of the Company are hereby terminated and superseded in its or their entirety by this Agreement.

5.         Registered Office . The address of the registered office of the Company in the State of Delaware is 1209 Orange Avenue, Wilmington, Delaware 19801.

6.         Registered Agent . The name and address of the registered agent of the Company for service of process on the Company in the State of Delaware is CT Corporation, 1209 Orange Avenue, Wilmington, Delaware 19801.

7.         Capital Structure .

(a)     General . Subject to the terms of this Agreement, (i) the Company is authorized to issue equity interests in the Company designated as “LLC Interests,” which shall constitute limited liability company interests under the Act and shall include initially Common Interests and Series A Preferred Interests and (ii) the Manager is expressly authorized, by resolution or resolutions, to create and to issue, out of authorized but unissued LLC Interests, different classes, groups or series of LLC Interests and fix for each such class, group or series such voting powers, full or limited or no voting powers, and such distinctive designations, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions as determined by the Manager. The Manager shall have the authority to issue such number of LLC Interests of any class, series or tranche pursuant to clauses (i) and (ii) of the immediately preceding sentence as the Manager shall from time to time determine. Other than as set forth in this Agreement, or in the instruments governing the terms of the LLC Interests issued pursuant to clause (ii), each LLC Interest shall be identical in all respects with each other LLC Interest.

(b)     Common Interests . The Common Interests shall have such rights to allocations and distributions as may be authorized and set forth under this Agreement. The relative rights, powers, preferences, duties, liabilities and obligations of holders of the Common

 

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Interests shall be as set forth herein. Each holder of Common Interests shall be entitled to vote, in person or by proxy, or to act by written consent, on the basis of its Common Percentage Interest on all matters upon which Members have the right to vote, give approval or take other actions as set forth in this Agreement and provided under the Act. All approvals to be given and other actions to be taken by the holders of Common Interests pursuant to this Agreement and the Act (whether by vote at a meeting or written consent) may be granted or taken by the holders of Common Interests representing a majority in Common Percentage Interest.

(c)         Series A Preferred Interests . The Series A Preferred Interests shall have such rights to allocations and distributions as may be authorized and set forth in this Agreement. The Series A Preferred Interests shall rank senior to any other class or series of equity interests in the Company in respect of the right to receive distributions and the right to receive payments or distributions out of the assets of the Company, upon voluntary or involuntary liquidation, dissolution or winding up of the Company, all as provided in Section 16 hereof. The Series A Preferred Interests shall not have any voting power. Accordingly, but subject to Section 23, no holder of Series A Preferred Interests shall have any voting rights (or other approval rights) with respect to their interest in the Company or as to any other matter (whether under this Agreement or the Act) as a result of holding the Series A Preferred Interests.

(d)         Certificates; Legend . In the sole discretion of the Manager, the issued and outstanding LLC Interests may be represented by certificates. In addition to any other legend required with respect to a particular class, group or series of LLC Interests or pursuant to any other agreement between any one or more Members and the Company, each such certificate shall bear the following legend:

THE LLC INTERESTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT AMONG THE COMPANY AND ITS MEMBERS, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE LLC INTERESTS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT.

THE LLC INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER SUCH ACT AND LAWS, OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER.

 

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Any LLC Interests issued in uncertificated form may be subject to similar restrictive notations on the relevant books and records of the Company or its transfer agent.

(e)         Opt-in to Article 8 of the Uniform Commercial Code . The Members agree that the LLC Interests may be evidenced by certificates executed by the Manager of the Company and that the LLC Interests shall be securities governed by Article 8 of the Uniform Commercial Code of the State of Delaware (and the Uniform Commercial Code of any other applicable jurisdiction).

8.         Transfers of LLC Interests .

(a)         General Restrictions .

(i)        No Member may Transfer all or any part of such Member’s LLC Interest, except as provided in this Section 8. Any purported Transfer of an LLC Interest or a portion thereof in violation of the terms of this Agreement shall be null and void and of no effect. A permitted Transfer shall be effective as of the date specified in the instruments relating thereto. Any transferee desiring to make a further Transfer shall become subject to all the provisions of this Section 8 to the same extent and in the same manner as any Member desiring to make any Transfer.

(ii)        A person shall cease to be a Member upon Transfer of all such Member’s LLC Interest.

(b)         Permitted Transfers .

(i)        Except as otherwise provided in this Section 8(b), each Member holding Series A Preferred Interests shall have the right to Transfer (but not to substitute the transferee as a substitute Member in such Member’s place, except in accordance with Section 8(c)), by a written instrument, all or any part of such Member’s Series A Preferred Interests, if, and only if: (1) the Manager determines in advance that the Transfer will comply with the registration requirements of the Securities Act of 1933 and any applicable state or other securities laws (including any exemption therefrom); (2) the Manager determines in advance that the Transfer will not cause the Company to become a “publicly traded partnership” within the meaning of Section 7704(b) of the Code; (3) the transferee has executed an instrument accepting and adopting the terms and provisions of the Certificate and this Agreement; (4) the transferee has executed and become a party to the Registration Rights Agreement; and (5) the transferee has caused to be paid all reasonable expenses of the Company in connection with the admission of the transferee as a substitute Member. In making the determinations referenced in the prior sentence, the Manager may require the proposed transferor, the proposed transferee or others to provide such evidence of compliance with the registration requirements referenced above, including an opinion of counsel, certificates or other documentation, as it may reasonably request.

(ii)        Except as otherwise provided in this Section 8(b), each Member holding Common Interests shall have the right to Transfer (but not to substitute the transferee as a substitute Member in such Member’s place, except in accordance with

 

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Section 8(c)), by a written instrument, all or any part of such Member’s Common Interests, if, and only if: (1) the Manager has given its prior approval, which may be withheld in its sole discretion for any reason or no reason, (2) the transferee has executed an instrument accepting and adopting the terms and provisions of the Certificate and this Agreement; and (3) the transferee has caused to be paid all reasonable expenses of the Company in connection with the admission of the transferee as a substitute Member.

(iii)        No Transfer of an LLC Interest shall be effective or reflected on the books and records of the Company or its transfer agent except in accordance with this Section 8.

(c)         Substitute Member . No transferee of all or part of a Member’s LLC Interest shall become a substitute Member in place of the transferor unless and until the terms of Section 8(b) are satisfied. Upon satisfaction of all the foregoing conditions with respect to a particular transferee, the Manager shall cause the books and records of the Company to reflect the admission of the transferee as a substitute Member to the extent of the Transferred LLC Interest held by the transferee.

(d)         Effect of Admission as a Substitute Member . A transferee who has become a substitute Member has, to the extent of the Transferred LLC Interest, all the rights, powers and benefits of and is subject to the restrictions and liabilities of a Member under the Certificate, this Agreement, the Act and, in the case of a transferee of Series A Preferred Interests, the Registration Rights Agreement. Upon admission of a transferee as a substitute Member, the transferor of the LLC Interest so acquired by the substitute Member shall cease to be a Member of the Company to the extent of such Transferred LLC Interest.

(e)         Put Option and Redemption Option .

(i)        The Company hereby grants to the holder of Series A Preferred Interests the right to require the Company to purchase the Series A Preferred Interests (the “ Put Option ”), at a price per Series A Preferred Interest equal to the Option Price, at any time and from time to time on or after the earliest of (a) the first date that the Company’s Debt-to-Total-Capitalization Ratio exceeds that of AT&T Inc., (b) the date on which AT&T Inc. is rated below investment grade for two consecutive calendar quarters by at least two of the following rating agencies: (x) Standard & Poor’s, (y) Moody’s, or (z) Fitch Group, (c) a Change of Control, or (d) September 9, 2020; provided, however, that except in the event of a Change of Control, the Company shall not be required to purchase more than 106,666,667 Series A Preferred Interests in any twelve-month period (the “ Put 12-Month Cap ”). Upon the request of a holder of Series A Preferred Interests, as of the end of any calendar quarter, the Company shall, within forty-five (45) calendar days after the end of such calendar quarter, certify as to whether the Company’s Debt-to-Total-Capitalization ratio exceeds that of AT&T Inc. A purchase of Series A Preferred Interests pursuant to Section 8 of the Contribution Agreement shall be treated as a purchase by the Company for purposes of determining whether or not the Put 12-Month Cap has been met for a given twelve-month period. In the event of an exercise pursuant to clause (d) above, the Put Option may only be exercised upon written notice to the Company during a Put Option Period, specifying the name of the holder of

 

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Series A Preferred Interests, number of Series A Preferred Interests to be purchased by the Company (subject to the limitation in the proviso in the previous sentence) and the time and place of the closing of the Put Option.

(ii)        The Company has the right to purchase from the holder of the Series A Preferred Interests, all or any portion of the Series A Preferred Interests (the “ Redemption Option ”), at a price per Series A Preferred Interest equal to the Option Price, at any time and from time to time (1) upon a Change of Control or (2) on or after September 9, 2022. In the event of an exercise pursuant to clause (2) above, the Redemption Option may only be exercised upon written notice to the holder(s) of Series A Preferred Interests during a Redemption Period, specifying the number of Series A Preferred Interests to be purchased by the Company and the time and place of the closing of the Redemption Option.

(iii)        At the sole election of the Company, payment of the Option Price may be made in (a) fully paid and non-assessable AT&T Shares, (b) cash, or (c) any combination of AT&T Shares and cash as the Company shall determine. Any AT&T Shares delivered to satisfy all or a portion of the Option Price shall be valued at the average closing price of the 20 trading days preceding the date of the applicable notice of exercise (A) by the holder(s) of Series A Preferred interests (in the case of exercise of a Put Option) or (B) by the Company (in the case of exercise of a Redemption Option). In the event there are two or more holders Series A Preferred Interests, then (x) in the event less than all of the Series A Preferred Interests are to be purchased by the Company, the Company shall repurchase from each such holder its pro rata portion of Series A Preferred Interests (based on the total number of Series A Preferred Interests held by all such holders) and (y) in the event the Company elects to pay the Option Price in a combination of AT&T Shares (including in any election effected under subsection (iv) of this Section 8(e)), then the relative proportion of cash and AT&T Shares shall be the same for all such holders Series A Preferred Interests to the nearest extent practicable, unless otherwise agreed in writing by the Company and any holder(s) who agree to accept a different proportion.

(iv)        Notwithstanding anything herein to the contrary, in no event shall the Company be required to deliver more than 250 million AT&T Shares (the “Capped Number”) to the holder(s) of Series A Preferred interests in settlement of the Option Price for the Series A Preferred Interests; provided, however, the Company may, in its sole and absolute discretion (subject to the last sentence of this Section 8(e)(iv)), deliver more than the Capped Number of AT&T Shares. In the event the Company, through delivery of the Capped Number of AT&T Shares and AT&T Shares in addition to the Capped Number of AT&T Shares, if any, shall not have delivered the full number of AT&T Shares otherwise deliverable in settlement of the Option Price for the Series A Preferred Interests, the Company will use its best efforts to acquire and deliver additional AT&T Shares. The Company may elect, solely at its option, to settle the Option Price, in whole or in part, by delivering cash. In the event of a merger, reorganization, consolidation, recapitalization, separation, split-up, liquidation, share combination, stock split, stock dividend, or other change in the corporate structure of AT&T Inc. affecting the AT&T Shares (including a conversion of the AT&T Shares into cash or other property), an

 

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adjustment may be made in the number and class of shares that may be delivered in settlement of the Option Price for the Series A Preferred Interests, as determined by the Company to prevent dilution or accretion with respect to the Capped Number and reflect such changes in corporate structure (e.g., substitution of successor shares). In the event the Company, through delivery of the Capped Number of AT&T Shares and AT&T Shares in addition to the Capped Number of AT&T Shares, if any, shall not have delivered the full number of AT&T Shares otherwise deliverable in settlement of the Option Price for the Series A Preferred Interests (resulting in a shortfall), the Series A Preferred Interests for which neither AT&T Shares nor cash have been delivered shall remain outstanding, in accordance with their terms.

(f)         Private Placement . In the event the holder of Series A Preferred Interests desires to Transfer some or all of the Series A Preferred Interests pursuant to a private placement offering, the Company shall use its reasonable best efforts to cooperate with such private placement. In the event of a private placement offering of the Series A Preferred Interests, the following shall apply:

(i)        The Company shall select the investment banking firm that will conduct each such private placement offering;

(ii)        The Company shall provide the financial information, document preparation and other support required for such private placement offering of the Series A Preferred Interests to the holders of the Series A Preferred Interests and/or to the investment bank on a timely basis; and

(iii)        The Company shall bear all usual and customary costs associated with such private placement offering, including reasonable fees and expenses of investment banking firms, legal counsel for the Company and holders of the Series A Preferred Interests and, if required, auditors in connection therewith.

9.         Members . The name of and LLC Interest held by each of the Members holding Common Interests and Series A Preferred Interests as of the Effective Time are set forth on Schedule  A attached hereto. To the extent any additional or substitute Members are hereafter admitted to the Company or the respective relative Common Percentage Interests are adjusted as a result of the issuance of additional LLC Interests or the redemption of LLC Interests, the Manager shall revise Schedule  A of this Agreement accordingly.

10.         Powers .

(a)        The business and affairs of the Company shall be managed by a manager, who may, but need not be, a Member. The Company shall initially have one manager. The number of managers shall be fixed from time to time by the Members, but in no instance shall there be less than one manager. The Members may, with or without cause, at any time and from time to time, remove the manager then acting and elect a new manager. Any person or entity dealing with the Company may rely on a certificate signed by the manager on any document purporting to bind the Company, which shall constitute exclusive evidence to third parties of the authority of such person to execute such document on behalf of the Company and so bind the

 

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Company. Subject to any restrictions set forth in manager’s organizational documents, as in effect from time to time, the manager acting on behalf or in respect of the Company is empowered, subject to the specified terms of this Agreement, to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Company and its subsidiaries, including, without limitation, full power and authority, directly or through its subsidiaries or affiliates, to distribute cash to the Members, enter into, perform and carry out contracts of any kind, borrow money and issue evidences of indebtedness whether or not secured by mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and develop any property, and lease, sell, transfer and dispose of any property. The Company shall not be required to hold annual meetings of the Members.

(b)        The Members, in their capacity as such (and except to the extent that a Member shall act in the capacity of Tax Matters Representative pursuant to Section 20 hereof) shall have no part in the management of the Company and shall have no authority or right to act on behalf of or bind the Company in connection with any matter.

(c)        AT&T Mobility Corporation is hereby designated to serve as the manager but may resign upon 30 days’ written notice to the Members and any other manager.

11.         Dissolution . The Company shall dissolve, and its affairs shall be wound up, upon the earlier to occur of the following: (a) the written consent of the Manager, subject to Section 10(a), or (b) the entry of a decree of judicial dissolution under Section 18-802 of the Act.

12.         Admission . The Members set forth on Schedule A hereto are hereby confirmed to have been previously properly admitted as Members of the Company.

13.         Additional Contributions .

(a)        Except as provided in this Section 13, no Member is required to make any additional capital contribution to the Company. However, the Members may, in their sole discretion, make additional capital contributions to the Company.

(b)        In the event that the assets of the Company are insufficient upon liquidation and dissolution pursuant to Section 11 hereof to fully satisfy the Public Indebtedness, Mobility shall contribute to the Company solely to be used to satisfy such Public Indebtedness an amount necessary to fully satisfy such indebtedness. In the event that such contribution is made, Mobility shall not be entitled to any right of reimbursement, contribution or other payment from the Company or any of its Members, and Mobility hereby waives and relinquishes any and all rights of contribution, reimbursement or any other remedy afforded under applicable law or otherwise to a guarantor or assuror of debt, on which more than one person has joint, several or joint and several liability, in connection with a payment on such debt by the guarantor or assuror.

14.         Allocations . Each Member’s distributive share of the Company’s Net Income, Net Loss and items thereof shall be determined in accordance with the rules of this Section 14.

(a)     Net Income . Except as otherwise provided in this Section 14, Net Income shall be allocated among the Members as follows:

 

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(i)      First, to the Members pro rata in proportion to the cumulative Net Losses previously allocated to each Member pursuant to Section 14(b)(ii), until the cumulative allocation of Net Income to each Member pursuant to this Section 14(a)(i) equals the cumulative allocation of Net Loss to each Member pursuant to Section 14(b)(ii); and

(ii)      Second, any remaining Net Income to the Members holding Common Interests pro rata in proportion to their respective Common Percentage Interests.

(b)       Net Loss . Except as otherwise provided in this Section 14, Net Loss shall be allocated among the Members as follows:

(i)      First, to the Members holding Common Interests pro rata in proportion to their positive Adjusted Capital Account balances until the Adjusted Capital Account balances of the Members holding Common Interests is reduced to zero; and

(ii)      Second, any remaining Net Loss to the Members who bear the economic risk of loss in accordance with the Treasury Regulations.

(c)       Special Allocations . The following special allocations shall be made in the following order:

(i)       Minimum Gain Chargeback . Except as otherwise provided in Treasury Regulation Section 1.704-2(f), notwithstanding any other provision of this Section 14, if there is a net decrease in Minimum Gain during any Allocation Period, each Member shall be specially allocated items of Company income and gain for such Allocation Period (and, if necessary, subsequent Allocation Periods) in an amount equal to such Member’s share of the net decrease in Minimum Gain, determined in accordance with Treasury Regulation Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulation Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 14(c)(i) is intended to comply with the minimum gain chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.

(ii)       Member Minimum Gain Chargeback . Except as otherwise provided in Treasury Regulation Section 1.704-2(i)(4), notwithstanding any other provision of this Section 14, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Allocation Period, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulation Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Allocation Period (and, if necessary, subsequent Allocation Periods) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt, determined in accordance with Treasury Regulation Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the

 

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respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 14(c)(ii) is intended to comply with the minimum gain chargeback requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

(iii)       Qualified Income Offset . In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulation Section 1.704-1(b)(2)(ii) (d)(4) , 1.704-1(b)(2)(ii) (d)(5) or 1.704-1(b)(2)(ii) (d)(6) , items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulation, the Adjusted Capital Account Deficit of such Member as quickly as possible; provided that an allocation pursuant to this Section 14(c)(iii) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 14 have been tentatively made as if this Section 14(c)(iii) were not in the Agreement.

(iv)       Gross Income Allocation . In the event any Member has an Adjusted Capital Account Deficit at the end of any Allocation Period, such Member shall be specially allocated items of Company income and gain in the amount of such deficit as quickly as possible; provided that an allocation pursuant to this Section 14(c)(iv) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 14 have been made as if Section 14(c)(iii) and this Section 14(c)(iv) were not in the Agreement.

(v)       Nonrecourse Deductions . Nonrecourse Deductions for any Allocation Period shall be specially allocated to the Members in proportion to their Percentage Interests.

(vi)       Member Nonrecourse Deductions . Any Member Nonrecourse Deductions for any Allocation Period shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulation Section 1.704-2(i)(1).

(vii)       Section 754 Adjustments . To the extent Treasury Regulation Section 1.704-1(b)(2)(iv) (m)(2) or 1.704-1(b)(2)(iv) (m)(4) requires an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of its LLC Interest, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv) (m)(2) or Treasury Regulation Section 1.704-1(b)(2)(iv) (m)(4) , as the case may be; provided , however , that for this purpose, the determination of the extent to which Treasury Regulation Section 1.704-1(b)(2)(iv) (m)(2) or 1.70-1(b)(2)(iv) (m)(4) requires an adjustment pursuant to Code Section 734(b) or Code

 

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Section 743(b) to be taken into account in determining Capital Accounts shall be made after taking into account any adjustment to the Carrying Value of the Company’s assets required in connection with the liquidating distribution pursuant to subparagraph (b) of the definition of “Carrying Value” in Section 1.

(d)       Curative Allocations . The allocations set forth in Section 14(c) and Section 14(e) (the “Regulatory Allocations”) are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 14(d). Therefore, notwithstanding any other provision of this Section 14 (other than the Regulatory Allocations), the Manager shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to this Section 14 without regard to the Regulatory Allocations. In exercising its discretion under this Section 14(d), the Manager shall take into account future Regulatory Allocations that, although not yet made, are likely to offset other previously made Regulatory Allocations.

(e)       Loss Limitation . Net Loss allocated pursuant to Section 14(b) and the items of loss or deduction allocated pursuant to Section 14(c) and Section 14(d) shall not exceed the maximum amount of Net Loss and items of loss or deduction that can be so allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Allocation Period.

(f)       Other Allocation Rules .

(i)      Net Income, Net Loss and any other items of income, gain, loss or deduction shall be allocated to the Members pursuant to this Section 14 as of the last day of each Allocation Period.

(ii)      In any cases in which it is necessary to determine the Net Income, Net Loss or any other items allocable to any period within an Allocation Period, Net Income and Net Loss and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Manager using any permissible method under Code Section 706 and the Treasury Regulation thereunder.

(iii)      The Members hereby agree to be bound by the provisions of this Section 14 in reporting their shares of Company income and loss for income tax purposes, except to the extent otherwise required by law.

(iv)      Solely for purposes of determining each Member’s share of the “excess nonrecourse liabilities” of the Company within the meaning of Treasury Regulation Section 1.752-3(a)(3), the manner in which the Members share excess nonrecourse liabilities for any taxable year shall be determined by the Manager using any permissible method provided under Treasury Regulation Section 1.752-3(a)(3); provided

 

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that unless otherwise determined by the Manager, excess nonrecourse liabilities (within the meaning of Treasury Regulation Section 1.752-3(a)(3)) shall be allocated under the allocation method that (1) will, to the maximum extent possible, result in no Member recognizing taxable gain (or will minimize the taxable gain recognized) under Code Section 731 or otherwise as a result of any actual or deemed distribution to a Member, while (2) maximizing any Code Section 734(b) positive basis adjustment (or minimizing any Code Section 734(b) negative basis adjustment) resulting from any such actual distribution of property (the “Preferred Excess Nonrecourse Liability Allocation Method”). For purposes hereof, the Preferred Excess Nonrecourse Liability Allocation Method may be any method or combination of methods permitted by Treasury Regulation Section 1.752-3(a)(3), including the “additional method” of Treasury Regulation Section 1.752-3(a)(3), which allows excess nonrecourse liabilities to be allocated to a partner based on the amount of built-in gain that is allocable to such partner on Code Section 704(c) property (as defined in Treasury Regulation Section 1.704-3(a)(3)(ii)) or property for which reverse Code Section 704(c) allocations are applicable (as described in Treasury Regulation Section 1.704-3(a)(6)(i)) that is subject to a nonrecourse liability to the extent such built-in gain exceeds the gain described in Treasury Regulation Section 1.752-3(a)(2).

(g)       Tax Allocations: Code Section  704(c) .

(i)      In accordance with Code Section 704(c) and the applicable Treasury Regulation thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company before or after the Effective Time or any liability assumed by or taken subject to by the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property or the adjusted issue price (if any) of such liability to the Company, as the case may be, for federal income tax purposes and its initial Carrying Value.

(ii)      In the event the Carrying Value of any Company asset or liability is adjusted pursuant to subparagraph (b) of the definition of “Carrying Value” in Section 1 and Section 14(b) or (c), subsequent allocations of income, gain, loss, and deduction with respect to such asset or liability shall take account of any variation between the adjusted basis of such asset or the adjusted issue price (if any) of such liability, as the case may be, for federal income tax purposes and its Carrying Value in the same manner as under Code Section 704(c) and the applicable Treasury Regulation thereunder.

(iii)      For purposes of applying Section 704(c) to a contributed or revalued property or liability, the Manager may, except as otherwise provided herein, elect any permissible method under Section 704(c) of the Code and the Treasury Regulations thereunder; provided , however , that with respect to the adjustment to the Carrying Value of Company property and liabilities made in connection with the Additional Contributions, the Manager shall, unless otherwise agreed by the Members, elect “the traditional method with curative allocations” under Treasury Regulation Section 1.704-3(c).

 

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(iv)      Except as otherwise provided in this Agreement, all items of Company income, gain, loss, deduction, and any other allocations not otherwise provided for shall be divided among the Members in the same proportions as they share Net Income or Net Loss, as the case may be, for the Allocations Period.

(v)      Allocations pursuant to this Section 14(g) are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of Net Income, Net Loss other items, or distributions pursuant to any provision of this Agreement.

15.       Capital Accounts .

(a)      The Company shall maintain for each Member a Capital Account in accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be (i) increased by (A) the Capital Contributions made by such Member to the Company pursuant to this Agreement, (B) the Net Income and items of Company income and gain (including income and gain exempt from tax) allocated to such Member pursuant to Section 14 and (C) the Fair Market Value of any Company Liability assumed or taken subject to by such Member, and (ii) decreased by (A) the amount of cash and the Fair Market Value of any property distributed to such Member pursuant to this Agreement (other than the Guaranteed Payment Amount) and (B) the Net Loss and items of Company deduction and loss (including expenditures of the Company that are neither deductible nor capitalized for federal income tax purposes) allocated to such Member pursuant to Section 14. In the event a Member transfers an LLC Interest in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred LLC Interest.

(b)      In accordance with the provisions of Treasury Regulation Sections 1.704-1(b)(2)(iv)(f) and 1.704-l(b)(2)(iv)(h)(2), immediately prior to a Member’s contribution to the Company of more than a de minimis amount of cash or other property, or a Member’s assumption of more than a de minimis amount of Company liabilities, in exchange for an interest in the Company, the issuance of an interest (other than a de minimis interest) in the Company in consideration of the performance of services, or the issuance of a Noncompensatory Option (other than an option for a de minimis interest), the Carrying Value of all Company property and liabilities shall be adjusted in accordance with subparagraph (b) of the definition of “Carrying Value” in Section 1 and the Capital Accounts of all Members shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to Company property and liabilities, as if (i) the Unrealized Gain or Unrealized Loss with respect to such property and liabilities immediately prior to the contribution or assumption had been recognized on the sale of each such property and the satisfaction of each such liability at that time and (ii) the resulting items of Unrealized Gain or Unrealized Loss had been allocated among the Members pursuant to Section 14 as if such items were the only items of income, gain, loss, or deduction of the Company for an Allocation Period ending on the date of the contribution or assumption; provided, however, that in the event of the issuance of an interest in the Company pursuant to the exercise of a Noncompensatory Option where the right to share in Company capital represented by such interest differs from the consideration paid to acquire and exercise such option, the Carrying Value of each Company property immediately after the issuance of such interest shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable

 

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to such Company property and the Capital Accounts of the Members shall be adjusted in a manner consistent with Treasury Regulation Section 1.704-1(b)(2)(iv)(s).

(c)      In accordance with the provisions of Treasury Regulation Sections 1.704-l(b)(2)(iv)(f) and 1.704-l(b)(2)(iv)(h)(2), immediately prior to any distribution to a Member by the Company of more than a de minimis amount of money or other property, or the Company’s assumption of more than a de minimis amount of a Member’s individual liabilities, in exchange for an interest in the Company (including the liquidation of the Company within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), the Manager may cause the Carrying Value of all Company property and liabilities to be adjusted in accordance with subparagraph (b) of the definition of “Carrying Value” in Section 1 and the Capital Accounts of all Members to be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to Company property and liabilities, as if (i) the Unrealized Gain or Unrealized Loss with respect to such property and liabilities immediately prior to the distribution or assumption had been recognized on the sale of each such property and the satisfaction of each such liability at that time and (ii) the resulting items of Unrealized Gain or Unrealized Loss had been allocated among the Members pursuant to Section 14 as if such items were the only items of income, gain, loss, or deduction of the Company for an Allocation Period ending on the date of the distribution or assumption.

(d)      In accordance with the provisions of Treasury Regulation Section 1.704-l(b)(2)(iv) (e) , immediately prior to any distribution to a Member of any Company property as part of a pro rata distribution to the Members, the Manager may cause the Carrying Value of the distributed Company property to be adjusted in accordance with subparagraph (c) of the definition of “Carrying Value” in Section 1 and the Capital Accounts of all Members to be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to the distributed Company property, as if (i) the Unrealized Gain or Unrealized Loss with respect to such property immediately prior to the distribution had been recognized on the sale of such property at that time and (ii) such Unrealized Gain or Unrealized Loss had been allocated among the Members pursuant to Section 14 as if such items were the only items of income, gain, loss, or deduction of the Company for an Allocation Period ending on the date of the distribution.

(e)      For purposes of computing the amount of any items of income, gain, loss or deduction to be reflected in the Members’ Capital Accounts, rules analogous to those set forth in subparagraphs (a) through (e) of the definition of “Net Income” and “Net Loss” shall be applied.

16.       Distributions .

(a)       Non-Liquidating Distributions . Subject to the Manager’s powers set forth in Section 10 hereof to determine the amount and timing of any distribution, any non-liquidating distributions shall be made to the Members in the following order of priority:

(i)      First, Members holding Series A Preferred Interests shall be entitled to receive, when, as and if declared by the Manager, only out of funds legally available for the making of such distributions, cumulative cash distributions in an amount equal to the Series A Preferred Return with respect to each Series A Preferred Interest,

 

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and no more, payable quarterly on the 1st day of February, May, August and November in each year (each, a “Distribution Payment Date”), beginning on November 1, 2013. Notwithstanding any provision hereof, any distribution otherwise payable on a Distribution Payment Date that is not a Business Day may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date and, if so paid, shall be deemed for all purposes to have been paid on such Distribution Payment Date. Any amount so payable on a Distribution Payment Date shall be payable in arrears with respect to the calendar quarter (or portion thereof) ending on the last day of such calendar quarter preceding such Distribution Payment Date (each such period, a “Distribution Period”), to the Members holding the Series A Preferred Interests on such Distribution Payment Date. Distributions on Series A Preferred Interests shall accrue and be cumulative from September 9, 2013. Any distribution or portion thereof payable on the Series A Preferred Interests in respect of any partial Distribution Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Any distribution that accrues in respect of a Distribution Period but is not declared and paid on the relevant Distribution Payment Date as aforesaid shall cumulate and shall not be payable until such time, if any, as it is declared by the Manager out of legally available funds as aforesaid. No interest or distributions, or sum of money in lieu thereof, shall accrue or be payable in respect of any distribution payments on Series A Preferred Interests that may be in arrears. Holders of Series A Preferred Interests shall not be entitled to any distributions, whether payable in cash, securities or other property, other than distributions (if any) declared and payable on Series A Preferred Interests as specified in this Section 16(a)(1) (subject to the other provisions of the LLC Agreement) unless declared by the Manager. No distribution amount that accrues in respect of any Distribution Period shall be “in arrears” at any time on or prior to the corresponding Distribution Payment Date (or, if such day is not a Business Day, the next succeeding Business Day). Any distribution amount in arrears may be paid on any Business Day, whether or not a Distribution Payment Date, at any time at the election of the Manager, whereupon such amount shall no longer be “in arrears.”

(ii)      Second, to the Members holding Common Interests in accordance with their relative Common Percentage Interests.

(b)       Liquidating Distributions . Upon dissolution of the Company pursuant to Section 11, or any other voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the proceeds of such dissolution shall be used:

(i)      First, to satisfy the debts and liabilities of the Company;

(ii)      Second, to pay each Member holding Series A Preferred Interests an amount equal to the greater of (A) the Series A Preferred Interests Member’s Capital Account balance or (B) the aggregate Liquidation Preference for the Series A Preferred Interests held by such Member;

(iii)      Third, any remaining proceeds shall be distributed to the Members in accordance with the positive balances in their Capital Account.

 

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(c)       Priority of Distributions .

(i)      No distributions on the Series A Preferred Interests will be declared or paid or set apart for payment if such authorization, payment or setting apart for payment is restricted or prohibited by law or contract. Notwithstanding the foregoing, distributions with respect to the Series A Preferred Interests will accrue during (but only during) the relevant respective Distribution Period and, if not paid on the corresponding Distribution Payment Date, will thereupon cumulate, whether or not any of the foregoing restrictions exist, whether or not there are funds legally available for the payment thereof and whether or not they are declared (but no amount shall accrue on any cumulated distribution in arrears).

(ii)      Unless accrued distributions on the Series A Preferred Interests have been, or contemporaneously are, declared and paid in full, or declared and a sum sufficient for the payment thereof in full is or has been set apart for such payment, for all past, completed Distribution Periods: (A) no distributions will be declared or paid, and no sums set apart for payment, upon any Common Interests (other than distributions payable in Common Interests); and (B) the Company shall not be permitted to make any transfer of cash or other property to any Member or affiliate of such Member, whether pursuant to a loan, equity distribution, sale, exchange or any other arrangement.

(d)       Advance or Draw . Except as otherwise provided in any written agreement prepared in connection with a distribution by the Company, any non-liquidating distribution of money or other property made during a taxable year by the Company to a Member with respect to Common Interests held by such Member constitutes an advance or draw against the Member’s distributive share of Company taxable income for such year; provided, however, that any such distribution that is made by the Company to a Member during a taxable year shall constitute a loan by the Company to such Member that must be repaid as soon as practicable to the extent that the amount of such distribution exceeds the Member’s adjusted tax basis in its LLC Interest after taking into account its distributive share of the Company’s taxable income for the current year. For purposes of the foregoing sentence, the amount of any distribution equals the sum of the amount of any distributed money and the fair market value of any distributed property.

17.       Admission of Additional Members . Subject to Section 7(a), additional members of the Company may be admitted to the Company with the consent of the Manager.

18.       Issuance of Additional LLC Interests . Subject to Section 7(a) and Section 8, Manager is hereby authorized to cause the Company from time to time to issue to Members or other persons additional LLC Interests in accordance with the terms hereof.

19.       Personal Property . The LLC Interests shall for all purposes be personal property. No Member shall have any interest in specific property of the Company.

20.       Tax Matters Representative .

(a)      Mobility shall be designated and shall serve as the “tax matters partner” within the meaning of Section 6231(a)(7) of the Code (to the extent applicable for taxable years beginning before January 1, 2018) and as the “partnership representative” of the Company for

 

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any tax period subject to the provisions of Section 6223 of the Code, as amended by the Revised Partnership Audit Procedures (in each such capacity, the “ Tax Matters Representative ” or “ TMR ”). Each Member hereby consents to such designation and agrees that, upon the request of the Manager, it will execute, certify, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may reasonably be necessary or appropriate to evidence such consent. Without the consent of all the Members, the Tax Matters Representative may not elect to apply the Revised Partnership Audit Procedures to any taxable year beginning before January 1, 2018.

(b)      In its capacity as Tax Matters Representative, Mobility shall represent the Company in any disputes, controversies or proceedings with the Internal Revenue Service or with any state, local, or non-U.S. taxing authority and is hereby authorized to take any and all actions that it is permitted to take by applicable law when acting in that capacity. The Members acknowledge and agree that it is the intention of the Members to minimize any obligations of the Company to pay taxes and interest in connection with any audit of the Company, including, if the Tax Matters Representative so determines, by means of elections under Section 6226 of the Code and/or the Members filing amended returns under Section 6225(c)(2) of the Code, in each case as amended by the Revised Partnership Audit Procedures. The Members agree to cooperate in good faith, including without limitation by timely providing information reasonably requested by the Tax Matters Representative and making elections and filing amended returns reasonably requested by the Tax Matters Representative, and by paying any applicable taxes, interest and penalties, to give effect to the preceding sentence. The Company shall make any payments it may be required to make under the Revised Partnership Audit Procedures and, in the Tax Matters Representative’s reasonable discretion, allocate any such payment among the current or former Members of the Company for the “reviewed year” to which the payment relates in a manner that reflects the current or former Members’ respective interests in the Company for that year and any other factors taken into account in determining the amount of the payment. To the extent payments are made by the Company that are allocable to a current Member in accordance with this Section 20(b), such amounts shall, at the election of the Tax Matters Representative, (i) be applied to and reduce the next distribution(s) otherwise payable to such Member under this Agreement or (ii) be paid by the Member to the Company within thirty (30) days of written notice from the Tax Matters Representative requesting the payment. In addition, if any such payment is allocable to a former Member, that Member shall pay over to the Company an amount equal to the amount of such payment within thirty (30) days of written notice from the Tax Matters Representative requesting the payment. The provisions contained in this Section 20(b) shall survive the dissolution of the Company and the withdrawal of any Member or the Transfer of any Member’s interest in the Company and shall apply to any current or former Member.

(c)      The Company shall indemnify and reimburse the Tax Matters Representative for (i) all expenses, including legal and accounting fees, claims, liabilities, losses and damages incurred in connection with any administrative or judicial proceeding with respect to the tax liability of the Members or in connection with any audit of the Company’s income tax returns, except to the extent such expenses, claims, liabilities, losses and damages are attributable to the gross negligence or willful misconduct of the Tax Matters Representative and (ii) any taxes imposed on the Company or the Manager in respect of the Company’s operations or activities (other than income taxes payable in respect of profits properly allocated to Manager).

 

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The payment of all such expenses to which the indemnification applies shall be made before any distributions pursuant to Section 16(a)(ii). Neither the Manager, nor any of its affiliates, nor any other person shall have any obligation to provide funds for such purpose. The taking of any action and the incurring of any expense by the Tax Matters Representative in connection with any such proceeding, except to the extent required by law, is a matter in the reasonable discretion of the Tax Matters Representative and the provisions on limitations of liability of the Manager and indemnification set forth in Section 24 of this Agreement shall be fully applicable to the Tax Matters Representative in its capacity as such.

21.       Limited Liability . Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members and the Manager, if any, shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a member or manager of the Company.

22.       Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED UNDER, THE LAWS OF THE STATE OF DELAWARE, ALL RIGHTS AND REMEDIES BEING GOVERNED BY SAID LAWS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW.

23.       Amendments . This Agreement may not be modified, altered, supplemented or amended except pursuant to a written agreement executed and delivered either by the Members holding Common Interests representing, in the aggregate, a majority in Common Percentage Interest or by the Manager; provided that any such amendment that adversely affects the Special Rights associated with any Series A Preferred Interests held by a Member or Members shall also be executed and delivered by the Member or Members holding a majority (in number) of the Series A Preferred Interests whose Special Rights are so affected.

24.       Indemnification .

(a)      The Manager shall not be liable, responsible or accountable in damages or otherwise to the Company, to any third party or to any Member for (i) any act performed or omission within the scope of the authority conferred on the Manager by this Agreement or otherwise except for the gross negligence, fraud or willful misconduct (including any willful violation of the terms of the Manager Certificate or this Agreement) of the Manager, (ii) the Manager’s performance of, or failure to perform, any act on the reasonable reliance on advice of legal counsel to the Company, or (iii) the negligence, dishonesty or bad faith of any agent, consultant or broker of the Company selected, engaged or retained in good faith and with reasonable prudence. In any threatened, pending or completed action, suit or proceeding, the Manager shall, to the fullest extent permitted by law, be fully protected and indemnified and held harmless by the Company against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, proceedings, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable attorneys’ fees, costs of investigation, fines, judgments and amounts paid in settlement, actually incurred by the Manager in connection with such action, suit or proceeding) by virtue of its status as an indemnified party or with respect to any action or omission taken or suffered in good faith, other than liabilities and losses resulting from the gross negligence, fraud, breach of fiduciary duty or willful misconduct

 

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(including any willful violation of the terms of the Certificate of Incorporation (or other governing instrument) of Manager or this Agreement) of the Manager. Expenses, including reasonable attorneys’ fees, incurred by Manager in defending any such action, suit or proceeding shall be paid or reimbursed by the Company promptly upon demand and, if any such demand is made in advance of the final disposition of any such action, suit or proceeding, promptly upon receipt by the Company of an undertaking of Manager to repay such expenses if it shall ultimately be determined that Manager is not entitled to be indemnified by the Company. The indemnification provided by this Section 24 shall be recoverable only out of the assets of the Company, and no Member shall have any personal liability on account thereof. For purposes of this subsection (a), the term “Company” shall include any predecessor of the Company and any constituent entity (including any constituent of a constituent) absorbed by the Company in a consolidation or merger.

(b)      (i)      The Company shall indemnify to the full extent permitted by law (A) any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person’s testator or intestate is or was an officer of the Company or was a director, officer, member, stockholder, partner, incorporator or liquidator of a subsidiary of the Company or serves or served at the request of the Company any other enterprise as a director, officer, employee, member, stockholder, partner, incorporator or liquidator or in any other capacity, (B) the Manager to the extent of its indemnification payments under its bylaws, and (C) NCWS with respect to any payment made by it with respect to the Public Indebtedness. Expenses, including reasonable attorneys’ fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Company promptly upon demand by such person and, if any such demand is made in advance of the final disposition of any such action, suit or proceeding, promptly upon receipt by the Company of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Company. The rights provided to any person by this provision shall be enforceable against the Company by such person, who shall be presumed to have relied upon it in serving or continuing to serve as an officer or in such other capacity as provided above. In addition, the rights provided to any person by this provision shall survive the termination of such person as any such officer of the Company or director, officer, member, stockholder, partner, incorporator or liquidator of a subsidiary of the Company and, insofar as such person served at the request of the Company as a director, officer, member, stockholder, partner, incorporator or liquidator of or in any other capacity for any other enterprise, shall survive the termination of such request as to service prior to termination of such request.

(ii)      Notwithstanding anything contained in this subsection (b), except for proceedings to enforce rights provided in this subsection (b), the Company shall not be obligated under this subsection (b) to provide any indemnification or any payment or reimbursement of expenses to any officer or other person in connection with a proceeding (or part thereof) initiated by such person (which shall not include counterclaims or crossclaims initiated by others, or any claim to enforce rights to indemnification under this subsection (b) if it has been ultimately determined that the person making such indemnification claim is entitled to the claimed indemnification) unless the board of

 

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directors of the Manager has authorized or consented to such proceeding (or part thereof) in a resolution adopted by it.

(iii)      For purposes of this subsection (b), the term “Company” shall include any predecessor of the Company and any constituent entity (including any constituent of a constituent) absorbed by the Company in a consolidation or merger; the term “other enterprise” shall include any corporation, partnership, limited liability company, joint venture, trust, association or other unincorporated organization or other entity and any employee benefit plan; the term “officer”, when used with respect to the Company, shall refer to any officer of the Company or the Manager elected by or appointed pursuant to authority granted by the board of directors (or similar body) of the Manager pursuant to the bylaws (or other governing instrument) of the Manager, when used with respect to a subsidiary or other enterprise that is a corporation, shall refer to any person elected or appointed pursuant to the bylaws of such subsidiary or other enterprise or chosen in such manner as is prescribed by the bylaws of such subsidiary or other enterprise or determined by the board of directors of such subsidiary or other enterprise, and when used with respect to a subsidiary or other enterprise that is not a corporation or is organized in a foreign jurisdiction, the term “officer” shall include in addition to any officer of such entity, any person serving in a similar capacity or as the manager of such entity; service “at the request of the Company” shall include service as an officer or employee of the Company which imposes duties on, or involves services by, such officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Company.

(iv)      Nothing in this subsection (b) shall limit the power of the Company or the Manager to provide rights of indemnification and to make payment and reimbursement of expenses, including attorneys’ fees, to officers, employees, agent or other persons otherwise than pursuant to this subsection (b).

(v)      Payments made by the Company directly to attorneys representing persons entitled to indemnification under subsection (a) or (b) of this Section 24 (each an “Indemnified Party”), and payments made by the Company directly to claimants or other persons to discharge obligations of such persons that would be indemnifiable under subsection (a) or (b) of this Section 24 if paid by such persons, shall also be deemed to be indemnification payments.

(c)      To the extent that, at law or in equity, an Indemnified Party has duties (including fiduciary duties) and liabilities relating thereto to the Company, to any Member or to any other Indemnified Party, an Indemnified Party acting under this Agreement shall not be liable to the Company or to any Member or to any other Indemnified Party for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of an Indemnified Party otherwise existing at law or in

 

30


equity, are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Party.

(d)      No amendment of this Section 24 shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment.

25.       Severability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefore in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

26.       Counterparts . For the convenience of the Members, this Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall together constitute the same agreement.

27.       Headings; Recitals . All section headings and the recitals herein are for convenience of reference only and are not part of this Agreement, and no construction or reference shall be derived therefrom.

28.       Entire Agreement; Waiver . This Agreement (including any exhibits and schedules hereto) supersedes all prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof and thereof and contains the entire agreement among the parties with respect to the subject matter hereof and thereof. No waiver of any provisions hereof by any party hereto shall be deemed a waiver of any other provisions hereof by any such party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such party.

29.       Third Party Beneficiaries . NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY PERSON NOT A MEMBER ANY RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT (EXCEPT TO THE EXTENT SPECIFICALLY PROVIDED IN SECTIONS 24 AND 30) AND THE MANAGER SHALL HAVE NO DUTY OR OBLIGATION TO ANY CREDITOR OF THE COMPANY TO REQUEST THE MEMBERS TO MAKE ADDITIONAL CONTRIBUTIONS TO THE CAPITAL OF THE COMPANY.

30.       Exculpation . Notwithstanding any other terms of this Agreement, whether express or implied, or obligation or duty at law or in equity, no Indemnified Party shall be liable to the Company or any member or manager for any act or omission (in relation to the Company, this Agreement, any related document or any transaction contemplated hereby or thereby) taken or omitted by an Indemnified Person in the belief that such act or omission is in or is not contrary to the best interests of the Company and is within the scope of authority granted to such

 

31


Indemnified Party by this Agreement, provided that such act or omission does not constitute willful misfeasance, gross negligence or bad faith of such Indemnified Party.

[The remainder of this page intentionally left blank. Signatures on following page.]

 

32


IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have duly executed this Agreement (which may be in counterparts) as of the date first above written.

 

AS MEMBERS:       AS MANAGER:
New Cingular Wireless Services, Inc.       AT&T Mobility Corporation
By:                                                                 By:                                                    

Name: George B. Goeke

Title: Treasurer

   

  Name: George B. Goeke

  Title: Treasurer

 

AT&T Mobility LLC
By:      

  AT&T Mobility Corporation,

  its sole Manager

             By:                                                
            

 Name: George B. Goeke

 Title: Treasurer

          

 

AT&T Corp.
By:                                                            

Name: Julianne K. Galloway

Title: Chief Financial Officer and Treasurer

 

BellSouth Mobile Data, Inc.
By:                                                            

Name: George B. Goeke

Title: Treasurer

 

JP Morgan Chase Bank, N.A., as trustee of the SBC Master Pension Trust
By:    
Name:    
Title:    

Signature Page to

Fourth Amended and Restated Limited Liability Company Agreement of AT&T Mobility II LLC


SCHEDULE A

MEMBERS

Common Interest Members

 

        Member  

    

   Common Interests          

    

  

Common Percentage Interest         

NCWS

         127,005,486            18.2870222%  

  Mobility

         517,961,360            74.5792265%  

BSMD

         36,823,564            5.3020806%  

                         AT&T Corp.              

 

         12,721,165            1.8316707%  
         680,786,698            100.0000000%  

Series A Preferred Interest Member

 

                            Member

 

Series A Preferred Interests

  
                          SBC Master Pension Trust  

320,000,000

  

Schedule A to

Fourth Amended and Restated Limited Liability Company Agreement of AT&T Mobility II LLC

Exhibit 10-gg

FIRST AMENDMENT TO THE

FOURTH AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

AT&T MOBILITY II LLC

This First Amendment (the “ First Amendment ”) to the Fourth Amended and Restated Limited Liability Company Agreement is entered into this 23 day of October, 2018 and effective as of the date set forth below, by AT&T Mobility Corporation, a Delaware corporation, as the manager (the “ Manager ”) of AT&T Mobility II LLC (the “ Company ”) pursuant to Section 22 of the Existing Agreement (defined below).

WHEREAS , the Company is governed by the Fourth Amended and Restated Limited Liability Company Agreement of AT&T Mobility II LLC, with an effective date of October 15, 2018 (the “ Existing Agreement ”);

WHEREAS , the Third Amended and Restated Limited Liability Company Agreement of the Company contained two amendments titled “Fifth Amendment”, one of which was dated effective April 30, 2018 (the “ April Amendment ”) and one of which was dated effective October 15, 2018 (the “ October Amendment ”);

WHEREAS , the April Amendment updated Schedule A to reflect a distribution to New Cingular Wireless Services, Inc. on April 30, 2018;

WHEREAS , as a result of scrivener’s error, the April Amendment was not incorporated into the Existing Agreement, resulting in Schedule A of the Existing Agreement not reflecting the current ownership of the Company; and

WHEREAS , the Manager desires to amend Schedule A of the Existing Agreement to incorporate the current ownership of the Company as set forth in the April Amendment, and does hereby adopt this First Amendment as an amendment to the Existing Agreement.

NOW THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

 

1.

Amendments . The Schedule to the Existing Agreement entitled, SCHEDULE A – MEMBERS shall be deleted in its entirety and replaced by SCHEDULE A – MEMBERS , attached hereto, which sets forth the ownership of the Company as in effect on October 15, 2018.

 

2.

Full Force and Effect . Except as amended by this First Amendment, the Existing Agreement shall continue in full force and effect.

 

3.

Counterparts . This First Amendment may be executed in one or more counterparts, each of which shall constitute an original and all of which when taken together shall constitute one binding agreement.

The remainder of this page intentionally left blank.


IN WITNESS WHEREOF , the undersigned has caused this First Amendment to be executed by its duly authorized representative.

 

MANAGER:
AT&T MOBILITY CORPORATION

By:                                                                    

Name: George B. Goeke

Its: Treasurer

 

Signature Page to First Amendment to

Fourth Amended and Restated Limited Liability Company Operating Agreement of AT&T Mobility II LLC


SCHEDULE A

MEMBERS

Common Interest Members

 

Member    Common Interests                  Common Percentage Interest               

NCWS

       126,874,258        18.2715796 %

Mobility

       517,961,360        74.5933208 %

BSMD

       36,823,564        5.3030827 %

AT&T Corp.

       12,721,165        1.8320169 %
   
       694,380,347        100.0000000 %

Series A Preferred Interest Member

 

Member    Series A Preferred Interests

SBC Master Pension Trust

   320,000,000

Exhibit 10-hh

SECOND AMENDMENT TO THE

FOURTH AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

AT&T MOBILITY II LLC

This Second Amendment (the “ Second Amendment ”) to the Fourth Amended and Restated Limited Liability Company Agreement is entered into effective as of January 1, 2019 by AT&T Mobility Corporation, a Delaware corporation, as the manager (the “ Manager ”) of AT&T Mobility II LLC (the “Company ”) pursuant to Paragraph 23 of the Existing Agreement (defined below).

WHEREAS , the Company is governed by the Fourth Amended and Restated Limited Liability Company Agreement of AT&T Mobility II LLC, with an effective date of October 15, 2018, amended as of October 23, 2018 (the “ Existing Agreemen t”);

WHEREAS , on January 1, 2019, New Cingular Wireless Services, Inc. (“ NCWS ”) made a capital contribution of all of its 18.2715796% outstanding membership interest of the Company to AT&T Mobility LLC; and

WHEREAS , the Manager desires to amend Schedule A of the Existing Agreement to reflect the new Percentage Interest of the Members and does hereby adopt this Second Amendment as an amendment to the Existing Agreement;

NOW THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

 

1.

Amendment . The Schedule to the Existing Agreement entitled, SCHEDULE A – MEMBERS shall be deleted in its entirety and replaced by SCHEDULE A – MEMBERS , attached hereto, which sets forth the final Percentage Interest of the Common Interest Members and Series A Preferred Interest Member as of 11:59 p.m. Eastern time on January 1, 2019.

 

2.

Full Force and Effect . Except as amended by this Second Amendment, the Existing Agreement shall continue in full force and effect.

 

3.

Counterparts . This Second Amendment may be executed in one or more counterparts, each of which shall constitute an original and all of which when taken together shall constitute one binding agreement.

 

The remainder of this page intentionally left blank.


IN WITNESS WHEREOF, the undersigned has caused this Second Amendment to be executed by its duly authorized representative.

 

MANAGER:

AT&T MOBILITY CORPORATION

By:

 

/s/ Jackie A. Begue

Name: Jackie A. Begue

Title: Assistant Secretary

 

[ Signature Page to Second Amendment to

Fourth Amended and Restated Limited Liability Company Operating Agreement of

AT&T Mobility II LLC ]


SCHEDULE A

MEMBERS

Common Interest Members

 

Member    Common Interests                  Common Percentage Interest               

Mobility

       644,835,618        92.8649006 %

BSMD

       36,823,564        5.3030827 %

AT&T Corp.

       12,721,165        1.8320168 %
   
       694,380,346        100.0000000 %

Series A Preferred Interest Member

 

Member

   Series A Preferred
Interests            

SBC Master Pension Trust

   320,000,000

Exhibit 10-ii

AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

by and among

AT&T INC.

and

THE SBC MASTER PENSION TRUST

and

BROCK FIDUCIARY SERVICES LLC

DATED AS OF OCTOBER 15, 2018


TABLE OF CONTENTS

 

     Page  

ARTICLE I DEFINITIONS

     2  

Section 1.1

   Definitions      2  

Section 1.2

   Other Definitional Provisions      7  

ARTICLE II REPRESENTATIONS AND WARRANTIES

     7  

Section 2.1

   Representations and Warranties of AT&T      7  

Section 2.2

   Representations and Warranties of the Investment Manager      8  

ARTICLE III TRANSFER RESTRICTIONS

     8  

Section 3.1

   Transfer Restrictions      8  

Section 3.2

   Legends on Holder Shares; Securities Act Compliance      9  

ARTICLE IV REGISTRATION RIGHTS

     11  

Section 4.1

   Registration Statement      11  

Section 4.2

   Reserved      17  

Section 4.3

   Termination of Registration Obligation      17  

Section 4.4

   Registration Procedures      17  

Section 4.5

   Registration Expenses      24  

Section 4.6

   Indemnification; Contribution      24  

Section 4.7

   Indemnification Procedures      26  

Section 4.8

   Repurchase of Shares      27  

Section 4.9

   Right of First Offer      27  

Section 4.10

   Repurchase      27  

Section 4.11

   Cooperation During Non-S-3 Periods      28  

ARTICLE V MISCELLANEOUS

     28  

Section 5.1

   Termination      28  

Section 5.2

   Injunctive Relief      28  

Section 5.3

   Assignments      29  

Section 5.4

   Amendments; Waiver      29  

Section 5.5

   Notices      29  

Section 5.6

   GOVERNING LAW; FORUM SELECTION      31  

Section 5.7

   WAIVER OF JURY TRIAL      31  

Section 5.8

   Interpretation      31  

 

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Section 5.9

       Scope of Agreement      31  

Section 5.10

       No Third Party Beneficiaries      32  

Section 5.11

       Severability      32  

Section 5.12

       Counterparts      32  

Section 5.13

       Effectiveness      32  

 

ii


REGISTRATION RIGHTS AGREEMENT, dated as of October 15, 2018 (this “ Agreement ”), by and among (i) AT&T Inc., a Delaware corporation (the “ AT&T ”), (ii) Brock Fiduciary Services LLC (the “ Investment Manager ”), as named fiduciary and investment manager, with respect to the AT&T Pension Benefit Plan (“ AT&T Plan ”), a participating plan in the SBC Master Pension Trust (“ Trust ”), acting on its own behalf and as investment manager on behalf of the Trust, (iii) the Trust, as a Holder (as defined below), and (iv) any additional or substitute Holders that become a party to this Agreement in accordance with and pursuant to Section 5.3(b) hereof.

WITNESSETH:

WHEREAS, on September 9, 2013, AT&T Mobility II, LLC, an indirect wholly owned subsidiary of AT&T (“ AT&T Mobility ”), issued 320 million cumulative perpetual preferred membership interests, Series A (each a “ Preferred Interest ” and, collectively, the “ Preferred Interests ”) to AT&T pursuant and subject to the terms and conditions of that certain Second Amended and Restated Limited Liability Company Agreement of AT&T Mobility (the “ Second LLC Agreement ”);

WHEREAS, AT&T entered into the Contribution Agreement (the “ Contribution Agreement ”), effective as of September 9, 2013, by and among the Investment Manager, the Trustee, AT&T and AT&T Mobility, providing for an in-kind contribution by AT&T to the AT&T Plan of the Preferred Interests, and the LLC Agreement was amended and restated in connection therewith (the “ Third LLC Agreement ”)

WHEREAS, the Contribution Agreement and the Third LLC Agreement, as thereafter amended, are being amended and restated, effective as of the date hereof, to provide, among other things, for the transferability of the Preferred Interests (such Fourth Amended and Restated Limited Liability Company Agreement, as the same may be amended from time to time, the “ Fourth LLC Agreement ” and such Amended and Restated Contribution Agreement, as the same may be amended from time to time, the “ Amended Contribution Agreement ,” respectively);

WHEREAS, pursuant to the Fourth LLC Agreement, AT&T Mobility has the right to purchase all or any portion of the Preferred Interests from the Trust in one or more transactions as provided in Section 8(e) thereof (such right, as so provided in the Fourth LLC Agreement, the “ Redemption Option ”); and pursuant to the Fourth LLC Agreement and the Amended Contribution Agreement, the Trust has the right to require AT&T Mobility or AT&T to purchase all or a portion of the Preferred Interests, from time to time, from the Trust as provided in Section 8(e) and Section 7 thereof, respectively (such rights, as so provided in the Fourth LLC Agreement and Amended Contribution Agreement, the “ Put Option ”);

WHEREAS, pursuant to the Fourth LLC Agreement and Amended Contribution Agreement, AT&T Mobility and AT&T have the right, in their sole discretion, to pay the purchase price for any Preferred Interests purchased pursuant to the Put Option or the Redemption Option, in whole or in part, by delivering shares of Common Stock to the Trust (or any substitute Members of AT&T Mobility) as provided therein;


WHEREAS, in connection with the foregoing, the parties hereto wish to amend and restate this Agreement governing the rights and obligations of the parties with respect to registration rights, transfers and other matters relating to shares of Common Stock (if any) that may be delivered to the Trust (or any substitute Members of AT&T Mobility who become Holders hereunder) pursuant to the Redemption Option or the Put Option.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1         Definitions . As used in this Agreement, the following terms shall have the meanings indicated below:

144 Notice ” shall have the meaning set forth in Section 3.2(e).

Affiliate ” shall mean, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by or is under Common Control with that Person.

Agreement ” shall have the meaning set forth in the Preamble.

Amended Contribution Agreement ” shall have the meaning set forth in the Recitals.

AT&T ” shall have the meaning set forth in the Preamble.

AT&T Mobility ” shall have the meaning set forth in the Recitals.

AT&T Plan ” shall have the meaning set forth in the Preamble.

Beneficially Own ” shall mean, with respect to any securities, having “beneficial ownership” of such securities within the meaning of paragraph (a) of Rule 13d-3 under the Exchange Act (as such rule is in effect on the date of this Agreement).

Blackout Period ” shall have the meaning set forth in Section 4.1(f).

Board ” shall mean, as of any date, the Board of Directors of AT&T in office on that date.

Business Day ” shall mean any day other than a Saturday, Sunday, federal holiday or a day on which banks in the City of New York are authorized or obligated by law to close.

Claim Notice ” shall have the meaning set forth in Section 4.7(a).

 

2


Claims ” shall have the meaning set forth in Section 4.6(a).

Common Stock ” shall mean the common stock, $1.00 par value per share, of AT&T and any successor equity securities issued in lieu thereof by any successor of AT&T.

Company Indemnified Party ” shall have the meaning set forth in Section 4.6(b).

Confidential Information ” shall have the meaning set forth in Section 4.4(f).

Contribution Agreement ” shall have the meaning set forth in the Recitals.

Control ” (including, with correlative meanings, “Controlled by” and “under Common Control with”) shall mean the possession, direct or indirect, of the power to direct or cause the direction of management or policies of a Person, whether through ownership of securities, by contract or otherwise.

Delivery Date ” means any date on which shares of Common Stock are issued and first registered in the name of any Holders (or their respective nominees, as the case may be) on the books and records of AT&T or its transfer agent, in each case pursuant to the Redemption Option or the Put Option.

Demand Request ” shall have the meaning set forth in Section 4.1(b).

Director ” shall mean any member of the Board.

Effective Period ” shall have the meaning set forth in Section 4.4(a)(iii).

Encumbrance ” shall mean any lien, pledge, charge, claim, encumbrance, security interest, option, mortgage, easement or other restriction or third-party right of any kind, including any right of first refusal or restriction on voting.

Exchange Act ” shall mean the United States Securities Exchange Act of 1934, as amended from time to time, and the relevant rules and regulations promulgated by the SEC from time to time thereunder.

Expiration Date ” shall have the meaning set forth in Section 4.1(a)(v).

Fourth LLC Agreement ” shall have the meaning set forth in the Recitals.

Holder ” or “ Holders ” shall mean (i) the Trust, the sole initial Holder hereunder, and (ii) any substitute Members of AT&T Mobility (or subsequent substitute Members thereof) that have been duly admitted to such company pursuant to Section 8(c) of the Fourth LLC Agreement and that have executed this Agreement as required by Section 8(c)(ii) thereof and Section 5.3(b) hereof.

Holder Indemnified Parties ” shall have the meaning set forth in Section 4.6(b).

Holder Shares ” shall mean the shares of Common Stock issued and registered in the name of a Holder (or its nominee) on any Delivery Date pursuant to the Redemption Option

 

3


or the Put Option and any shares of Common Stock or other securities issued in respect of or into which such shares of Common Stock shall be converted in connection with any stock splits, reverse stock splits, stock dividends or distributions, combinations or any similar recapitalizations on or after such Delivery Date.

Indemnified Party ” shall mean any Company Indemnified Party, the Holder Indemnified Parties or Underwriter Indemnified Party, as the context may require.

Indemnifying Party ” shall have the meaning set forth in Section 4.7.

Investment Manager ” shall have the meaning set forth in the Recitals.

Last Option Date ” means the Delivery Date for Common Stock issued pursuant to an exercise of the Redemption Option or the Put Option (if any) after which neither the Redemption Option nor the Put Option is exercisable pursuant to its terms (e.g., because all Preferred Interests have been repurchased under the Fourth LLC Agreement or Amended Contribution Agreement or are otherwise no longer beneficially owned by a Holder).

Majority in Interest of the Holders ” means Holders of more than 50% of Registrable Securities then outstanding (or, as the context may require, prior to the initial Delivery Date, Members of AT&T Mobility holding Preferred Interests that would represent, upon delivery in connection with a Put Option or Redemption Option, as the case may be, a Majority in Interest of the Holders).

Market Value ” shall mean, as of any date, the average of the daily closing prices per share of Common Stock during the regular trading sessions on the NYSE (or on the principal securities exchange or interdealer quotation system on which Common Stock is then listed or quoted) for each of the 20 full trading days immediately preceding (but not including) such date.

Non-Shelf Extension Period ” shall have the meaning set forth in Section 4.1(a)(vii).

Non-Shelf Factor ” shall have the meaning set forth in Section 4.1(a)(vii).

Non-Shelf Notice ” shall have the meaning set forth in Section 4.1(a)(vi).

Non-WKSI Extension Period ” shall have the meaning set forth in Section 4.1 (a)(iii).

Non-WKSI Factor ” shall have the meaning set forth in Section 4.1(a)(iii).

Organizational Documents ” shall mean, with respect to any Person, such Person’s articles or certificate of association, incorporation, formation or organization, by-laws, limited liability company agreement, partnership agreement or other constituent document or documents, or with respect to any trust, such trust’s indenture, each in its currently effective form as amended from time to time.

 

4


Person ” shall mean any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature.

Preferred Interests ” shall have the meaning set forth in the Recitals.

Put Option ” has the meaning set forth in the Recitals, as the same may be amended from time to time.

Redemption Option ” has the meaning set forth in the Recitals, as the same may be amended from time to time.

Registrable Shares ” shall mean, at any time, the Holder Shares that are then registered in the name of a Holder (or its nominee) and Beneficially Owned by such Holder. For the avoidance of doubt, the Registrable Shares shall not include any Preferred Interests or any rights of the Trust under the Contribution Agreement, including any right to receive Common Stock thereunder.

Registration Period ” means the period from the first Delivery Date (if any) to but excluding the Termination Date.

Registration Trigger ” shall have the meaning set forth in Section 4.1(a)(i).

Renewal Shelf Registration Statement ” shall have the meaning set forth in Section 4.1(a)(v).

Repurchase Period ” shall mean the 90 day period that begins on the date of the receipt by AT&T of written notice from the Holder (or Holders) with respect to its (or their) option under Section 4.1(a)(iv), 4.1(a)(viii), 4.1(e)(ii), or 4.10 of this Agreement.

Restricted Share Repurchases ” means repurchases of Common Stock by AT&T pursuant to, and in accordance with: (a) any publicly announced, broad-based share repurchase programs; (b) any accelerated share repurchase programs or similar structured repurchase programs; or (c) any issuer tender offers conducted by AT&T as issuer. For purposes of clarity, Restricted Share Repurchases shall not include, among other things: (x) any privately-negotiated repurchases; or (y) any repurchases or deemed repurchases pursuant to equity plans or equity awards issued by AT&T.

S-3 Eligible ” shall have the meaning set forth in Section 4.1(c).

Sale Window ” shall mean the period of time (a) beginning 24 hours following the filing or furnishing of AT&T’s quarterly or annual earnings release on Form 8-K (or any successor form) with the SEC for the most recently completed fiscal quarter or fiscal year, as the case may be, and (b) ending at 5:00 p.m. ET on the 30th calendar day following the filing or furnishing of AT&T’s quarterly or annual earnings release on Form 8-K (or any successor form, or, in the event such earnings release is not released, the Form 10-K or 10-Q, as applicable) with the SEC for the most recently completed fiscal quarter or fiscal year; provided that any Sale Window may be extended or supplemented with AT&T’s prior written consent.

 

5


SEC ” shall mean the United States Securities and Exchange Commission or any relevant successor agency.

Second LLC Agreement ” shall have the meaning set forth in the Recitals.

Securities Act ” shall mean the United States Securities Act of 1933, as it may be amended from time to time, and the relevant rules and regulations promulgated by the SEC from time to time thereunder.

Shelf Takedown ” shall have the meaning set forth in Section 4.1(b).

Subsidiary ” shall mean, with respect to any Person, any other entity (i) whose securities or other ownership interests, having by their terms the power to elect a majority of the board of directors or other Persons performing similar functions, are owned or controlled, directly or indirectly, by such Person, (ii) whose business and policies such Person has the power, directly or indirectly, to direct, or (iii) of which 50% or more of the securities, partnership or other ownership interests are owned, directly or indirectly, by such Person.

Termination Date ” shall have the meaning set forth in Section 4.3.

Third LLC Agreement ” shall have the meaning set forth in the Recitals.

Transfer ” shall mean any direct or indirect sale, transfer, assignment, pledge, hypothecation, mortgage, license, gift, creation of a security interest in or lien on, placement in trust (voting or otherwise), encumbrance or other disposition to any Person, including those by way of spin-off, hedging or derivative transactions (including by way of any short sale by another person in connection therewith) or otherwise.

Trust Agreement ” shall mean the amended and restated SBC Master Pension Trust dated February 1, 2012, as the same may be amended from time to time.

Trust ” shall have the meaning set forth in the Preamble.

Trustee ” shall mean JPMorgan Chase Bank, N.A. and shall include any successor trustee for the AT&T Plan and Trust.

Unavailable S-3 ” shall have the meaning set forth in Section 4.1(a)(vi).

Underwriter Indemnified Party ” shall have the meaning set forth in Section 4.6(b).

Underwritten Offering ” shall mean any fixed-price firm-commitment underwritten offering.

WKSI ” shall mean a “well-known seasoned issuer” as such term is defined in Rule 405 promulgated under the Securities Act.

WKSI Extension Period ” shall have the meaning set forth in Section 4.1(a)(ii).

 

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WKSI Factor ” shall have the meaning set forth in Section 4.1(a)(ii).

Section 1.2         Other Definitional Provisions . Unless the express context otherwise requires:

(a)        the words “hereof”, “herein”, and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement;

(b)        the terms defined in the singular have a comparable meaning when used in the plural, and vice versa;

(c)        any reference herein to “Dollars” and “$” are to United States Dollars;

(d)        any references herein to a specific Section, Schedule, Annex or Exhibit shall refer, respectively, to Sections, Schedules, Annexes or Exhibits of this Agreement;

(e)        wherever the word “include”, “includes” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation”;

(f)        references herein to any gender includes the other gender;

(g)        unless otherwise specified, any law, rule or statute defined or referred to herein means such law, rule or statute (including any successor thereto) as it may be amended from time to time; and

(h)        unless the context otherwise indicates, all rights of the Trust under this Agreement shall be exercised, and all actions to be taken by it hereunder shall be performed or taken on its behalf by the Investment Manager. The obligations of the Trust hereunder shall be binding upon the Trustee, not personally but solely in its capacity as directed trustee of the SBC Master Pension Trust, in which the AT&T Plan is a participating plan. All notices to the Trust shall be deemed delivered if so delivered to the Investment Manager, and AT&T may rely on any and all actions taken by the Investment Manager as if taken by the Trust. In the event of the termination or resignation of the Investment Manager, Section 17 of the Amended Contribution Agreement shall apply to this Agreement mutatis mutandis .

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Section 2.1         Representations and Warranties of AT&T . AT&T represents and warrants to the Holders as of the date hereof that:

(a)        AT&T is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

(b)        AT&T has all requisite power and authority and has taken all action necessary in order to execute and deliver this Agreement and to perform its obligations

 

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hereunder. The execution and delivery by AT&T of this Agreement and the performance of its obligations hereunder have been duly authorized by all necessary action of AT&T. This Agreement has been duly executed and delivered by AT&T and, assuming the due authorization, execution and delivery of this Agreement by a Holder (and, in the case of the Trust (so long as the Trust remains a Holder), the Investment Manager), constitutes the legal, valid and binding obligation of AT&T, enforceable against AT&T in accordance with its terms, except as limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally or, as to enforceability, by general equitable principles.

(c)        The execution and delivery of this Agreement by AT&T and the performance of its obligations hereunder will not constitute or result in (i) a breach or violation of, or a default under, the Organizational Documents of AT&T, (ii) a breach or violation of, a termination (or right of termination) or default under, the creation or acceleration of any obligations under, or the creation of an Encumbrance on any of the assets of AT&T (with or without notice, lapse of time or both) pursuant to, any agreement, lease, license, contract, note, mortgage, indenture, arrangement or other obligation binding upon AT&T, or (iii) conflict with, breach or violate any law applicable to AT&T or by which its properties are bound or affected, except, in the case of clause (ii) or (iii) above, for any breach, violation, termination, default, creation or acceleration that would not, individually or in the aggregate, reasonably be likely to impair the ability of AT&T to perform its obligations under this Agreement.

Section 2.2         Representations and Warranties of the Investment Manager . The Investment Manager represents and warrants to AT&T as of the date hereof that Brock Fiduciary Services LLC has been duly appointed and is serving as the Investment Manager for the Trust and, in that capacity, acknowledges and affirms its statements in Section 3 of the Amended Contribution Agreement.

ARTICLE III

TRANSFER RESTRICTIONS

Section 3.1         Transfer Restrictions .

(a)        A Holder shall not (and, in the case of the Trust (so long as the Trust remains a Holder), the Investment Manager shall not cause the Trust to) make any Transfer of any Holder Shares other than in accordance with this Agreement. No Transfer of Holder Shares in violation of this Agreement, including Article III hereof, or in violation of any restrictive legends (or comparable notations or other arrangements contemplated hereby), shall be made or recorded on the books and records of AT&T or its transfer agent and any such Transfer shall be void and of no effect. Upon completion of any Transfer of any Holder Shares, the Holder (or the Investment Manager on behalf of the Trust) shall notify AT&T and its transfer agent in writing of the number of Holder Shares so Transferred. The parties acknowledge and agree that the Investment Manager may direct the Trustee to enter into any agreements, incur reasonable costs on behalf of the Trust, or pledge or hypothecate assets of the Trust (except for the Preferred Interests or Holder Shares) in order to carry out interest rate and credit defaults swap transactions, and that any such transactions shall not be deemed to be a Transfer (either direct or

 

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indirect) of the Preferred Interests or the Holder Shares. Notwithstanding the foregoing, under no circumstances shall any Holder engage in hedging of, or any derivative transaction with respect to, any securities issued by AT&T (which, for the avoidance of doubt, shall not include the Preferred Interests).

(b)        No Holder Shares shall be Transferred except pursuant to an effective registration statement under the Securities Act as provided in this Agreement or in compliance with an available exemption from the registration requirements of the Securities Act, and in each case in compliance with the registration requirements of (or any available exemptions from) any applicable state or other securities laws. In addition, except for any Transfer during a Sales Window (i) pursuant to an Underwritten Offering or (ii) pursuant to any other fixed-price offering (including any such offering not being made pursuant to an effective registration statement), in each case, in compliance with the provisions of this Agreement, no Transfer shall be part of a transaction that, in the reasonable judgment of AT&T, would be a “distribution” within the meaning of Regulation M under the Exchange Act without AT&T’s prior written consent.

Section 3.2         Legends on Holder Shares; Securities Act Compliance .

(a)        Each share certificate representing Holder Shares shall bear the following or substantially similar legends (and comparable notations or other arrangements will be reflected in the books and records of AT&T or its transfer agent with respect to any uncertificated Holder Shares):

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER SUCH ACT AND LAWS OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER (AND ONLY AFTER THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH TRANSFER OR DISPOSITION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 30, 2013, A COPY OF WHICH MAY BE INSPECTED AT OR OBTAINED FROM THE PRINCIPAL OFFICE OF ISSUER WITHOUT CHARGE.”

(b)        Any Holder (or, in the case of the Trust (so long as the Trust remains a Holder), the Investment Manager) agrees that it will, in connection with a proposed Transfer and if requested by AT&T, deliver (at such Holder’s expense) to AT&T such customary certificates and other documents (which may include an opinion of reputable U.S. counsel selected by such Holder and reasonably acceptable to AT&T), in form and substance reasonably satisfactory to

 

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AT&T, confirming that any Transfer made other than pursuant to an effective registration statement as provided herein does not require registration under the Securities Act.

(c)        In connection with any Transfer of Holder Shares pursuant to an effective registration statement as provided herein, AT&T shall remove (or cause to be removed) the legend (or comparable notations or other arrangements) referenced in Section 3.2(a) with regard to such Holder Shares. In connection with any proposed Transfer of Holder Shares pursuant to Rule 144 under the Securities Act as provided herein, AT&T shall remove (or cause to be removed) the legend (or comparable notations or other arrangements) referenced in Section 3.2(a) with regard to such Holder Shares but solely with regard to such proposed Transfer and only when a Holder (or, in the case of the Trust (so long as the Trust remains a Holder), the Investment Manager) has delivered (at such Holder’s expense) to AT&T such customary certificates and other documents (which may include an opinion of reputable U.S. counsel selected by such Holder and reasonably acceptable to AT&T), in form and substance reasonably satisfactory to AT&T, confirming that such proposed Transfer will comply with Rule 144 (including all of the applicable requirements thereof) and the provisions of this Agreement.

(d)        At all times during the Registration Period, AT&T will use its commercially reasonable efforts to comply with the requirements of Rule 144(c)(1) with respect to public information about AT&T.

(e)        In connection with any proposed Transfer of Holder Shares pursuant to Rule 144 under the Securities Act, a Holder shall give notice of any such proposed Transfer at least five (5) Business Days prior to the commencement of the proposed Transfer (a “ 144 Notice ”). A 144 Notice shall specify (i) the date on which such Holder proposes to commence Transfers pursuant to Rule 144; (ii) the maximum number of Holder Shares to be disposed of in any such Transfers; and (iii) the expected completion date of such Transfers. Any such Holder agrees that it may Transfer its Holder Shares pursuant to Rule 144 only during a Sale Window and may not make any such Transfer after the expected completion date specified in the related 144 Notice (without AT&T’s prior written consent). Upon completion or other termination of Transfers of Holder Shares contemplated in a 144 Notice, any such Holder shall promptly deliver written notice to AT&T of such completion or other termination of all such Transfers pursuant to Rule 144. For the avoidance of doubt, any Transfers by a Holder pursuant to Rule 144 (or other appropriate exemption under the securities laws) shall not be deemed a Demand Request or Shelf Takedown pursuant to Section 4.1(b), and shall not count as one of the four Demand Requests permitted pursuant to Section 4.1(b).

(f)        At any time following receipt of a 144 Notice, AT&T may deliver notice of a Blackout Period as set forth in Section 4.1(e) hereof to the requesting Holder(s), upon which such Holder(s) shall be prohibited from making any Transfers of Holder Shares pursuant to Rule 144 (or otherwise) during such Blackout Period (it being understood that any such notice of a Blackout Period shall count as one of the two blackouts permitted by Section 4.1(e)).

 

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ARTICLE IV

REGISTRATION RIGHTS

Section 4.1         Registration Statement .

(a)        (i)        Following the first delivery of Holder Shares pursuant to the terms of the Fourth LLC Agreement or Amended Contribution Agreement (the “ Registration Trigger ”), AT&T shall use its reasonable best efforts to file (A) a registration statement with the SEC (a “ Shelf Registration Statement ”) on Form S-3, if AT&T is then eligible to file a registration statement on Form S-3 (pursuant to the General Instructions to Form S-3 or its successor form) (“ S-3 Eligible ”), or (B) any other appropriate form under the Securities Act for the type of offering contemplated by the Holders, if AT&T is not then S-3 Eligible (a “ Non-Shelf Registration Statement ”). Such Shelf Registration Statement shall provide for sales of Registrable Shares on a delayed or continuous basis pursuant to Rule 415 promulgated under the Securities Act to the extent permitted under applicable law.

(ii)        For so long as AT&T remains a WKSI and S-3 Eligible, AT&T shall have the obligation to file such Shelf Registration Statement within 30 days following the Registration Trigger, and to use its reasonable best efforts to cause such Shelf Registration Statement to become automatically effective and (subject to continuing eligibility) to remain effective for a period of three (3) years (subject to AT&T’s obligations under Section 4.1(a)(iv) with respect to any Renewal Registration Statement). If in this event the Shelf Registration Statement has not been filed and become effective on or before such 30th day following the Registration Trigger, AT&T shall pay to the Holders damages (a “ Registration Fee ”) in a cash amount per annum equal to (A) (x) 7.0% of the Market Value of the Registrable Securities outstanding on such 30 th day (calculated as of the first Business Day after such 30 th day) multiplied by (y) a fraction (the “ WKSI Factor ”), the numerator of which shall equal the number of days during the period beginning on (and including) the day after such 30 th day and ending on (but excluding) the first day on which the registration statement has been filed (a “ WKSI Extension Period ”) and the denominator of which shall be 365 less (B) any dividends actually paid to the Holders on such Registrable Securities for which the record date is during the WKSI Extension Period multiplied by the WKSI Factor; provided , that such Registration Fee shall not be less than zero. Such Registration Fee shall be due and payable in installments on either (as applicable) (1) the final Business Day of each fiscal quarter of AT&T during the WKSI Extension Period (under circumstances where the WKSI Extension Period is ongoing following the completion of such fiscal quarter) or (2) on the Business Day after the Shelf Registration Statement is filed (thereby terminating the WKSI Extension Period), in each case in respect of the portion of the fee that has accrued and not been paid through and including such final day in the fiscal quarter or the final day of the WKSI Extension Period, as applicable. If there are multiple Holders at the time of payment of such Registration Fee is payable under this Section 4(a)(ii) or Sections 4(a)(iii), (iv), (vii) or (viii) below, the Registration Fee shall be payable to the Holders pro rata based on the number of Registrable Securities held by such Holders.

 

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(iii)        In the event AT&T is not a WKSI but is S-3 Eligible at the Registration Trigger, AT&T shall use its reasonable best efforts to cause the Shelf Registration Statement to be filed and to become effective within 75 days after the Registration Trigger and (subject to continuing eligibility) to remain effective for a period of three (3) years (subject to AT&T’s obligations under Section 4.1(a)(iv) with respect to any Renewal Registration Statement). If in this event the Shelf Registration Statement has not been filed and become effective on or before such 75th day following the Registration Trigger, AT&T shall pay to the Holders a Registration Fee in a cash amount per annum equal to (A) (x) 7.0% of the Market Value of the Registrable Securities outstanding on such 75 th day (calculated as of the first Business Day after such 75 th day) multiplied by (y) a fraction (the “ Non-WKSI Factor ”), the numerator of which shall equal the number of days during the period beginning on (and including) the day after such 75 th day and ending on (but excluding) the first day on which the registration statement has been filed and becomes effective (a “ Non-WKSI Extension Period ”), and the denominator of which shall be 365 less (B) any dividends actually paid to the Holders on such Registrable Securities for which the record date is during the Non-WKSI Extension Period multiplied by the Non-WKSI Factor; provided , that such Registration Fee shall not be less than zero. Such Registration Fee shall be due and payable in installments on either (as applicable) (1) the final Business Day of each fiscal quarter of AT&T during the Non-WKSI Extension Period (under circumstances where the Non-WKSI Extension Period is ongoing following the completion of such fiscal quarter) or (2) on the Business Day after the Shelf Registration Statement is declared effective (thereby terminating the Non-WKSI Extension Period), in each case in respect of the portion of the fee that has accrued and not been paid through and including such final day in the fiscal quarter or the final day of the Non-WKSI Extension Period, as applicable.

(iv)        If, on or before the 180th day following a Registration Trigger and AT&T is S-3 Eligible on such 180 th day, AT&T has not filed and caused a Shelf Registration Statement to become effective for the sale of the Registrable Securities, at the option of Majority in Interest of the Holders, made pursuant to written notice to AT&T, either (A) each Holder will continue to receive its pro rata portion of the Registration Fee as provided in Section 4.1(a)(ii) or (iii), as applicable, or (B) AT&T will be restricted from declaring any dividends on or from making any Restricted Share Repurchases; provided that during the Repurchase Period, AT&T and AT&T Mobility may at their sole option repurchase from each Holder such Registrable Securities at a purchase price equal to the Market Value of such Registrable Shares calculated as of the Business Day preceding the date of delivery of the written notice by the Majority in Interest of the Holders. The Registration Fee will continue to accrue during, and be payable to any such Holder with respect to, the Repurchase Period. Such Registration Fee shall be due and payable in installments, as applicable, on either (1) the final Business Day of each fiscal quarter of AT&T during the Repurchase Period (under circumstances where such period is ongoing following the completion of such fiscal quarter) or (2) on the Business Day after either (i) the end of the Repurchase Period, or (ii) the repurchase of the Registrable Securities is completed, in each case in respect of the portion of the fee that has accrued and not been paid through and including such final day in the fiscal quarter or the final day of the Repurchase Period, as applicable.

 

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(v)        Upon expiration of any Shelf Registration Statement, in the event that (A) the Termination Date has not occurred and (B) any Holders beneficially own any outstanding Holder Shares or Preferred Interests representing Common Stock with an aggregate Market Value at such time of not less than $500 million, AT&T shall use its reasonable best efforts to file a renewal Shelf Registration Statement (a “ Renewal Shelf Registration Statement ”) prior to the expiration date (the “ Expiration Date ”) of such Shelf Registration Statement pursuant to Rule 415 promulgated under the Securities Act (or any relevant successor provision), on the same terms and conditions as provided in Section 4.1(a)(i) - (iv) hereof, it being understood that for purposes of this Section 4.1(v), references to the Registration Trigger in Sections 4.1(a)(i) - (iv) shall refer to the Expiration Date (including, without limitation, for purposes of the payment of any Registration Fee).

(vi)        If, following the effectiveness of any Shelf Registration Statement, such Shelf Registration Statement becomes unavailable for sales of Holder Shares (other than pursuant to a permitted Blackout Period pursuant to Section 4.1(e)) due to AT&T no longer being S-3 Eligible or as a result of a stop order with respect to such Shelf Registration Statement (an “ Unavailable S-3 ”), AT&T shall comply with the provisions of this Section 4.1(a)(vi). In the event AT&T is not S-3 Eligible at the Registration Trigger, or, following the effectiveness of a Shelf Registration Statement such Shelf Registration Statement becomes an Unavailable S-3, subject to the provisions hereof (including Section 4.1(b)(ii)), AT&T shall not be obligated to file any registration statement on Form S-1 or any successor form until such time as a Majority in Interest of the Holders deliver a written notice (a “ Non-Shelf Notice ”) of their intention to make a public offering of all or a portion of the Registrable Securities held by such requesting Holders. AT&T shall use its reasonable best efforts to file a Non-Shelf Registration Statement within 30 days of receipt of such notice and use its reasonable best efforts to cause such Non-Shelf Registration Statement to be declared effective by the SEC within 75 days of receipt of such notice. The parties agree that AT&T shall not request effectiveness of the Non-Shelf Registration Statement without first consulting with the requesting Holders and the underwriters (if any) as to the expected timing of the Non-Shelf Offering (it being understood that if on the 75 th day following receipt of the Non-Shelf Notice all other conditions and requirements for the Non-Shelf Registration Statement to be declared effective have been meet (including the clearance of any SEC comments) and the requesting Holders and/or underwriters (if any) advise AT&T that it would be advisable to delay the effectiveness of such Non-Shelf Registration Statement, AT&T shall not be required to pay the Registration Fee with respect to such Non-Shelf Registration Statement); provided , that in no circumstances will AT&T be obligated to request the acceleration of such Non-Shelf Registration Statement more than 20 calendar days after such 75 th day following receipt of such notice. The requesting Holders shall commence a Non-Shelf Offering of the Registrable Shares subject to the notice provided in this Section 4.1(a)(vi) held by the requesting Holders as soon as reasonably practicable following the effectiveness of the Non-Shelf Registration Statement, but in no event within three Business Days of the effectiveness of the Non-Shelf Registration Statement.

(vii)        If in the event the Non-Shelf Registration Statement has not been filed and become effective on or before such 75 th day following receipt of such Non-

 

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Shelf Notice (subject to the limitations set forth in Section 4.1(a)(vi)), AT&T shall pay to the requesting Holders a Registration Fee in a cash amount per annum equal to (A) (x) 7.0% of the Market Value of the Registrable Securities outstanding on such 75 th day (calculated as of the first Business Day after such 75 th day) multiplied by (y) a fraction (the “ Non-Shelf Factor ”), the numerator of which shall equal the number of days during the period beginning on (and including) the day after such 75 th day and ending on (but excluding) the first day on which the registration statement has been filed and becomes effective (a “ Non-Shelf Extension Period ”), and the denominator of which shall be 365 less (B) any dividends actually paid to the Holder on such Registrable Securities for which the record date is during the Non-Shelf Extension Period multiplied by the Non-Shelf Factor; provided , that the such Registration Fee shall not be less than zero. Such Registration Fee shall be due and payable in installments on either (as applicable) (1) the final Business Day of each fiscal quarter of AT&T during the Non-Shelf Extension Period (under circumstances where the Shelf Extension Period is ongoing following the completion of such fiscal quarter) or (2) on the Business Day after the Non-Shelf Registration Statement is declared effective (thereby terminating the Non-Shelf Extension Period), in each case in respect of the portion of the fee that has accrued and not been paid through and including such final day in the fiscal quarter or the final day of the Non-Shelf Extension Period, as applicable.

(viii)        If, on or before the 180 th day following the delivery of a Non-Shelf Notice, AT&T has not filed and caused an appropriate registration statement to become effective for the sale of the Registrable Securities, at the option of a Majority in Interest of the Holders made pursuant to written notice to AT&T, either (A) the Holders will continue to receive the Registration Fee as provided in Section 4.1(a)(vii) or (B) AT&T will be restricted from declaring any dividends on or from making any Restricted Share Repurchases; provided that during the Repurchase Period, AT&T and AT&T Mobility may at their sole option repurchase such Registrable Securities from the Holders at a purchase price equal to the Market Value of such Registrable Shares calculated as of the Business Day preceding the date of delivery of the written notice by the Majority in Interest of the Holders. The Registration Fee will continue to accrue during, and be payable to such Holders with respect to, the Repurchase Period. Such Registration Fee shall be due and payable in installments, as applicable, on either (1) the final Business Day of each fiscal quarter of AT&T during the Repurchase Period (under circumstances where such period is ongoing following the completion of such fiscal quarter) or (2) on the Business Day after either (i) the end of the Repurchase Period, or (ii) the repurchase of the Registrable Securities is completed, in each case in respect of the portion of the fee that has accrued and not been paid through and including such final day in the fiscal quarter or the final day of the Repurchase Period, as applicable.

(b)        (i)         Subject to the terms of this Section 4.1 and Section 4.9 hereof, during the period of time when any Shelf Registration Statement is effective, a Majority in Interest of the Holders shall have the right to deliver a demand (a “ Demand Request ”) to sell Registrable Shares pursuant to the Shelf Registration Statement (a “ Shelf TakeDown ”). Each Demand Request shall specify in writing the (A) aggregate amount of Registrable Shares to be sold, (B) the intended method or methods of distribution thereof (which shall comply with the requirements of the Securities Act and all other

 

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applicable securities laws), and (C) the proposed date when offers of such Registrable Shares are to commence and the proposed date when sales and deliveries of such shares are to be completed, provided that, for each such offering, all such offers, sales and deliveries must occur during an available Sale Window and during a period not to exceed ten Business Days (it being understood that such ten Business Day period shall commence upon the initial offer being made in connection with any such Shelf TakeDown).

(ii)        Subject to the terms of this Section 4.1 and Section 4.9 hereof, solely during the period of time when AT&T is not S-3 Eligible (including, without limitation, upon the expiration of the 180-day period referred to in Section 4.1(a)(iv)) or when there exists an Unavailable S-3, a Majority in Interest of the Holders shall have the right to deliver a Non-Shelf Notice to sell Registrable Shares pursuant to a Non-Shelf Registration Statement (a “ Non-Shelf Offering ”). Each Non-Shelf Notice shall specify in writing the (A) aggregate amount of Registrable Shares to be sold, (B) the intended method or methods of distribution thereof (which shall comply with the requirements of the Securities Act and all other applicable securities laws), and (C) the proposed date when offers of such Registrable Shares are to commence and the proposed date when sales and deliveries of such shares are to be completed, provided that, for each such offering, all such offers, sales and deliveries must occur during an available Sale Window and during a period not to exceed ten Business Days (it being understood that such ten Business Day period shall commence upon the initial offer being made in connection with any such Non-Shelf Offering).

(c)        Notwithstanding anything to the contrary set forth in Section 4.1(a) or (b), AT&T shall not be obligated to effect a Shelf Takedown pursuant to a Demand Request or effect a Non-Shelf Offering (if applicable):

(i)        in the case of a Shelf Takedown unless the Demand Request is received by AT&T not more than 30 Business Days and not less than 15 Business Days before the requested date of commencement of such offering;

(ii)        more than four times in any 12-month period; and

(iii)        unless the Registrable Shares to be included in such Shelf Takedown or other public offering have an aggregate Market Value of at least $500 million calculated as of the second Business Day prior to the date such request for registration is delivered to AT&T (it being understood that any Transfers other than pursuant to a Shelf Takedown or other public offering shall not be subject to this Section 4.1(c)(iii), including without limitation Transfers pursuant to Rule 144).

(d)        Any Demand Request or Non-Shelf Notice may be revoked by notice from the requesting Holders to AT&T prior to the commencement of any offers of Registrable Shares in a Shelf Takedown or Non-Shelf Offering, as the case may be; provided that such revoked Demand Request or Non-Shelf Notice shall (unless such revocation is due to any registration statement becoming unavailable for Transfers of Holder Shares pursuant to a stop order suspending the effectiveness of the registration statement or otherwise through no fault of

 

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the requesting Holders) count as one Shelf Takedown pursuant to a Demand Request or Non-Shelf Offering following a Non-Shelf Notice for the purpose of the limitation in Section 4.1(c)(ii) unless AT&T waives such request and as promptly as reasonably practicable is reimbursed for all reasonable out-of-pocket expenses (including fees of outside counsel and accountants and other expenses incurred in connection with such Demand Request) incurred by AT&T relating to the Shelf Takedown requested pursuant to such revoked Demand Request.

(e)        (i)        Notwithstanding anything in this Agreement to the contrary, AT&T shall be entitled, in its sole discretion for any reason or no reason, to postpone and delay the filing, effectiveness or use of any registration statement for a period of time (a “ Blackout Period ”), and during each Blackout Period the Holders shall not make (or permit to be made on their behalf) any offers or sales of Registrable Shares, whether in a Shelf Takedown, a Non-Shelf Offering, pursuant to Rule 144 or in any other transaction, provided , however , that AT&T may not impose more than two Blackout Periods in any 12-month period, and such Blackout Periods may not exceed 60 days in the aggregate; provided , however , that AT&T shall give written notice to the Holders of its determination to impose a Blackout Period, in which case any requesting Holders shall be entitled to cancel any pending Demand Request or Non-Shelf Notice that has been made but not yet effected without such Demand Request or Non-Shelf Notice counting as one of the Demand Requests or Non-Shelf Notices referred to in Section 4.1(b). Upon notice by AT&T to the Holders of any such determination, the Holders shall, except as required by applicable law, keep the fact of any such notice strictly confidential, and during any Blackout Period, promptly halt any and all transfers of Holder Shares (whether pursuant to a Shelf Registration Statement, a Non-Shelf Offering, Rule 144 or otherwise) for the duration of the Blackout Period set forth in such notice (or until such Blackout Period shall be earlier terminated in writing by AT&T), and promptly halt any use, publication, dissemination or distribution of any prospectus or prospectus supplement covering such Registrable Shares for the duration of the Blackout Period set forth in such notice (or until such Blackout Period shall be earlier terminated in writing by AT&T) and, if so directed by AT&T, shall deliver to AT&T any copies then in its possession of any such prospectus or prospectus supplement. Notwithstanding anything to the contrary in this Agreement, if, upon commencement of a Shelf Takedown or Non-Shelf Offering, AT&T determines, without the agreement of a Majority in Interest of the requesting Holders, to cause such offering to be suspended or halted, such action by AT&T shall be counted as one of the two Blackout Periods permitted pursuant to this Section 4.1(b), and AT&T shall promptly reimburse such requesting Holders all of such Holders’ reasonable, out-of-pocket expenses incurred with respect to such suspended or halted offering.

(ii)        The failure of AT&T to file or furnish its earnings release or its Form 10-K or Form 10-Q (as contemplated in the definition of “ Sale Window ”), as applicable and after giving effect to any permitted extension provided in Rule 12b-25 under the Exchange Act, within the period of time required for such filings pursuant to SEC rules and regulations, shall be deemed a “Blackout Period” for purposes of Section 4.1(e)(i), and shall count as one of the two Blackout Periods afforded AT&T pursuant to Section 4.1(e)(i). The 60-day Blackout Period referred to in Section 4.1(e)(i) shall commence on the first Business Day following the final date that a Form 10-K or Form 10-Q, as applicable, would have otherwise been required to be filed by AT&T pursuant to

 

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SEC rules and regulations in order for such filing to be “timely” under the Exchange Act (including without limitation Rule 12b-25 under the Exchange Act). If (1) the 60-day Blackout Period referred to in Section 4.1(e)(i) expires (whether such days are consecutive or not), and at the expiration of such date AT&T is not “ timely ” with respect to its reporting requirements under the Exchange Act, or (2) if a commencement of a Blackout Period beyond the two Blackout Periods afforded to AT&T pursuant to Section 4.1(e)(i) is triggered pursuant to this Section 4.1(e)(i), then at the option of a Majority in Interest of the Holders made pursuant to written notice to AT&T, either (A) the Holders will receive the Registration Fee as provided in Section 4.1(a)(ii), or (B) AT&T will be restricted from declaring any dividends on or from making any Restricted Share Repurchases, provided that during the Repurchase Period, AT&T and AT&T Mobility may at their sole option repurchase from any Holder the Registrable Securities at a purchase price equal to the Market Value of such Registrable Shares calculated as of the Business Day preceding the date of delivery of the written notice by the Majority in Interest of the Holders. The Registration Fee will continue to accrue during, and be payable to each Holder with respect to, the Repurchase Period. Such Registration Fee shall be due and payable in installments on either (as applicable) (1) the final Business Day of each fiscal quarter of AT&T during the Repurchase Period (under circumstances where such period is ongoing following the completion of such fiscal quarter) or (2) on the Business Day after either (i) the end of the Repurchase Period, or (ii) the repurchase of the Registrable Securities is completed, in each case in respect of the portion of the fee that has accrued and not been paid through and including such final day in the fiscal quarter or the final day of the Repurchase Period, as applicable.

(f)        In connection with any Underwritten Offering, the managing underwriter for such offering shall be selected by a Majority in Interest of the requesting Holders and reasonably acceptable to AT&T; provided that such managing underwriter shall be a nationally recognized investment banking firm.

(g)        Nothing in this Article IV shall affect, supersede or otherwise modify any of the restrictions on Transfer set forth in Article III or any other provision of this Agreement.

Section 4.2         Reserved .

Section 4.3         Termination of Registration Obligation . The obligation of AT&T to register Registrable Shares and maintain the effectiveness of any registration statement pursuant to this Article IV shall terminate on the third anniversary of the Last Option Date (such date on which such obligation terminates pursuant to the prior sentence is herein referred to as the “ Termination Date ”).

Section 4.4     Registration Procedures .

(a)        In connection with each registration statement prepared pursuant to this Article IV pursuant to which Registrable Shares will be offered and sold and subject to Section 4.9 hereof, and in accordance with the intended method or methods of distribution of the Registrable Shares as described in such registration statement, but in each case subject to the

 

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limitations and other provisions of this Agreement (including the provisions of Section 4.1(a) regarding a registration relating to a Demand Request), AT&T shall:

(i)        use its reasonable best efforts to prepare and file with the SEC a registration statement on an appropriate registration form of the SEC (including, without limitation, a registration statement on Form S-1 if AT&T is not then S-3 Eligible) and cause such registration statement to become effective under the Securities Act promptly after (or, as applicable, simultaneously with) the filing thereof, which registration statement shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by such form to be filed therewith; provided that before filing a registration statement or prospectus or any amendments or supplements thereto, AT&T shall furnish to the underwriters, if any, and counsel selected by a Majority in Interest of the Holders draft copies of all such documents proposed to be filed at least five Business Days prior to such filing, which documents will be subject to the reasonable review and comment of the Investment Manager (so long as the Trust is a Holder), counsel to, and other agents of, the Holders, and representatives and the underwriters, if any, and AT&T shall not file any amendment or supplement to a Shelf Registration Statement filed pursuant to Section 4.1(a) to which a Majority in Interest of the Holders or the underwriters, if any, shall reasonably object;

(ii)        use its reasonable best efforts to furnish without charge to the Holders and the underwriters, if any, at least one conformed copy of the registration statement and each post-effective amendment or supplement thereto (including all schedules and exhibits but excluding all documents incorporated or deemed incorporated therein by reference, unless requested in writing by a Majority in Interest of the Holders or an underwriter, except to the extent such exhibits and schedules are currently available via the SEC’s Electronic Data Gathering, Analysis and Retrieval System (“ EDGAR ”)) and such number of copies of the registration statement and each amendment or supplement thereto (excluding exhibits and schedules) and the summary, preliminary, final, amended or supplemented prospectuses included in such registration statement as the Holders or such underwriter may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares being sold by the Holders (AT&T hereby consents to the use in accordance with the U.S. securities laws of such registration statement (or post-effective amendment thereto) and each such prospectus (or preliminary prospectus or supplement thereto) by the Holders and the underwriters, if any, in connection with the offering and sale of the Registrable Shares covered by such registration statement or prospectus);

(iii)        (A) in the case of a registration statement on Form S-3, use its reasonable best efforts to keep such registration statement effective until the Expiration Date (or such shorter period as shall terminate when all of the securities covered by the registration statement have been disposed or withdrawn) in accordance with the provisions of Form S-3 or any successor form, and (B) in the case of an appropriate registration statement other than Form S-3, use its reasonable best efforts to keep such registration statement effective until the conclusion of sales of Registrable Securities pursuant to such registration statement but not longer than 90 days (the “ Effective Period ”), and prepare and file with the SEC such amendments, post-effective

 

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amendments and supplements to the registration statement and the prospectus as may be necessary to maintain the effectiveness of the registration for the Effective Period (including, without limitation, any supplements or post-effective amendments to add additional Registrable Shares to an existing registration statement) and cause the prospectus (and any amendments or supplements thereto) to be filed with the SEC;

(iv)        use its reasonable best efforts to register or qualify the Registrable Shares covered by such registration statement under such other securities or “blue sky” laws of such jurisdictions in the United States as are reasonably necessary, keep such registrations or qualifications in effect for so long as the registration statement remains in effect, and do any and all other acts and things which may be reasonably necessary to enable the Holders or any underwriter to consummate the disposition of the Registrable Shares in such jurisdictions; provided , however , that in no event shall AT&T be required to (A) qualify to do business as a foreign corporation in any jurisdiction where it would not, but for the requirements of this subparagraph (iv), be required to be so qualified, (B) execute or file any general consent to service of process under the laws of any jurisdiction, (C) take any action that would subject it to service of process in suits other than those arising out of the offer and sale of the securities covered by the registration statement, or (D) subject itself to taxation in any jurisdiction where it would not otherwise be obligated to do so, but for this paragraph (iv);

(v)        use its reasonable best efforts to cause all Registrable Shares covered by such registration statement to be listed (after notice of issuance) on the NYSE or on the principal securities exchange or interdealer quotation system on which the Common Stock is then listed or quoted (including, without limitation, filing one or more supplemental listing applications with the NYSE upon the delivery of Holder Shares to the Holders);

(vi)        use its reasonable best efforts to promptly notify the Holders and the managing underwriter or underwriters, if any, after becoming aware thereof, (A) when the registration statement or any related prospectus or any amendment or supplement thereto has been filed, and, with respect to the registration statement or any post-effective amendment, when the same has become effective, (B) of any request by the SEC or any U.S. state securities authority for amendments or supplements to the registration statement or the related prospectus or for additional information, (C) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose, (D) of the receipt by AT&T of any notification with respect to the suspension of the qualification of the Registrable Shares for sale in any jurisdiction or the initiation of any proceeding for such purpose, or (E) within the Effective Period of the happening of any event or the existence of any fact which makes any statement in the registration statement or any post-effective amendment thereto, prospectus or any amendment or supplement thereto, or any document incorporated therein by reference untrue in any material respect or which requires the making of any changes in the registration statement or post-effective amendment thereto or any prospectus or amendment or supplement thereto so that they will not contain any untrue statement of a material fact or omit to state any material fact

 

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required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(vii)        during the Effective Period, use its reasonable best efforts to obtain the withdrawal of any order enjoining or suspending the use or effectiveness of the registration statement or any post-effective amendment thereto or the lifting of any suspension of the qualification of any of the Registrable Shares for sale in any jurisdiction at the earliest date reasonably practicable;

(viii)        use its reasonable best efforts to deliver promptly to the managing underwriters, if any, copies of all correspondence between the SEC and AT&T, its counsel or auditors and all memoranda relating to discussions with the SEC or its staff with respect to the registration statement (except to the extent such correspondence is currently available via EDGAR);

(ix)        use its reasonable best efforts to provide and cause to be maintained a transfer agent and registrar for all Registrable Shares covered by such registration statement not later than the effective date of such registration statement;

(x)        use its reasonable best efforts to cooperate with the Holders and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing the Registrable Shares to be sold under the registration statement in a form eligible for deposit with The Depository Trust Corporation not bearing any restrictive legends (other than as required by The Depository Trust Corporation) and not subject to any stop transfer order with any transfer agent, and cause such Registrable Shares to be issued in such denominations and registered in such names as the managing underwriters, if any, may request in writing or, if not an Underwritten Offering, in accordance with the instructions of the Holders, in each case at least two Business Days prior to any sale of Registrable Shares;

(xi)        in the case of an Underwritten Offering, use its reasonable best efforts to enter into an underwriting agreement customary in form and substance (taking into account AT&T’s prior underwriting agreements) for firm commitment underwritten secondary offerings of the nature contemplated by the applicable registration statement;

(xii)        in the case of an Underwritten Offering, use its reasonable best efforts to obtain an opinion from AT&T’s counsel and a “cold comfort” letter from AT&T’s independent public accountants (and, if necessary, any other independent certified public accountants of any Subsidiary of AT&T or of any business acquired by AT&T for which financial statements and financial data is, or is required to be, included in the registration statement) addressed to the underwriters (if any) in customary form and covering such matters as are customarily covered by such opinions and “cold comfort” letters in connection with an offering of the nature contemplated by the applicable registration statement;

(xiii)        in the case of an Underwritten Offering, use its reasonable best efforts to provide to counsel to the Holders and to the managing underwriters, and no

 

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later than the time of filing of any document which is to be incorporated by reference into the registration statement or prospectus (after the initial filing of such registration statement), copies of any such document;

(xiv)        otherwise use its reasonable best efforts to assist the Holders in effecting sales of Registrable Shares (including, without limitation, making AT&T’s management available as reasonably deemed necessary or prudent by the underwriters in connection with any Underwritten Offering); and

(xv)        otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the SEC and any applicable national securities exchange.

It is understood and agreed that references in this Section 4.4 to any managing underwriter or underwriter mean the persons acting as such in an Underwritten Offering of Registrable Shares, and AT&T shall have no obligations under this Section 4.4 with regard to any managing underwriter or underwriter (or other intermediary) except in such an offering.

(b)        In the event that AT&T would be required, pursuant to Section 4.4(a)(vi), to notify the requesting Holders or the managing underwriter or underwriters of the happening of any event specified therein, AT&T shall, subject to Section 4.4(a)(vi), as promptly as practicable, prepare and furnish to the requesting Holders and to each such underwriter a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Shares that have been registered pursuant to this Agreement, such prospectus shall comply as to form in all material respects, and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The requesting Holders (and, in the case where the Trust is a requesting Holder), the Investment Manager) agrees that, upon receipt of any notice from AT&T pursuant to Section 4.4(a)(vi), it shall, and shall use its reasonable best efforts to cooperate with AT&T to, cause any sales or placement agent or agents for the Registrable Shares and the underwriters to forthwith discontinue disposition of the Registrable Shares until such Person shall have received copies of such amended or supplemented prospectus and, if so directed by AT&T, to destroy all physical copies, other than permanent file copies, then in its possession of the prospectus (prior to such amendment or supplement) covering such Registrable Shares as soon as practicable after the Holder’s receipt of such notice.

(c)        Each Holder (or in the case of the Trust (so long as the Trust remains a Holder), the Investment Manager) shall furnish to AT&T in writing such information regarding such Holder and its intended method of distribution of the Registrable Shares as AT&T may from time to time reasonably request in writing in order for AT&T to comply with its obligations under all applicable securities and other laws and to ensure that the prospectus relating to such Registrable Shares conforms to the applicable requirements of the Securities Act and the rules and regulations thereunder. If any Holder (or Investment Manager on behalf of the Trust as a Holder, as applicable) fails to provide the requested information within 15 Business Days of the receipt of such request, AT&T shall be entitled to refuse to register the Registrable Shares in the applicable registration statement or to effect a Shelf Takedown or Non-Shelf Offering, as the

 

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case may be. Each Holder (or Investment Manager on behalf of the Trust as a Holder, as applicable) shall notify AT&T as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder (or Investment Manager) to AT&T or of the occurrence of any event, in either case as a result of which any prospectus relating to the Registrable Shares contains or would contain an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly furnish to AT&T any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(d)        (i)        If requested by the managing underwriter for an Underwritten Offering (primary or secondary) of any equity securities of AT&T and the Holders have not then delivered a Demand Request, the Holders (or Investment Manager, on behalf of the Trust if then a Holder) agrees not to effect any Transfer of any Registrable Shares, including any sale pursuant to Rule 144 under the Securities Act, and not to effect any Transfer of any other equity security of AT&T (in each case, other than as part of such Underwritten Offering) during the ten days prior to, and during the 30-day period (or such longer or shorter period as the Holders agree with the underwriters of such offering) beginning on the consummation of such Underwritten Offering. In connection with any such Underwritten Offering, AT&T shall use its reasonable best efforts to cause AT&T’s executive officers and directors to agree to not effect any such Transfers for the same period of time as the Holders.

(ii)        Without limiting Section 4.1(d)(i), AT&T hereby agrees that if it shall previously have received a Demand Request pursuant to Section 4.1 for a Shelf Takedown Registrable Shares or a Non-Shelf Notice for a Non-Shelf Offering of Registrable Shares in an Underwritten Offering, and if such previous registration shall not have been withdrawn or abandoned, AT&T, if requested by the managing underwriter for such Underwritten Offering, shall not issue, offer or sell any Common Stock, any other equity security of AT&T or any security convertible into or exchangeable for any equity security of AT&T until the earlier of (A) 30 days after the effective date of such registration statement and (B) such time as all of the Registrable Shares covered by such registration statement have been distributed; provided , however , that notwithstanding the foregoing, AT&T may issue, offer or sell Common Stock or such other securities (1) as part of such Underwritten Offering if the managing underwriter for such Underwritten Offering advises AT&T that it may sell shares of Common Stock or such other securities in such Underwritten Offering without materially adversely affecting the marketing or price per share of the Registrable Shares (it being understood that if AT&T is permitted to issue, offer or sell Common Stock or such other securities as part of such Underwritten Offering, the Holder shall not be required to reduce or otherwise have “cut-back” the number of Registrable Shares it offers for sale in such Underwritten Offering), (2) pursuant to a registration statement on Form S-8 or Form S-4 under the Securities Act or any successor or similar form, (3) pursuant to or in connection with any employee benefit or similar plan, (4) to its subsidiaries or affiliates, (5) as part of a transaction under Rule 145 of the Securities Act, (6) in one or more private transactions that would not interfere

 

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with the method of distribution contemplated by such registration statement, or (7) if such transfer was publicly announced or agreed to in writing by AT&T prior to the date of the receipt of such Demand Request pursuant to Section 4.1.

(e)        In the case of any Underwritten Offering of shares of Common Stock pursuant to Section 4.1(a), all shares of Common Stock to be included in such offering or registration, as the case may be, shall be subject to the applicable underwriting agreement, and no Person may participate in such offering or registration unless such Person agrees to sell such Person’s securities on the basis provided therein and completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) which must be executed in connection therewith, and provides such other information to AT&T or the underwriter as may be reasonably requested to offer or register such Person’s Common Stock.

(f)        Each Holder (and, in the case of the Trust (so long as the Trust remains a Holder), the Investment Manager) agrees that in connection with the foregoing registration procedures, they may receive confidential information from AT&T or its representatives, including draft documentation. Each Holder (and, in the case of the Trust (so long as the Trust remains a Holder), the Investment Manager) agrees to keep confidential and to use only for the purpose of exercising such Holder’s rights under this Agreement, and not in a manner that would be detrimental to AT&T, all Confidential Information. As used herein, “ Confidential Information ” means any and all information that AT&T or any of its representatives furnish or otherwise make available to the Holders, the Investment Manager (so long as the Trust remains a Holder) or any of their respective representatives, whether oral, written or electronic, together with any reports, memoranda, notes or other written or electronic materials prepared by or for a Holder or the Investment Manager or any of their respective representatives that contain, reflect or are based upon such information, in each case relating to any registration or sale of Registrable Shares or any other matter under this Agreement, and shall also include the fact that any discussions or other actions relating to a sale of Registrable Shares or any other matter under this Agreement has occurred or may occur or that Confidential Information has been or may be provided by AT&T or its employees and advisers (it being understood that such information shall no longer be deemed “ Confidential Information ” for purposes of this Agreement upon such information becoming publicly available in connection with the commencement or consummation of a sale of Registrable Shares or otherwise). Notwithstanding the foregoing, each of the Holders and the Investment Manager may disclose Confidential Material (i) as required by law; (ii) to those of its employees and advisers who need to know such information for the purpose of assisting each such Holder in exercising its rights under this Agreement, so long as such Person causes such employees and advisers to treat the Confidential Material in a confidential manner and in accordance with the terms hereof ( it being understood that each Holder and, as applicable, the Investment Manager will be responsible for any breach of the terms of this Agreement caused by any of their respective employees and advisers); and (iii) to the extent that AT&T gives its prior written consent. Each Holder and, as applicable, the Investment Manager agree to comply, and to cause its respective employees, advisers and other representatives to comply, with the provisions of the U.S. federal securities laws that prohibit trading in securities of AT&T or any related securities while in possession of material, nonpublic information about AT&T or any such securities.

 

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Section 4.5         Registration Expenses . The Holders shall bear all agent fees and commissions, underwriting discounts and commissions and fees and disbursements of its counsel and accountants (if any) in connection with any registration of any Registrable Shares pursuant to Section 4.1, pro rata based on their respective Registrable Securities included in any such registration. AT&T shall bear all other fees and expenses incurred by it in connection with any registration statement pursuant to Section 4.1, including all registration and filing fees, all printing costs and all fees and expenses of counsel and accountants for AT&T (including, without limitation, such fees and expenses incurred by AT&T in connection with any offering contemplated in Section 4.1(d)(ii)(1)). It is agreed that AT&T shall not bear any cost incurred by underwriters or other intermediaries (including any fees of counsel for intermediaries), which shall be borne by the intermediaries.

Section 4.6         Indemnification; Contribution .

(a)        AT&T shall, and it hereby agrees to, indemnify and hold harmless the Holders, the Investment Manager (in its individual capacity and to the extent the Trust is a Holder that has Registrable Securities included in any registration statement) and their respective controlling Persons, if any, and each underwriter and its controlling Persons, if any (collectively, the “ Holder Indemnified Parties ”), in any offering or sale of the Registrable Shares, against any losses, claims, damages or liabilities, actions or proceedings (whether commenced or threatened) in respect thereof and expenses (including reasonable fees of counsel) (collectively, “ Claims ”) to which each such Holder Indemnified Party may become subject, insofar as such Claims (including any amounts paid in settlement effected with the consent of AT&T as provided herein), or actions or proceedings in respect thereof, (i) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement, or any preliminary or final prospectus contained therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or (ii) arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and AT&T shall, and it hereby agrees to, reimburse periodically the Holders, the Investment Manager or any such underwriter for any legal or other out-of-pocket expenses reasonably incurred by them in connection with investigating or defending any such Claims for themselves or their respective controlling Persons; provided , however , that AT&T shall not be liable to any such Person in any such case to the extent that any such Claims arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary or final prospectus, or amendment or supplement thereto, in reliance upon information furnished to AT&T by the Holders, the Investment Manager or any underwriter, or any representative thereof, expressly for use therein, or by a Holder’s failure to furnish AT&T, upon request, with the information with respect to such Holder, or any underwriter or Representative of the Holders, or such Holder’s intended method of distribution, that is the subject of the untrue statement or omission.

(b)        The Holders and the Investment Manager (in its individual capacity and to the extent the Trust is a Holder that has Registrable Securities included in any registration statement) each shall, and hereby agrees to, (i) indemnify and hold harmless AT&T, its directors, its officers who sign the relevant registration statement and its controlling Persons, if any (collectively, the “ Company Indemnified Parties ”), if any, and each underwriter and its

 

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controlling Persons, if any (collectively, “ Underwriter Indemnified Parties ”), in any offering or sale of Registrable Shares against any Claims to which each such Company Indemnified Party or Underwriter Indemnified Party may become subject, insofar as such Claims (including any amounts paid in settlement as provided herein), or actions or proceedings in respect thereof, (i) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement, or any preliminary or final prospectus contained therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or (ii) arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case (i) and (ii) only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to AT&T by such Holder or (if applicable) the Investment Manager, as the case may be, or any representative thereof, expressly for use therein, and (ii) reimburse AT&T for any reasonable legal or other out-of-pocket expenses reasonably incurred by AT&T in connection with investigating or defending any such Claim.

(c)        The Holders, the Investment Manager (in its individual capacity and to the extent the Trust is a Holder that has Registrable Securities included in any registration statement) and AT&T agree that if, for any reason, the indemnification provisions contemplated by Section 4.6(a) or 4.6(b) are unavailable to or are insufficient to hold harmless an Indemnified Party in respect of any Claims referred to therein, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such Claims in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and the Indemnified Party, on the other hand, with respect to the applicable offering of securities. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or by such Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. If, however, the allocation in the first sentence of this Section 4.6(c) is not permitted by applicable law, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party in such proportion as is appropriate to reflect not only such relative faults, but also the relative benefits to the Indemnifying Party and the Indemnified Party, as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 4.6(c) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the preceding sentences of this Section 4.6(c). The amount paid or payable by an Indemnified Party as a result of the Claims referred to above shall be deemed to include (subject to the limitations set forth in Section 4.7) any legal or other fees or expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action, proceeding or claim. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

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Section 4.7         Indemnification Procedures .

(a)        If an Indemnified Party shall desire to assert any claim for indemnification provided for under Section 4.6 in respect of, arising out of or involving a Claim against the Indemnified Party, such Indemnified Party shall notify AT&T, the Holders or the Investment Manager (including with respect to notifying the Trust), as the case may be, as the relevant indemnifying party (the “ Indemnifying Party ”), in writing of such Claim, the amount or the estimated amount of Damages sought thereunder to the extent then ascertainable (which estimate shall not be conclusive of the final amount of such Claim), any other remedy sought thereunder, any relevant time constraints relating thereto and, to the extent practicable, any other material details pertaining thereto (a “ Claim Notice ”) promptly after receipt by such Indemnified Party of written notice of the Claim; provided , however , that failure to provide a Claim Notice shall not affect the indemnification obligations provided hereunder except to the extent the Indemnifying Party shall have been materially prejudiced as a result of such failure. The Indemnified Party shall deliver to the Indemnifying Party, promptly after the Indemnified Party’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to the Claim; provided , however , that failure to provide any such copies shall not affect the indemnification obligations provided hereunder except to the extent the Indemnifying Party shall have been materially prejudiced as a result of such failure.

(b)        If a Claim is made against an Indemnified Party, the Indemnifying Party will be entitled to participate in the defense thereof and, if it so chooses and acknowledges without reservation its obligation to indemnify the Indemnified Party therefor, to assume the defense thereof with separate counsel (who may be counsel for the Indemnifying Party) selected by the Indemnifying Party and reasonably satisfactory to the Indemnified Party. Should the Indemnifying Party so elect to assume the defense of a Claim, the Indemnifying Party will not be liable to the Indemnified Party for legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof, unless the Claim involves potential conflicts of interest or substantially different defenses for the Indemnified Party and the Indemnifying Party. If the Indemnifying Party assumes such defense, the Indemnified Party shall have the right to participate in defense thereof and to employ counsel, at its own expense (except as provided in the immediately preceding sentence), separate from the counsel employed by the Indemnifying Party. The Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnified Party for any period during which the Indemnifying Party has not assumed the defense thereof and as otherwise contemplated by the two immediately preceding sentences, provided that in no event shall the Indemnifying Party be liable for the expenses of more than one separate counsel for all Indemnified Parties with respect to claims arising out of the same or related circumstances. If the Indemnifying Party chooses to defend any Claim, the Indemnified Party shall cooperate in the defense or prosecution thereof. Such cooperation shall include the retention and (upon the Indemnifying Party’s request) the provision to the Indemnifying Party of records and information that are reasonably relevant to such Claim, and use reasonable efforts to make employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Whether or not the Indemnifying Party shall have assumed the defense of a Claim, the Indemnified Party shall not admit any liability with respect to, or settle, compromise or discharge, such Claim without the Indemnifying Party’s prior written consent (which consent shall not be unreasonably withheld or delayed). The Indemnifying Party may pay, settle or compromise a Claim without the written consent of the

 

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Indemnified Party, so long as such settlement includes (i) an unconditional release of the Indemnified Party from all liability in respect of such Claim, (ii) does not subject the Indemnified Party to any injunctive relief or other equitable remedy, and (iii) does not include a statement or admission of fault, culpability or failure to act by or on behalf of any Indemnified Party.

Section 4.8         Repurchase of Shares . Following the second anniversary of any Registration Trigger, AT&T shall have the right in its sole discretion, at any time and from time to time, to repurchase all Registrable Shares then outstanding, in whole but not in part, upon three Business Days’ prior notice to the Holders at a purchase price equal to 110.00% of the Market Value of such Registrable Shares calculated as of the Business Day preceding the date of delivery of such notice. Upon delivery of such notice, the Holders shall be obligated to sell and deliver all such Registrable Shares to AT&T, against payment of the purchase price by AT&T, on the third Business Day following delivery of such notice and AT&T’s obligations under this Agreement with respect to such Registrable Shares shall be deemed satisfied, subject to the obligation to pay the purchase price. The parties shall take such actions as are reasonably necessary to complete any such repurchase as provided above (including compliance with all applicable securities laws).

Section 4.9         Right of First Offer . Following receipt of any Demand Request or Non-Shelf Notice, as the case may be, from any Holders, AT&T, in lieu of satisfying its obligations under Section 4.1 hereof, shall have the right (but not the obligation) to purchase for cash all of the Registrable Shares subject to such Demand Request or Non-Shelf Notice, as the case may be, at a price equal to the Market Value of such Registrable Shares calculated as of the Business Day preceding the date of delivery of such notice. In order to exercise such right, AT&T shall deliver a written notice to the requesting Holders within five Business Days of receipt of the Demand Request or Non-Shelf Notice stating that AT&T thereby elects to purchase such Registrable Shares and setting forth a date of delivery of such Registrable Shares, which date shall be no later than the third Business Day thereafter. If AT&T delivers such written notice within the specified time and tenders payment for such Registrable Shares by the specified date of delivery, then (i) AT&T shall have no further obligations under Section 4.1 with respect to such Registrable Shares and (ii) AT&T shall in no way be in breach of this Agreement by virtue of its non-compliance with Section 4.1 hereof. The parties shall take such actions as are reasonably necessary to complete any such repurchase as provided above (including compliance with all applicable securities laws).

Section 4.10         Repurchase . If a Shelf Registration Statement is not filed, effective and available for the Holders to sell Registrable Shares during the period commencing on the 180 th day prior to the Termination Date through such Termination Date (including, without limitation, due to AT&T imposing multiple Blackout Periods), at the option of a Majority in Interest of the Holders made pursuant to written notice to AT&T, AT&T will be restricted from declaring any dividends on or from making any Restricted Share Repurchases, provided that during the Repurchase Period, AT&T and AT&T Mobility may at their sole option repurchase all such Registrable Securities from all the Holders at a purchase price equal to the Market Value of such Registrable Shares calculated as of the Business Day preceding the date of delivery of the written notice by the Majority in Interest of the Holders. The Registration Fee will continue to accrue during, and be payable to the Holders with respect to, the Repurchase Period. Such Registration

 

27


Fee shall be due and payable in installments, as applicable, on either (a) the final Business Day of each fiscal quarter of AT&T during the Repurchase Period (under circumstances where such period is ongoing following the completion of such fiscal quarter) or (b) on the Business Day after either (i) the end of the Repurchase Period, or (ii) the repurchase of the Registrable Securities is completed, in each case in respect of the portion of the fee that has accrued and not been paid through and including such final day in the fiscal quarter or the final day of the Repurchase Period, as applicable.

Section 4.11         Cooperation During Non-S-3 Periods . Notwithstanding anything to the contrary in this Agreement, at any time when AT&T is no longer S-3 Eligible (including, without limitation, at the time of the Registration Trigger) or any Shelf Registration Statement becomes an Unavailable Shelf Registration Statement, the parties agree to consider in good faith various options with respect to the liquidation of any Registrable Shares, including, without limitation, engaging in repurchase or similar transactions whereby AT&T would purchase the Registrable Shares at Market Value prior to the expiration of the 180-day period referred to in Sections 4.1(a)(iv) and (vii), provided , that , absent any such agreement by the parties, no party shall be relieved of its obligations pursuant to the terms of this Agreement, and that at any time there is more than one Holder, all such Holders shall be treated equitably in accordance with the number of Registrable Securities held by each of the Holders.

ARTICLE V

MISCELLANEOUS

Section 5.1         Termination . Except for Section 4.5, Section 4.6 and Section 4.7, each of which shall survive termination of this Agreement, upon the consummation of a sale of all or substantially all of AT&T’s assets or any tender or exchange offer, merger (other than a merger by AT&T to effect a reorganization or recapitalization) or consolidation or any similar transaction in which the Holders dispose of all of their respective Holder Shares (and any Preferred Interests) that are then beneficially owned by them and outstanding or that otherwise results in the acquisition of all (but not less than all) Holder Shares (and any Preferred Interests) that are then beneficially owned by them and outstanding, this Agreement shall terminate and be of no further force and effect. Each Holder shall deliver written notice to AT&T within five (5) Business Days of its disposal of all Holder Shares (and any Preferred Interests) that are then beneficially owned by it and outstanding. Any Registration Fee that is accrued but unpaid at the time of the termination of this Agreement shall be payable on such terminate date.

Section 5.2         Injunctive Relief . Each party hereto acknowledges that it would be impossible to determine the amount of damages that would result from any breach of any of the provisions of this Agreement and that the remedy at law for any breach, or threatened breach, of any of such provisions would likely be inadequate and, accordingly, agrees that the other party shall, in addition to any other rights or remedies which it may have, be entitled to such equitable and injunctive relief as may be available from any court of competent jurisdiction to compel specific performance of, or restrain any party from violating, any of such provisions. In connection with any action or proceeding for injunctive relief, each party hereto hereby waives the claim or defense that a remedy at law alone is adequate and agrees, to the maximum extent permitted by law, to have each provision of this Agreement specifically enforced against it, without the necessity of posting bond or other security against it, and consents to the entry of

 

28


injunctive relief against it enjoining or restraining any breach or threatened breach of such provisions of this Agreement.

Section 5.3         Assignments ; Additional Holders .

(a)        This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, legal representatives and permitted assigns. Neither AT&T nor the Holders may directly or indirectly assign any of its rights or delegate any of its rights or obligations under this Agreement, by operation of law or otherwise, without the prior written consent of all other parties. The Investment Manager, acting as such and not on behalf of the Trust, automatically shall assign its rights or obligations under this Agreement to a successor pursuant to a proper assignment under the Investment Management Agreement, dated as of August 30, 2013. The Investment Manager otherwise may not directly or indirectly assign any of its rights or delegate any of its obligations under this Agreement, by operation of law or otherwise, without the prior written consent of all other parties hereto. Any purported direct or indirect assignment in violation of this Section 5.3 shall be null and void ab initio .

(b)         Notwithstanding anything to the contrary contained herein, any substitute Member of AT&T Mobility duly admitted in accordance with all of the provisions of Section 8(c) of the Fourth LLC Agreement shall become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed a “Holder” for all purposes hereunder, and that no consent or further amendment of this Agreement shall be required for such party to become an additional Holder hereunder.

Section 5.4         Amendments; Waiver . No amendment, modification or discharge of this Agreement, and no waiver hereunder, shall be valid or binding unless set forth in writing and duly executed by (i) AT&T, (ii) a Majority in Interest of the Holders (or, prior to the initial Delivery Date, Members of AT&T Mobility holding Preferred Interests that would represent, upon delivery in connection with a Put Option or Redemption Option, as the case may be, a Majority in Interest of the Holders), and (iii) so long as the Trust remains a Holder, the Investment Manager. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the party granting such waiver in any other respect or at any other time. The waiver by AT&T, a Holder or the Investment Manager (either personally or on behalf of the Trust) of a breach of or a default under any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall not be construed as a waiver of any other breach or default of a similar nature, or as a waiver of any of such provisions, rights or privileges hereunder. The rights and remedies herein provided are cumulative and none is exclusive of any other, or of any rights or remedies that any party may otherwise have at law or in equity.

Section 5.5         Notices . Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and shall be deemed given to a party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service, (b) sent by facsimile with confirmation of transmission by the transmitting equipment, or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case, to the following addresses or facsimile numbers and marked to the

 

29


attention of the person (by name or title) designated below, or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided below:

To AT&T:

AT&T Inc.

One AT&T Plaza

208 S. Akard Street

Dallas, Texas 75202

Telephone: (214) 757-3300

Fax: (214) 746-2103

Attention: General Counsel

With a copy to:

AT&T Inc.

One AT&T Plaza

208 S. Akard Street

Dallas, Texas 75202

Telephone: (214) 757-3230

Fax: (214) 746-2268

Attention: Treasurer

To the Trust:

Brock Fiduciary Services LLC

622 Third Avenue

Floor 12

New York, NY 10017

Attention: Charles Brock

With a copy (which shall not constitute notice) to:

J.P. Morgan Chase Bank, N.A.

221 West Sixth Street, Floor 02

TX3-8215

Austin, TX 78701-3402, United States

Attention: Amy Schneeberger

K&L Gates LLP

1601 K Street, NW

Washington, DC 20006

Telephone: (202) 778-9000

Fax: (202) 778-9100

Attention: Robert H. Rosenblum

 

30


If additional Holders become a party to this Agreement in accordance with Section 5.3(b), notice shall be sent to the address set forth on file with AT&T Mobility, with a copy to AT&T and the Trust as set forth above.

Section 5.6         GOVERNING LAW; FORUM SELECTION . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE BROUGHT AND ENFORCED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN OR (TO THE EXTENT SUBJECT MATTER JURISDICTION EXISTS THEREFOR) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND THE PARTIES IRREVOCABLY SUBMIT TO THE JURISDICTION OF BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING.

Section 5.7         WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.7.

Section 5.8         Interpretation . The table of contents and headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event that an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.

Section 5.9         Scope of Agreement . Except for the Fourth LLC Agreement and the Amended Contribution Agreement, this Agreement constitutes the entire agreement, and supersedes all prior agreements, understandings representations and warranties both written and oral, between the parties with respect to the subject matter hereof. Notwithstanding the foregoing, nothing in this Agreement is intended to modify or supersede the terms of the Investment Manager Agreement or the Investment Management Agreement between AT&T and the Investment Manager and, in the event of any conflict between the terms of this Agreement and the terms of the Investment Manager Agreement or the Investment Management Agreement, the latter shall prevail.

 

31


Section 5.10         No Third Party Beneficiaries . Except as explicitly provided for in Section 4.6 and Section 4.7, this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

Section 5.11         Severability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision; and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

Section 5.12         Counterparts . This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

Section 5.13         Effectiveness . This Agreement shall become effective as of October 15, 2018.

 

32


IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective authorized officers as of the date first written above.

 

AT&T INC.
By:    
Name:   George B. Goeke
Title:   Senior Vice President and Treasurer

 

SBC MASTER PENSION TRUST
By:         JP MORGAN CHASE BANK, N.A.,
 

      Solely in its Capacity As Directed

      Trustee of the SBC Master Pension Trust

               By:    
               Name:  
        Title:  

 

BROCK FIDUCIARY SERVICES, LLC , for itself and as Fiduciary and Investment Manager
By:     Brock Capital Group LLC, as Managing   Member
           By:     Charles Brock LLC, as Managing   Member
                      By:    
                      Name:  
        Title:  

 

Signature Page to Amended and Restated Registration Rights Agreement


IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective authorized officers as of the date first written above.

 

AT&T INC.
By:    
Name:   George B. Goeke
Title:   Senior Vice President and Treasurer

 

SBC MASTER PENSION TRUST
By:         JP MORGAN CHASE BANK, N.A.,
 

      Solely in its Capacity As Directed

      Trustee of the SBC Master Pension Trust

               By:    
               Name:  
        Title:  

 

BROCK FIDUCIARY SERVICES, LLC , for itself and as Fiduciary and Investment Manager
By:     Brock Capital Group LLC, as Managing   Member
           By:   Charles Brock LLC, as Managing Member
                    By:    
                    Name:  
      Title:  

 

Signature Page to Amended and Restated Registration Rights Agreement


IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective authorized officers as of the date first written above.

 

AT&T INC.
By:    
Name:   George B. Goeke
Title:   Senior Vice President and Treasurer

 

SBC MASTER PENSION TRUST
By:         JP MORGAN CHASE BANK, N.A.,
 

      Solely in its Capacity As Directed

      Trustee of the SBC Master Pension Trust

               By:    
               Name:  
        Title:  

 

BROCK FIDUCIARY SERVICES, LLC , for itself and as Fiduciary and Investment Manager
By:     Brock Capital Group LLC, as Managing   Member
           By:     Charles Brock LLC, as Managing   Member
                      By:    
                      Name:  
        Title:  

 

Signature Page to Amended and Restated Registration Rights Agreement

EXHIBIT 12

AT&T INC.

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

Dollars in Millions

 

     Year Ended December 31,
   2018   2017   2016   2015   2014

Earnings:

          

Income from continuing operations before income taxes

   $             24,873     $             15,139     $             19,812     $             20,692     $             10,355  

Equity in net (income) loss of affiliates included above

     48       128       (98     (79     (175

Fixed charges

     10,197       8,854       7,296       6,592       5,295  

Distributed income of equity affiliates

     243       46       61       30       148  

Interest capitalized

     (493     (903     (892     (797     (234
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings, as adjusted

   $ 34,868     $ 23,264     $ 26,179     $ 26,438     $ 15,389  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Charges:

          

Interest expense

   $ 7,957     $ 6,300     $ 4,910     $ 4,120     $ 3,613  

Interest capitalized

     493       903       892       797       234  

Portion of rental expense representative of interest factor

     1,747       1,651       1,494       1,675       1,448  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Charges

   $ 10,197     $ 8,854     $ 7,296     $ 6,592     $ 5,295  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of Earnings to Fixed Charges

     3.42       2.63       3.59       4.01       2.91  

Exhibit 13

Selected Financial and Operating Data

Dollars in millions except per share amounts

 

At December 31 and for the year ended:    2018     2017     2016     2015     2014  

Financial Data

                                        

Operating revenues

   $   170,756     $   160,546     $   163,786     $   146,801     $   132,447   

Operating expenses

   $ 144,660     $ 140,576     $ 140,243     $ 126,439     $ 113,860   

Operating income

   $ 26,096     $ 19,970     $ 23,543     $ 20,362     $ 18,587   

Interest expense

   $ 7,957     $ 6,300     $ 4,910     $ 4,120     $ 3,613   

Equity in net income (loss) of affiliates

   $ (48   $ (128   $ 98     $ 79     $ 175   

Other income (expense) - net

   $ 6,782     $ 1,597     $ 1,081     $ 4,371     $ (4,794)  

Income tax (benefit) expense

   $ 4,920     $ (14,708   $ 6,479     $ 7,005     $ 3,619   

Net Income

   $ 19,953     $ 29,847     $ 13,333     $ 13,687     $ 6,736   

Less: Net Income Attributable to Noncontrolling Interest

   $ (583   $ (397   $ (357   $ (342   $ (294)  

Net Income Attributable to AT&T

   $ 19,370     $ 29,450     $ 12,976     $ 13,345     $ 6,442   

Earnings Per Common Share:

                                        

Net Income Attributable to AT&T

   $ 2.85     $ 4.77     $ 2.10     $ 2.37     $ 1.24   

Earnings Per Common Share - Assuming Dilution:

                                        

Net Income Attributable to AT&T

   $ 2.85     $ 4.76     $ 2.10     $ 2.37     $ 1.24   

Cash and cash equivalents

   $ 5,204     $ 50,498     $ 5,788     $ 5,121     $ 8,603   

Total assets

   $ 531,864     $ 444,097     $ 403,821     $ 402,672     $ 296,834   

Long-term debt

   $ 166,250     $ 125,972     $ 113,681     $ 118,515     $ 75,778   

Total debt

   $ 176,505     $ 164,346     $ 123,513     $ 126,151     $ 81,834   

Capital expenditures 1

   $ 21,251     $ 21,550     $ 22,408     $ 20,015     $ 21,433   

Dividends declared per common share

   $ 2.01     $ 1.97     $ 1.93     $ 1.89     $ 1.85   

Book value per common share

   $ 26.63     $ 23.13     $ 20.22     $ 20.12     $ 17.40   

Ratio of earnings to fixed charges

     3.42       2.63       3.59       4.01       2.91   

Debt ratio

     47.7%       53.6%       49.9%       50.5%       47.5%   

Net debt ratio

     46.2%       37.2%       47.5%       48.5%       42.6%   

Weighted-average common shares outstanding (000,000)

     6,778       6,164       6,168       5,628       5,205   

Weighted-average common shares outstanding with dilution (000,000)

     6,806       6,183       6,189       5,646       5,221   

End of period common shares outstanding (000,000)

     7,282       6,139       6,139       6,145       5,187   
                                          

Number of employees

     268,220       254,000       268,540       281,450       243,620   
1  

Includes FirstNet reimbursements of $1,429 in 2018, $279 in 2017 and $0 in 2016-2014 (see Note 19).

 

1


Management’s Discussion and Analysis of Financial Condition and Results of Operations

Dollars in millions except per share amounts

OVERVIEW

AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes). We completed the acquisition of Time Warner Inc. (Time Warner) on June 14, 2018, and have included its results after that date. In accordance with U.S. generally accepted accounting principles (GAAP), operating results from Time Warner prior to the acquisition are excluded.

We have four reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin America and (4) Xandr. Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items and equity in net income (loss) of affiliates for investments managed within each segment. Each segment’s percentage calculation of total segment operating revenue and contribution is derived from our segment results table in Note 4 and may total more than 100 percent due to losses in one or more segments. Percentage increases and decreases that are not considered meaningful are denoted with a dash.

 

   
                        Percent Change  
     2018     2017     2016      2018 vs.
2017
     2017 vs.
2016
 

Operating Revenues

                                          

Communications

   $     144,631     $     150,378     $     154,232         (3.8)%        (2.5)%  

WarnerMedia

     18,941       430       418         -             2.9       

Latin America

     7,652       8,269       7,283         (7.5)            13.5       

Xandr

     1,740       1,373       1,333         26.7             3.0       

Corporate and other

     1,191       1,279       1,731         (6.9)            (26.1)     

Eliminations and consolidation

     (3,399     (1,183     (1,211)        -              2.3       

AT&T Operating Revenues

     170,756       160,546       163,786         6.4             (2.0)     
         

Operating Contribution

            

Communications

     32,262       31,685       32,437         1.8             (2.3)     

WarnerMedia

     5,695       62       96         -             (35.4)     

Latin America

     (710     (266     (661)        -             59.8       

Xandr

     1,333       1,202       1,233         10.9             (2.5)     

Segment Operating Contribution

   $ 38,580     $ 32,683     $ 33,105         18.0%         (1.3)%  
   

The Communications segment accounted for approximately 84% of our 2018 total segment operating revenues compared to 94% in 2017 and 84% of our 2018 total segment operating contribution as compared to 97% in 2017. This segment provides services to businesses and consumers located in the U.S. or in U.S. territories and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:

 

Mobility provides nationwide wireless service and equipment.

 

Entertainment Group provides video, internet and voice communications services to residential customers.

 

Business Wireline provides advanced IP-based services (referred to as “strategic services”), as well as traditional voice and data services to business customers.

The WarnerMedia segment accounted for approximately 11% of our 2018 total segment operating revenues and 15% of our 2018 total segment operating contribution. This segment develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats. This segment contains the following business units:

 

Turner primarily operates multichannel basic television networks and digital properties.

 

Home Box Office primarily operates multichannel premium pay television services.

 

Warner Bros. principally produces and distributes television shows, feature films and games.

The Latin America segment accounted for approximately 4% of our 2018 total segment operating revenues compared to 5% in 2017. This segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:

 

2


AT&T INC.

DECEMBER 31, 2018

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

 

 

Vrio provides video services primarily to residential customers using satellite technology.

 

Mexico provides wireless service and equipment to customers in Mexico.

The Xandr segment accounted for approximately 1% of our total segment operating revenues in 2018 and 2017 and 3% of our 2018 total segment operating contribution as compared to 4% in 2017. This segment provides advertising services. These services utilize data insights to develop higher-value targeted advertising.

RESULTS OF OPERATIONS

Consolidated Results Our financial results are summarized in the following table. We then discuss factors affecting our overall results for the past three years. Additional analysis is discussed in our “Segment Results” section. We also discuss our expected revenue and expense trends for 2019 in the “Operating Environment and Trends of the Business” section. Percentage increases and decreases that are not considered meaningful are denoted with a dash. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

 

   
                        Percent Change  
     2018     2017     2016     

  2018 vs.  

2017

    2017 vs.
2016
 

Operating revenues

                                         

Service

   $     152,345     $     145,597     $     148,884         4.6     (2.2)%  

Equipment

     18,411       14,949       14,902         23.2       0.3       

Total Operating Revenues

     170,756       160,546       163,786         6.4       (2.0)      

Operating expenses

           

Operations and support

     116,230       116,189       114,396         -       1.6       

Depreciation and amortization

     28,430       24,387       25,847         16.6       (5.6)      

Total Operating Expenses

     144,660       140,576       140,243         2.9       0.2