EXHIBIT 4.36
CONFORMED COPY
MEMORANDUM OF UNDERSTANDING
1. PARTIES:
Marconi Corporation plc ("Corp"), Marconi plc ("plc") and the Pension
Benefit Guaranty Corporation ("PBGC").
2. SUBJECT MATTER:
A. Marconi USA Employees' Retirement Plan (the "Marconi Plan").
B. RELTEC Corporation Retirement Plan (the "RELTEC Plan" and,
collectively with the Marconi Plan, the "Plans")
3. DEFINITIONS:
"Agreement" shall mean this Memorandum of Understanding between the
Parties.
"Code" shall mean the Internal Revenue Code of 1986, as amended, 26
U.S.C. Section 1, et. seq., and any successor statute of similar
import, together with regulations thereunder, in each case as in effect
from time to time. References to sections of the Code shall be
construed to refer also to any successor or substantially related
sections of similar import.
"Controlled Group" shall have the meaning set forth in 29
U.S.C. Section 1301(a)(14).
"Corp Group" shall mean Corp and members of the Controlled Group for
the Plans.
"Effective Date" means the date described in Section 4.
"Enhanced Contributions" means the cash contributions that each member
of the Corp Group is jointly and severally obligated to pay to the
Plans defined in Section 5(A)(ii) of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, 29 U.S.C. Sections 1001 et seq., and any succesSOr statute of
similar import, together with the regulations thereunder, in each case
as in effect from time to time. References to sections of ERISA shall
be construed to refer to any successor or substantially related
sections.
"Investment Grade" shall mean ratings on an entity's outstanding
unsecured debt from Standard & Poor's and Moody's of at least BBB and
Baa2, respectively, and, with respect to any purchaser in any Sale (as
defined in Section 5B(1)), shall be determined by
looking at the parent corporation of the purchaser's controlled group,
taking account of the Sale.
"Maximum Tax Deductible Contribution Amount" means, with respect to a
Plan Year, the maximum amount of contributions to the Plans for such
Plan Year that would be tax deductible pursuant to Code Section 404,
determined as if the applicable interest ratE is the lowest interest
rate in the "permissible range" prescribed by Code Section
412(b)(5)(B)(ii), as modified by Code Section 412(l)(7)(C), or any
successor provisions thereto to determine "current liability" as
defined under Code Section 412.
"Minimum Funding Contribution" means, as to any of the Plans, the
minimum funding requirements under Code Section 412.
"Normal Cost" shall mean that portion of the Plans' liabilities
accruing on an annual basis using the Plans' then current actuarial
assumptions and funding method.
"PBGC" means the Pension Benefit Guaranty Corporation, the United
States government agency that administers and enforces the mandatory
termination insurance program for defined benefit pension plans under
Title IV of ERISA, 29 U.S.C. Sections 1301-1461.
"Plan Year" means, as to any of the Plans, the "plan year" as defined
in ERISA, 29 U.S.C. Section 1002(39), provided that for purposes
hereof, any "Plan Year" shall equal twelve months.
"Required Credit Balance" means, with respect to each Plan, the amount
in each Plan's funding standard account determined in accordance with
Section 5 of this Agreement.
4. EFFECTIVE DATE:
This Agreement shall be effective as of the date on which an office
copy of the order of the High Court of England and Wales sanctioning
the Corp scheme of arrangement between Corp and certain of its
creditors under section 425 of the Companies Act of 1985 of Great
Britain shall have been delivered to the registrar of companies in
England and Wales for registration ("Effective Date").
This Agreement is effective as of the Effective Date; provided,
however, that the parties' obligations under Sections 5 and 6 of this
Agreement shall commence upon the date of execution of this Agreement;
and, further provided, that this Agreement shall terminate
automatically and be of no further force or effect if, at any time
prior to the Effective Date, the Corp scheme of arrangement described
in the preceding paragraph of this Section 4 is withdrawn by Corp from
the High Court's consideration without immediate intention of reseeking
the High Court's sanction. This document is binding on all parties.
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5. CORP OBLIGATIONS:
A. FUNDING OBLIGATIONS:
Except as otherwise provided herein, Corp shall, or shall
cause its U.S. subsidiaries which are participating employers
in the Plans to annually contribute to the Plans an amount
equal to
(i) Each Plan's respective Minimum Funding
Contributions, or, if greater, each Plan's
Normal Cost plus interest; plus
(ii) Enhanced Contributions in the amount of $7
million per annum with respect to the
Marconi Plan and $2 million per annum with
respect to the RELTEC Plan;
provided, however, that no amount shall be required to be
contributed beyond the Maximum Tax Deductible Contribution
Amount. Enhanced Contributions shall be made quarterly
beginning on June 30, 2003.
Notwithstanding the foregoing, neither Corp nor its U.S.
subsidiaries shall have any obligation to make contributions
to the Plans under this Agreement which, when aggregated with
Minimum Funding Contributions, exceed $20 million during the
first 18 calendar months that commence after the Effective
Date (the "18-Month Period"); provided, however, that (i)
nothing herein shall relieve Corp and its U.S. subsidiaries
from making Minimum Funding Contributions required by law to
be contributed during the 18-Month Period, and (ii) to the
extent that Corp and its U.S. subsidiaries are relieved under
this paragraph from making contributions during the 18-Month
Period, then the amount of any such contributions which is not
paid into the Plans during the 18-Month Period will be
contributed to the applicable Plans within 60 days following
the expiration of the 18-Month Period (or if any portion
thereof would be in excess of the Maximum Tax Deductible
Contribution Amount, within 30 days after Corp or one of its
U.S. subsidiaries determines, based upon its receipt of the
actuarial valuation report for the relevant Plan Year that
such amount, or portion thereof, would be tax deductible).
B. SALE OF U.S. BUSINESS UNITS:
(1) Transfer of Plans' assets and liabilities. PBGC
consent will be obtained in advance of Corp entering
into an agreement to sell any of its U.S. business
units to a third-party purchaser (a "Sale") whose
debt both before the sale and immediately following
consummation of the Sale is not rated Investment
Grade, but only to the extent that such Sale
contemplates a proposed transfer of assets and
liabilities of the Plans to plan(s) of such
purchaser. Where PBGC consent is required, PBGC will
make its determination whether to consent as soon as
reasonably practicable, taking into consideration the
deadlines applicable to the transaction of which it
has been notified by Corp or its affiliates, but not
to exceed 30 days. With
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respect to the transfer of the Plans' assets and liabilities
in connection with any Sale (i.e., whether or not the
purchaser's debt is rated Investment Grade before and
immediately following consummation of the Sale), any such
transfer will be in accordance with Code Section 414(l) using
PBGC safe harbor termination assumptions. Any assets in excess
of such Code Section 414(l) benefit liabilities in a Plan will
be retained in the applicable Plan and not be subject to
transfer in the event such Plan is split.
(2) No transfer of Plans' assets and liabilities. In the event of
a Sale in which the Plans' assets and liabilities associated
with the business being sold are not transferred to a plan of
a third-party purchaser, a reasonable estimate of the portion
of the proceeds of the Sale representing the net underfunding
that would otherwise be transferred to such purchaser in
accordance with the last sentence of Section 5(B)(1) and this
Section 5B(2) shall be contributed to the applicable Plan or
Plans no later than the next business date following the
effective date of such Sale (or as soon as reasonably
practicable thereafter, but in no case later than 15 days
thereafter, if and to the extent that any portion of the
proceeds received in such Sale are non-cash), and any
remaining amount in excess of the estimated amount shall be
contributed within 30 days of the date of the Sale. At least
30 days prior to the effective date of such Sale, Corp will
notify PBGC of the proposed Sale, the relevant pension data,
and the calculation of the money to be transferred to the
Plan. For purposes of the preceding sentence, the net
underfunding shall be computed based on the present value of
the applicable Plan's assets and liabilities as of the date of
the Sale and using the applicable actuarial assumptions then
being used by the PBGC for purposes of calculating plan
termination liability and using such other actuarial liability
projection methodology considered reasonable by Corp to
determine such liabilities on the Sale date based on employee
data as of the date of the most recent actuarial valuation for
the Plan updated to reflect significant demographic changes.
Any such amount contributed to the Plans may be used by the
Plans' respective trustees to purchase annuities in
satisfaction of liabilities under the Plans. Notwithstanding
the foregoing, no amount shall be required to be contributed
under this Section 5(B) beyond the Maximum Tax Deductible
Contribution Amount.
(3) In addition to the above, if the Plan Sponsor of the RELTEC
Plan is sold and the purchaser is, and will be immediately
after the Sale, an Investment Grade company, Corp will make
reasonable best efforts to have the purchaser assume
sponsorship of the RELTEC Plan and the Plan's assets and
liabilities. If the Purchaser is not Investment Grade, or does
not assume the RELTEC Plan, then proceeds of the sale shall be
used to pay into the RELTEC Plan sufficient monies to make the
RELTEC Plan fully funded on a PBGC termination basis, such
amount to be contributed in accordance with the timeframe set
forth above in the first sentence of Section 5B(2).
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C. CREDIT BALANCE RESTRICTIONS:
(1) Subject to Section 5 of this Agreement, Corp shall
maintain the Required Credit Balance for each Plan
throughout the term of this Agreement as follows:
(a) The Required Credit Balance with respect to
each Plan shall be the sum of (i), (ii),
(iii) and (iv) below, where
(i) is the credit balance in the Plan's
Funding Standard Account for the
Plan Year ending December 31, 2002,
as determined by the Plan's
enrolled actuary;
(ii) is the Enhanced Contributions
discussed in Sections 3 and 5 of
this Agreement;
(iii) is any amount contributed to the
Plans in connection with the sale
of a U.S. business unit; and
(iv) is the amount of interest
calculated at the Plan's then
existing funding standard account
interest rate.
(b) Except as provided otherwise herein, any
contributions necessary to meet the Required
Credit Balance for a Plan Year shall be made
in cash no later than December 31 of that
Plan Year; provided, however, that nothing
herein shall require contribution of the
Minimum Funding Contributions or Normal Cost
before the otherwise legally required due
date for making Minimum Funding
Contributions.
(c) Subject to Section 5C(1)(b) of this
Agreement, each Plan's Required Credit
Balance for any Plan Year must reflect the
total amount calculated under Section
5(C)(1)(a) above, regardless as to whether
contributions are actually paid to the Plan
and regardless as to whether the actual
contributions have been limited pursuant to
Maximum Tax Deductible Contribution Amount.
(2) Contributions in Excess of the Maximum Tax Deductible
Contribution Amount.
Notwithstanding anything in this Agreement to the
contrary, contributions to a Plan for any given Plan
Year will not be required to exceed that Plan's
Maximum Tax Deductible Contribution Amount. If any
portion of a contribution is not deductible for any
Plan for a Plan Year, then that portion shall not be
required to be contributed for the Plan Year for
which it is not deductible, and instead such portion
shall be carried over and paid in the next taxable
year in which it is deductible. Any such carryover
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payment will be in addition to any other
contributions required for such next Plan Year to the
extent deductible.
(3) Determination of Minimum Funding Requirement.
For the purposes of this Agreement, Minimum Funding
Contribution may be determined utilizing the highest
interest rate permitted under Section 412(1)(7) of
the Code and, notwithstanding Section 5C(1)(a), the
amount of any Minimum Funding Contribution for a Plan
Year in excess of the Minimum Funding Contribution
computed in accordance with the foregoing may reduce
the Required Credit Balance (as computed in
accordance with Section 5C(1)(a)) by such excess
amount.
D. CORP'S CONSENT TO U.S. JURISDICTION:
Corp consents to jurisdiction in the United States federal
district courts with respect to its obligations under this
agreement with the PBGC.
E. CORP GUARANTY:
(1) Annual funding requirements. Corp will be jointly and
severally liable with its U.S. subsidiaries for the
obligations to fund the Plans in accordance with this
Agreement.
(2) Termination liability. Corp will be jointly and severally
liable with its U.S. subsidiaries for any liabilities owing by
its U.S. subsidiaries to the Plans or to the PBGC upon
termination of either or both of the Plans.
6. PBGC'S OBLIGATIONS:
A. In consideration of the Corp Obligations, PBGC will forebear
from instituting proceedings to involuntarily terminate either
of the Plans under 29 U.S.C.Section 1342(a)(4) in advance of
the Corp and plc schemes of arrangement or the actions
contemplated thereunder.
B. That any contingent claim filed by PBGC in the plc scheme of
arrangement shall be automatically released on the Effective
Date. This Agreement shall not otherwise limit PBGC's rights
under ERISA with respect to the Plans.
7. TERMINATION OF THE AGREEMENT:
A. This Agreement shall terminate in its entirety with respect to
the relevant Plan upon the earliest to occur of (1), (2), (3)
or (4) below, but, in the case of (1) or (2), no earlier than
five (5) years after the Effective Date.
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(1) With respect to both Plans, the date on which Corp
obtains ratings on its outstanding unsecured debt
from Standard & Poor's and Moody's of at least BBB
and Baa2, respectively.
(2) The date on which Corp demonstrates that a Plan has
unfunded benefit liabilities (as defined under 29
U.S.C. Section 1301(a)(18)) of zero as of the last
day of a Plan Year for two consecutive full Plan
Years. The first date this test can be measured is as
of five (5) years after the Effective Date; this test
and all subsequent tests would apply to the two Plan
Years immediately proceeding the date on which the
test takes place.
(3) The date on which PBGC receives a Form 501 - Post
Distribution Certification for a Plan indicating that
such Plan has terminated in a Standard Termination
under 29 U.S.C. Section 1341(b). In addition, the
Agreement will cease to apply with respect to a given
Plan when PBGC receives a Form 501 indicating that
the given Plan has terminated in a Standard
Termination.
(4) The date on which the sponsorship of a Plan is
assumed in its entirety by a third party purchaser in
a Sale in accordance with Section 5B(1) or Section
5B(3) of this Agreement.
B. Termination Notice: Corp shall provide PBGC with written
notice of any determination by Corp that any of the events
described in Section 7(A) above has occurred. Within thirty
(30) days of receiving such notice, PBGC will respond in
writing whether it concurs with Corp's determination, PBGC's
concurrence not to be unreasonably withheld. The Agreement
shall terminate on the date Corp receives PBGC's concurrence.
8. NOTICE REQUIREMENTS:
Corp will provide the following information to PBGC, in addition to any
reporting obligations that the Corp Group may have under ERISA and/or
the Code:
(A) Copies to PBGC's Corporate Finance and
Negotiations Department of any notices otherwise required to
be filed with the Internal Revenue Service or PBGC concerning
the Plans at the time the filing is made;
(B) Written notice 30 days (or such lesser
period as is prescribed by Section 5B(1) of this Agreement)
prior to any Plan merger or any transfer of liabilities or
assets described in Code Section 414(l), to or from any Plan
(other than de minimis mergers or transfers), which shall be
subject to PBGC's consent, which consent shall not be
unreasonably withheld.
(C) Written notice 30 days prior to any change
in any of the Plans' actuarial assumptions or methods for the
purpose of the minimum funding
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standard account (other than changes required by law or
changes in the interest rate permitted under Section 412 of
the Code), which changes shall be subject to PBGC's consent,
which consent shall not be unreasonably withheld.
(D) Written notice 30 days prior to any change
in any of the Plans' Plan Years. Such changes shall be subject
to PBGC's consent, which consent shall not be unreasonably
withheld.
(E) Each Plan's Actuarial Valuation Report no
later than the last day of the Plan Year.
(F) Each Plan's Form 5500, with attachments,
when filed.
(G) By each June 30, a statement certified by
one or more of the Plans' enrolled actuaries, specifying the
following:
(1) The amount of contributions
necessary to maintain each Plan's Required Credit
Balance and details of the calculation of each Plan's
Required Credit Balance.
(2) A statement that the contribution
necessary to maintain each Plan's Required Credit
Balance is not limited by the Maximum Tax Deductible
Contribution Amount for the Plan Year, or, if the
contribution is limited, the statement shall contain
details showing the calculation of the limitation and
the reallocation to later Plan Years.
Such actuarial certification shall indicate that the
calculations contained therein are subject to change
due to any corporate transaction affecting plan
assets and liabilities which may occur during the
applicable period and which is not reasonably
contemplated as of the date of such statement.
(H) By the last day of each Plan Year, and
except as provided by Section 5C(1)(b), a certification from
Corp that contributions at least equal to the lesser of (1) or
(2) below have been made to each Plan.
(1) The amount necessary to maintain
each Plan's Required Credit Balance.
(2) The Maximum Tax Deductible Amount
that may be contributed to each Plan for the Plan
Year.
(I) A copy of Plan amendments within 10 days of
adoption.
(J) Within 5 business days of each applicable
due date, written confirmation that each quarterly
contribution, Minimum Funding Contribution,
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Enhanced Contribution, or any other contribution required to
be made to a Plan pursuant to this Agreement was in fact,
contributed.
(K) Notice of the Effective Date within 10 days
of its occurrence.
9. GENERAL PROVISIONS:
A. Governing Law. Any dispute arising out of the execution or
interpretation of this Agreement, or any proceeding to enforce
this Agreement or to collect amounts due under ERISA with
respect to the Plans, shall be within the exclusive
jurisdiction of the federal courts of the United States. The
laws of the District of Columbia shall govern any such
dispute. The PBGC may bring any such action in any federal
court of competent jurisdiction in the District of Columbia or
in any other jurisdiction where any of the other parties to
this Agreement or any of their property may be found.
B. Enforceability. This Agreement may be enforced only by the
parties hereto. This Agreement is solely for the benefit of
the parties hereto and is not intended to confer upon any
person except the parties hereto any rights or remedies.
C. Amendment of Agreement. This Agreement may not be amended
except by an instrument in writing executed by the parties to
the Agreement.
D. Notices. All notices and other communications made pursuant to
this Agreement shall be in writing and shall be delivered to
the intended recipient at the address so specified below or at
such other address as shall be designated by any of them in a
notice to each other party set forth herein. A notice or other
communication will be deemed to have been given on the date
received, except that if received on a Saturday, Sunday or
federal holiday, the notice or other communication will be
deemed to have been given on the first day following the date
received that is not a Saturday, Sunday or federal holiday.
Corp or plc: Marconi Corporation plc
One Bruton Street
London WIJ 6AQ
England
Attn: Chief Operating Officer
Facsimile: 44-20-7493-1974
With a copy to:
Greensboro Associates, Inc.
3300 Battleground Avenue
Suite 301
Greensboro, NC 27410
Attn: Vice President and General Counsel
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Facsimile: (336) 545-7340
PBGC: Pension Benefit Guaranty Corporation
1200 K Street, N.W., Suite 270
Washington, D.C. 20005
Attn: Chief Negotiator and Director,
Corporate Finance and Negotiations Department
Facsimile: (202) 842-2643
With a copy to:
Pension Benefit Guaranty Corporation
1200 K Street, N.W., Suite 340
Washington, D.C. 20005
Attn: General Counsel
Facsimile: (202) 326-4112
E. Headings. The titles and headings of the sections of this
Agreement are for convenience of reference only and will not
control or affect in any way the scope, intent or
interpretation of any of the provisions of this Agreement.
F. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one
and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers as of the dates indicated.
MARCONI CORPORATION PLC
Date: 3/25/03 by: M. PARTON
MARCONI PLC
Date: 3/25/03 by: C. HOLDEN
PENSION BENEFIT GUARANTY
CORPORATION
DATE: 3/25/03 by: ANDREA E. SCHNEIDER
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