UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASENO._,,","-, UNITED STATES OF AMERICA VS. ALCATEL-LUCENT, S.A., fIkIa "ALCATEL, S.A.," Defendant. / ---------------------------- DEFERRED PROSECUTION AGREEMENT Defendant Alcatel-Lucent, S.A. ("Alcatel-Lucent"), formerly known as "Alcatel, S.A." before its late 2006 merger with Lucent Technologies, Inc., by its undersigned attorneys, pursuant to authority granted by Alcatel-Lucenfs Board of Directors, and the United States Department of Justice, Criminal Division, Fraud Section (the "Department"), enter into this deferred prosecution agreement (the "Agreement"). The terms and conditions of this Agreement are as follows: Criminal Information and Acceptance of Responsibility 1. Alcatel-Lucent acknowledges and agrees that the Department will file the attached two-count criminal Information in the United States District Court for the Southern District of Florida charging violations of the internal controls and books and records provisions of the Foreign Corrupt Practices Act ("FCPA"), Title 15, United States Code, Sections 78m(b )(2)(A), 78m(b)(2)(B), 78m(b)(5), and 78ff(a). In so doing, Alcatel-Lucent: (a) knowingly waives its right to indictment on these charges, as well as all rights to a speedy trial pursuant to the Sixth Amendment to the United States Constitution, Title 18, United States Code, Section 3161, and Federal Rule of Criminal Procedure 48(b); and (b) consents to the filing of the Infonnation, as provided under the tenns of this Agreement, in the United States District Court for the Southern District of Florida. 2. A1catel-Lucent admits, accepts, and acknowledges that it is responsible for the acts of its officers, employees, agents, and those of Alcatel-Lucent's subsidiaries as charged in the Infonnation, and as set forth in the Statement of Facts attached hereto as Attachment A and incorporated by reference into this Agreement, and that the allegations described in the Information and the facts described in Attachment A are true and accurate. Should the Department pursue the prosecution that is deferred by this Agreement, Alcatel-Lucent agrees that it will neither contest the admissibility of nor contradict the Statement of Facts in any such proceeding, including any guilty plea or sentencing proceeding. Term of the Agreement 3. This Agreement is effective for a period beginning on the date on which the Information is filed and ending three (3) years and seven (7) calendar days from that date (the "Term"). However, Alcatel-Lucent agrees that, in the event that the Department determines, in its sole discretion, that Alcatel-Lucent has knowingly violated any provision of this Agreement, an extension or extensions of the tenn of the Agreement may be imposed by the Department, in its sole discretion, for up to a total additional time period of one year, without prejudice to the Department's right to proceed as provided in Paragraphs 16-19 below. Any extension of the Agreement extends all tenns of this Agreement, including the tenns of the monitorship under Paragraphs 10-13 and Attachment D, for an equivalent period. Conversely, in the event the Department finds, in its sole discretion, that there exists a change in circumstances sufficient to 2 eliminate the need for the corporate compliance nlonitor described in Paragraphs 10-13 and Attachment D, and that the other provisions of this Agreement have been satisfied, the Term of the Agreement may be terminated early. Relevant Considerations 4. The Department enters into this Agreement based on the individual facts and circumstances presented by this case and Alcatel-Lucent. Among the facts considered were the following: (a) following press reports concerning bribery by Alcatel, S.A., in Costa Rica, the company investigated and disclosed over the course of several years to the Department and the United States Securities and Exchange Commission (the "SEC") the misconduct described in the Information and Statement of Facts; (b) Alcatel-Lucent conducted a global internal investigation concerning bribery and related misconduct; (c) Alcatel-Lucent reported its findings to the Department and the SEC; (d) after limited and inadequate cooperation for a substantial period of time, Alcatel-Lucent substantially improved its cooperation with the Department's investigation of this matter, as well as the SEC's investigation; (e) Alcatel-Lucent undertook remedial measures, including the implementation of an enhanced cOlnpliance program, and agreed to undertake further remedial measures as contemplated by this Agreement; (f) on its own initiative and at a substantial financial cost, Alcatel-Lucent determined as a matter of company policy to no longer use third party sales and marketing agents in conducting its worldwide business; and (g) Alcatel-Lucent agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of Alcatel-Lucent and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCP A. 5. Alcatel-Lucent shall continue to cooperate fully with the Department in any and 3 all matters relating to corrupt payments and related false books and records and internal controls, subject to applicable law and regulations, including Article 1 of French Law No. 68-678 of July 26,1968, as amended by Law No. 80-538 of July 16, 1980 (the "Blocking Statute"). At the request of the Department, and consistent with applicable law and regulations as referenced in the preceding sentence, Alcatel-Lucent shall also cooperate fully with such other domestic or foreign law enforcement authorities and agencies, as well as the Multilateral Development Banks ("MDBs"), in any investigation of Alcatel-Lucent, or any of its present and former officers, directors, employees, agents, consultants, contractors, subcontractors, and subsidiaries, or any other party, in any and all matters relating to corrupt payments, related false books and records, and inadequate internal controls, and in such manner as the parties may agree. Alcatel-Lucent agrees that its cooperation shall include, but is not limited to, the following: a. Alcatel-Lucent shall truthfully disclose all factual information not protected by a valid claim of attorney-client privilege or work product doctrine with respect to its activities and those of its present and former directors, employees, agents, consultants, contractors and subcontractors, and subsidiaries concerning all matters relating to corrupt payments and related false books and records and inadequate internal controls, about which Alcatel-Lucent has any knowledge or about which the Department may inquire. This obligation of truthful disclosure includes the obligation of Alcatel-Lucent to provide to the Department, upon request, any document, record or other tangible evidence relating to such corrupt payments, false books and records, or inadequate internal controls about which the Department may inquire of Alcatel-Lucent. b. Upon request of the Department, with respect to any issue relevant to its 4 investigation of corrupt payments in connection with the operations of Alcatel-Lucent, related false books and records, and inadequate internal controls, Alcatel-Lucent shall designate knowledgeable employees, agents or attorneys to provide to the Department the information and materials described in Paragraph 5(a) above, on behalf of Alcatel-Lucent. It is further understood that Alcatel-Lucent must at all times provide complete, truthful, and accurate information. c. With respect to any issue relevant to the Department's investigation of corrupt payments, related false books and records, and inadequate internal controls in connection with the operations of Alcatel-Lucent, or any of its present or former subsidiaries or affiliates, Alcatel-Lucent shall use its best efforts to make available for interviews or testimony, as requested by the Department, present or former officers, directors, employees, agents and consultants of Alcatel-Lucent as well as the officers, directors, employees, agents and consultants of contractors and subcontractors. This obligation includes, but is not limited to, sworn testimony before a federal grand jury or in federal trials, as well as interviews with federal law enforcement and regulatory authorities. Cooperation under this Paragraph shall include identification of witnesses who, to the knowledge of Alcatel-Lucent, may have material information regarding the matters under investigation. d. \Vith respect to any information, testimony, documents, records or other tangible evidence provided to the Department pursuant to this Agreement, Alcatel-Lucent consents to any and all disclosures, subject to applicable law and regulations, including the Blocking Statute, to other governmental authorities, including United States authorities and those of a foreign government, and the MDBs, of such materials as the Department, in its sole discretion, shall deem appropriate. 5 Payment of Monetary Penalty 6. The Department and A1catel-Lucent agree that application of the United States Sentencing Guidelines ("USSG" or "Sentencing Guidelines") to determine the applicable fine range yields the following analysis: a. The 2010 USSG are applicable to this matter. b. Base Offense. Based upon USSG § 2B1.1, the total offense level is 36, calculated as follows: (a)(2) Base Offense Level 6 (b)(1) Value of benefit received more than $20,000,000 +22 (b )(2) Involved 250 or more victims +6 (b )(9) Substantial part of scheme committed outside U.S. +2 TOTAL 36 c. Base Fine. Based upon USSG § 8C2.4(a)(2), the base fine is $48,100,000 (the pecuniary gain to the organization from the offense ($48,100,000) is used where such number is greater than the fine indicated in the Offense Level Fine Table ($45,500,000» d. Culpability Score. Based upon USSG § 8C2.5, the culpability score is 9, calculated as follows: (a) Base Culpability Score 5 (b)(l) the organization had 5,000 or more employees and an individual within high-level personnel of the organization participated in, condoned, or was willfully ignorant of the offense +5 6 (g) The organization clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct - 1 TOTAL 9 Calculation of Fine Range: Base Fine $48,100,000 Multipliers 1.8(min)/3.6(max) Fine Range $86,580,000/$173,160,000 Alcatel-Lucent agrees to pay a monetary penalty in the amount of $92,000,000, Alcatel-Lucent and the Department agree that this fme is appropriate given the nature and extent of Alcatel- Lucent's cooperation in this matter, penalties related to the same conduct in Costa Rica, and the extraordinary remedial step of terminating use of third-party sales and marketing agents. This monetary penalty is consistent with the Alternative Fines Act, Title 18, United States Code, Section 3571, which permits an organization to be fined not more than twice the gross gain (here, $96,200,000). Alcatel-Lucent and the Department have agreed that Alcatel-Lucent will pay $25,000,000 of this $92,000,000 monetary penalty to the United States Treasury within ten days of the sentencing of the subsidiaries (the "sentencing date") reflected in Paragraph 14(c) below. Thereafter, Alcatel-Lucent will pay an additional $25,000,000 within one year of the sentencing date, an additional $25,000,000 within two years of the sentencing date, and an additional $17,000,000 within three years of the sentencing date. The $92,000,000 penalty is final and shall not be refunded. Furthermore, nothing in this Agreement shall be deenled an agreenlent by the Department that $92,000,000 is the maximum penalty that may be imposed in any future 7 prosecution, and the Department is not precluded from arguing in any future prosecution that the Court should impose a higher fine, although the Department agrees that under those circumstances, it will recommend to the Court that any amount paid under this Agreement should be offset against any fme the Court imposes as part of a future judgment. Finally, the parties agree that any criminal penalties that might be imposed by the Court on Alcatel-Lucent's wholly owned subsidiaries in connection with their guilty pleas and plea agreements entered into simultaneously herewith will be deducted from the $92,000,000 penalty agreed to under this Agreement. Alcatel-Lucent acknowledges that no tax deduction may be sought in connection with the payment of any part of this $92,000,000 penalty. Conditional Release from Criminal Liability 7. In return for the full and truthful cooperation of A1catel-Lucent, and its compliance with the terms and conditions of this Agreement, the Department agrees not to use any information related to the conduct described in the attached Statement of Facts against A1catel-Lucent or any of its wholly owned or controlled subsidiaries in any criminal or civil case, except: (a) in a prosecution for perjury or obstruction of justice; (b) in a prosecution for making a false statement; (c) in a prosecution or other proceeding relating to any crime of violence; or (d) in a prosecution or other proceeding relating to a violation of any provision of Title 26 of the United States Code. In addition, the Department agrees, except as provided herein, that it will not bring any criminal case against A1catel-Lucent or any of its wholly owned or controlled subsidiaries related to the conduct of present and former officers, directors, employees, agents, consultants, contractors and subcontractors, as described in the attached Statement of Facts, or 8 relating to infolTIlation Alcatel-Lucent disclosed to the Department prior to the date on which this Agreement was signed. a. This Paragraph does not provide any protection against prosecution for any corrupt payments, false books and records, or inadequate internal controls, if any, by A1c ate 1-Lucent in the future. b. In addition, this Paragraph does not provide any protection against prosecution of any present or former officer, director, officer, employee, shareholder, agent, consultant, contractor, or subcontractor of A1catel-Lucent for any violations committed by them. Corporate Compliance Program 8. A1catel-Lucent represents that it has implemented and vIlill continue to implement a compliance and ethics program designed to prevent and detect violations of the FCPA, the anti-corruption provisions of French law, and other applicable anti-corruption laws throughout its operations, including those of its affiliates, agents, and joint ventures, and those of its contractors and subcontractors, with responsibilities that include interacting with foreign officials or other high risk activities. Implementation of these policies and procedures shall not be construed in any future enforcement proceeding as providing immunity or amnesty for any crimes not disclosed to the Department as of the date of signing of this Agreement for which Alcatel-Lucent would otherwise be responsible. 9. In order to address any deficiencies in its internal controls, policies, and procedures, A1catel-Lucent represents that it has undertaken, and will continue to undertake in the future, in a manner consistent with all of its obligations under this Agreement, a review of its existing internal controls, policies, and procedures regarding compliance with the FCPA , the 9 anti-corruption provisions of French law, and other applicable anti-corruption laws. Ifnecessary and appropriate, Alcatel-Lucent will adopt new or modify existing internal controls, policies, and procedures in order to ensure that Alcatel-Lucent maintains: (a) a system of internal accounting controls designed to ensure the making and keeping of fair and accurate books, records, and accounts; and (b) a rigorous anti -corruption compliance code, standards, and procedures designed to detect and deter violations of the FCP A, the anti-corruption provisions of French law, and other applicable anti-corruption laws. The internal controls system and conlpliance code, standards, and procedures will include, but not be limited to, the minimum elements set forth in Attachment C, which is incorporated by reference into this Agreement. Corporate Compliance Monitor 10. Within sixty (60) calendar days of the filing of the Agreement and the accompanying Information, or promptly after the Department's selection pursuant to Paragraph 11 below, Alcatel-Lucent agrees to retain an independent compliance monitor who is a French national (the "Monitor") for the term specified in Paragraph 13. The Monitor's duties and authority, and the obligations of Alcatel-Lucent with respect to the Monitor and the Department, are set forth in Attachment D, which is incorporated by reference into this Agreement. Within thirty (30) calendar days after the execution of this Agreement, and after consultation with the Department, Alcatel-Lucent will propose to the Department a pool of three qualified candidates to serve as the Monitor. If the Department, in its sole discretion, is not satisfied with the candidates proposed, the Department reserves the right to seek additional nominations from Alcatel-Lucent. The Monitor candidates shall have, at a minimum, the following qualifications: 10