##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 COMMISSION FILE NO.: 001-11639
 LUCENT TECHNOLOGIES INC.
  DELAWARE
    
    22-3408857(STATE OR OTHER JURISDICTION OF 
INCORPORATION OR ORGANIZATION)
    
    (I.R.S. EMPLOYER IDENTIFICATION NO.)600 MOUNTAIN AVENUE, MURRAY HILL, NEW JERSEY
    
    07974(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
    
    (ZIP CODE)
 REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: 908-582-8500
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 o þ
 þ o
 o þ
 þ
  þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
 (1)
    
    Portions of the registrants annual report to shareowners for the fiscal year ended September
30, 2006 (Part II).
 (2)
    
    Portions of the registrants definitive proxy statement for its 2007 annual meeting of
shareowners filed with the Securities and Exchange Commission within
120 days after September 30, 2006, or an amendment to this
Form 10-K filed not later than 120 days after
September 30, 2006 (Parts II and III).




---



##### 



TABLE OF CONTENTS
 Item
    
    Description
    
    PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    16Item 1B.
    
    Unresolved Staff Comments
    
    
    23Item 2.
    
    Properties
    
    
    23Item 3.
    
    Legal Proceedings
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    26Item 6.
    
    Selected Financial Data
    
    
    26Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    26Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 8.
    
    Financial Statements and Supplementary Data
    
    
    27Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    27Item 9A.
    
    Controls and Procedures
    
    
    27Item 9B.
    
    Other Information
    
    
    27PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    27Item 11.
    
    Executive Compensation
    
    
    28Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    28Item 13.
    
    Certain Relationships and Related Transactions
    
    
    28Item 14.
    
    Principal Accounting Fees and Services
    
    
    28PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    29
 
  Explanatory note
  2




---



##### 



PART I
 
 Item 1. Business
 Company Overview
  Merger With Alcatel
   Corporate Information
 www.sec.gov
 Company History
 th
   3




---



##### 



Strategy for Growth
       4




---



##### 




    
    The implementation of a services-led software strategy that combined
our network operations software business with our Lucent Worldwide
Services business, which is expected to bring better alignment, focus,
efficiency and differentiating solutions.
    
    The optimization of our supply chain network, including the
consolidation of our EMS (electronic manufacturing service) providers
from four to two.
    
    The continuation of business process simplification efforts across the
Company, including corporate center functions.
 5




---



##### 



Communications Equipment and Services Market
 Market Environment
     Consolidation
  Competition
  6




---



##### 



Reportable Segments
       Organization of the Business
  7




---



##### 



Mobility Access Solutions
        8




---



##### 



Key Mobility Access Products
  Applications Solutions
 ® ®
 Key Applications Solutions Products
 ® ®
 ®
    Multimedia Network Solutions
   9




---



##### 



®
  Key Multimedia Network Products
 ®
 ® ®
 ®
 ® ® ® ®
 ® ®
 ® ®
 
 10




---



##### 



Converged Core Solutions
 ®
   Key Converged Core Products
 ® ® ®
  SM
   11




---



##### 



Lucent Worldwide Services
   Professional Services
  Deployment Services
  Maintenance Services
  12




---



##### 



Managed Services
   Research and Development
     13




---



##### 



Supply Chain Networks
    Global Sales and Services Organization
  Corporate Centers
  Backlog
  Seasonality
  Patents, Trademarks and Other Intellectual Property Rights
  14




---



##### 



Employee Relations
  Forward-looking Statements
  Executive Officers of the Registrant
  Date BecameName
    
    Age
    
    Title
    
    Executive OfficerCynthia Christy-Langenfeld
    
    
    40
    
    
    Chief Executive Officer and President
    
    03/04David Hitchcock
    
    
    45
    
    
    Chief Financial Officer and Treasurer
    
    03/06Timothy Keller
    
    
    45
    
    
    General Counsel and Secretary
    
    11/06
  15




---



##### 



Environmental Matters
    Separation Agreements
   
 Item 1A. Risk Factors
 Risks Related to Our Business
  We May Fail To Realize the Anticipated Cost Savings, Revenue Enhancements and Other Benefits
Expected From the Merger.
  16




---



##### 



Uncertainties Associated With the Merger May Cause a Loss of Employees and May Otherwise Materially
Adversely Affect Our Future Business and Operations.
   We Operate in a Highly Competitive Industry with Many Participants. Our Failure to Compete
Effectively Would Harm Our Business.
   17




---



##### 



Technology Drives Our Products and Services. If We Fail to Keep Pace with Technological Advances
in Our Industry, or If We Pursue Technologies That Do Not Become Commercially Accepted, Customers
May Not Buy Our Products or Use Our Services.
  A Small Number of Our Customers Account for a Substantial Portion of Our Revenues, and Most of Our
Revenues Come from Telecommunications Service Providers. The Loss of One or More Key Customers or
Reduced Spending of These Service Providers Could Significantly Reduce Our Revenues, Profitability
and Cash Flow.
  The Telecom Industry Fluctuates and Is Affected By Many Factors, Including Decisions By Service
Providers Regarding Their Deployment of Technology and Their Timing of Purchases, as Well as Demand
and Spending for Communications Services By Businesses and Consumers.
   18




---



##### 



We Have Long-Term Sales Agreements with a Number of Our Large Customers. Some of These Agreements
May Prove Unprofitable As Our Costs and Product Mix Shift Over the Lives of the Agreements.
  We Rely on Two Contractors to Provide Most of the Components and Products We Design. If Either of
Them Fails to Deliver Quality Components and Products at Reasonable Prices on a Timely Basis, We
May Not Be Able to Fulfill Our Obligations to Some of Our Customers.
  Our Pension and Postretirement Benefit Plans Are Large and Have Funding Requirements That Fluctuate
Based on the Performance of the Financial Markets and the Level of Interest Rates and May Be
Affected By Changes in Legal Requirements. These Plans Are Also Costly, and Our Efforts to Fund or
Control Those Costs May Be Ineffective.
  
    
    management pension plan;
    
    occupational pension plan;
    
    postretirement health care benefit plan for former management employees; and/or
    
    postretirement health care benefit plan for former represented employees.
   19




---



##### 



Many of Our Current and Planned Products Are Highly Complex and May Contain Defects or Errors That
Are Detected Only After Deployment in Telecommunications Networks. If That Occurs, Our Reputation
May Be Harmed.
  Rapid Changes to Existing Regulations or Technical Standards or the Implementation of New Ones for
Products and Services Not Previously Regulated Could Be Disruptive, Time-Consuming and Costly to
Us.
  20




---



##### 



We Are Involved in Lawsuits, Which, If Determined against Us, Could Require Us to Pay Substantial
Damages.
  If We Fail to Protect Our Intellectual Property Rights, Our Business and Prospects May Be Harmed.
  We Are Subject to Intellectual Property Litigation and Infringement Claims, Which Could Cause Us to
Incur Significant Expenses or Prevent Us from Selling Certain Products.
  We Are Subject to Environmental, Health and Safety Laws that Restrict Our Operations.
  21




---



##### 



Our Business Requires a Significant Amount of Cash, and We May Require Additional Sources of Funds
if Our Sources of Liquidity Are Unavailable or Insufficient to Fund Our Operations.
  
    
    the level of sales;
    
    the collection of receivables;
    
    the timing and size of capital expenditures;
    
    costs associated with potential restructuring actions; and
    
    customer financing obligations.
    Credit and Commercial Risks and Exposures Could Increase If the Financial Condition of Our
Customers Declines.
    22




---



##### 



We
Have Significant International Operations and a Significant Amount of
Our Sales Are Made in Emerging Markets and Regions.
    An Impairment of Goodwill or Other Intangible Assets Would Adversely Affect Our Financial Condition
or Results of Operation.
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  23




---



##### 



Item 3. Legal Proceedings
   Litigation and Lawsuits
  
    
    Commercial disputes including breach of contract, product performance disputes and other claims.
    
    Intellectual property actions, usually involving patent infringement claims.
    
    Employment, including retiree benefit, matters.
    
    Environmental, health and safety claims, including asbestos-related claims.
     Resnick v. Lucent Technologies Inc., et al
 24




---



##### 



AR Maley Trust v. Lucent Technologies, et al Resnick AR Maley Trust
 Government Investigations
      
 Item 4. Submission of Matters to a Vote of Security Holders
  25




---



##### 



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
   High
    
    LowYEAR ENDED SEPTEMBER 30, 2006Quarter ended December 31, 2005
    
    $
    3.49
    
    
    $
    2.64Quarter ended March 31, 2006
    
    
    3.16
    
    
    
    2.48Quarter ended June 30, 2006
    
    
    3.22
    
    
    
    2.25Quarter ended September 30, 2006
    
    
    2.47
    
    
    
    1.99YEAR ENDED SEPTEMBER 30, 2005Quarter ended December 31, 2004
    
    $
    4.16
    
    
    $
    3.11Quarter ended March 31, 2005
    
    
    3.86
    
    
    
    2.70Quarter ended June 30, 2005
    
    
    3.17
    
    
    
    2.35Quarter ended September 30, 2005
    
    
    3.30
    
    
    
    2.81
        
 Item 6. Selected Financial Data
  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  26




---



##### 



Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
       
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  27




---



##### 



Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accounting Fees and Services
  28




---



##### 



PART IV
 
 Item 15.
Exhibits and Financial Statement Schedules
  Pages(1)
    
    Consolidated Financial Statements:(i)
    
    Consolidated Statements of Operations
    
    *(ii)
    
    Consolidated Balance Sheets
    
    *(iii)
    
    Consolidated Statements of Changes in Shareowners Equity (Deficit)
    
    *(iv)
    
    Consolidated Statements of Cash Flows
    
    *(v)
    
    Notes to Consolidated Financial Statements
    
    *(2)
    
    Five-Year Summary of Selected Financial Data
    
    *
 
 *
    
    Incorporated by reference to the appropriate portions in pages F-37 through F-79 of our annual
report to shareowners for the fiscal year ended September 30, 2006 (see Part II and Exhibit 13).      29




---



##### 



SIGNATURES
  LUCENT TECHNOLOGIES INC.By:
    /s/ DAVID W. HITCHCOCKDavid W. HitchcockChief Financial Officer
(Principal Financial and Accounting Officer)Date:
   December 14, 2006  /s/ CYNTHIA CHRISTY-LANGENFELDPRINCIPAL EXECUTIVE OFFICERCynthia Christy-Langenfeld
          Chief Executive OfficerDate: December 14, 2006 /s/ DAVID W. HITCHCOCKPRINCIPAL FINANCIAL AND ACCOUNTING OFFICERDavid W. Hitchcock
          Chief Financial OfficerDate: December 14, 2006  
 By:
    /s/ DAVID W. HITCHCOCKAttorney-in-FactDate:
   December 14, 2006 30




---



##### 



EXHIBIT INDEX
  ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of April 2, 2006, by and among the registrant, Alcatel
and Aura Merger Sub, Inc. (Exhibit 2.1 to Current Report on Form 8-K filed April 3, 2006).3(i) 1
    
    Certificate of Incorporation of the registrant, as amended, effective February 16, 2000
(Exhibit 3.1 to Registration Statement on Form S-4, No. 333-31400).3(i) 2
    
    Certificate of Amendment of Restated Certificate of Incorporation of the registrant, dated
February 26, 2004 (Exhibit 3(i) to Quarterly Report on Form 10-Q for the quarter ended March
31, 2004).3(ii)
    
    By-Laws of the registrant, as amended as of February 18, 2004 (Exhibit 3(ii) to Quarterly
Report on Form 10-Q for the quarter ended March 31, 2004).4(ii) 1
    
    Indenture, dated as of April 1, 1996, between the registrant and The Bank of New York, as
trustee (Exhibit 4A to Registration Statement on Form S-3, No. 333-01223).4(ii) 2
    
    First Supplemental Indenture, dated as of April 17, 2000, to Indenture dated as of April
1, 1996, between the registrant and The Bank of New York, as trustee (Exhibit 4 to Current
Report on Form 8-K filed May 5, 2000).4(ii) 3
    
    Amended and Restated Trust Agreement, dated as of March 19, 2002, among the registrant, as
depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as
Delaware trustee, and the individuals named therein, as administrative trustees, relating to
Lucent Technologies Capital Trust I (Exhibit 4(v) 1 to Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002).4(ii) 4
    
    Form of certificate for preferred securities of Lucent Technologies Capital Trust I,
designated as 7.75% Cumulative Convertible Trust Preferred Securities (liquidation preference
$1,000 per preferred security) (Exhibit B to Exhibit 4(v) 1 to Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002).4(ii) 5
    
    Indenture, dated as of March 19, 2002, between the registrant and The Bank of New York, as
indenture trustee (Exhibit 4(v) 3 to Quarterly Report on Form 10-Q for the quarter ended March
31, 2002).4(ii) 6
    
    Form of the registrants 7.75% convertible subordinated debentures due 2017 (Exhibit A to
Exhibit 4(v) 3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).4(ii) 7
    
    Guarantee Agreement, dated as of March 19, 2002, between the registrant, as guarantor, and
The Bank of New York, as guarantee trustee (Exhibit 4(v) 5 to Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002).
 31




---



##### 



ExhibitNumber
    
    Description4(ii) 8
    
    Indenture, dated as of June 4, 2003, between the registrant and The Bank of New York, as
trustee (Exhibit 4.1 to Current Report on Form 8-K filed June 25, 2003).4(ii) 9
    
    First Supplemental Indenture, dated as of June 4, 2003, between the registrant and The
Bank of New York, as trustee (Exhibit 4.2 to Current Report on Form 8-K filed June 25, 2003).4(ii) 10
    
    Indenture, dated as of November 24, 2003, between the registrant and The Bank of New
York, as trustee (Exhibit 4(ii) 11 to Annual Report on Form 10-K for the year ended September
30, 2003).4(ii) 11
    
    Form of the registrants 8% convertible subordinated debentures due 2031 (Exhibit A to
Exhibit 4(ii) 11 to Annual Report on Form 10-K for the year ended September 30, 2003).4(ii) 12
    
    Warrant Agreement (including Form of Warrant Certificate), dated as of December 10, 2004,
between the registrant and The Bank of New York, as warrant agent (Exhibit 4.1 to Current
Report on Form 8-K filed December 10, 2004).4(ii) 13
    
    Stipulation and Agreement of Settlement, dated September 22, 2003, in settlement of
litigation in the U.S. District Court for the District of New Jersey entitled In re Lucent
Technologies Inc. Securities Litigation (Exhibit 4.8 to
Registration Statement on Form S-3, No.
333-120984).4(iii)
    
    Other instruments in addition to exhibits under 4(ii) that define the rights of holders of
long-term debt of the registrant and all of its consolidated subsidiaries are not filed
herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the
registrant agrees to furnish a copy of any such instrument to the SEC upon request.10(i) 1
    
    Tax Sharing Agreement, by and among AT&T Corp., the registrant and NCR Corporation, dated
as of February 1, 1996, and amended and restated as of March 29, 1996 (Exhibit 10.6 to
Registration Statement on Form S-1, No. 333-00703).10(i) 2
    
    Amended and Restated Letter of Credit Issuance and Reimbursement Agreement, dated as of
August 11, 2006, among the registrant, several banks and other parties thereto and JPMorgan
Chase Bank, N.A., as administrative agent (Exhibit 99.1 to Current Report on Form 8-K filed
August 15, 2006).10(i) 3
    
    Amended and Restated External Sharing Debt Agreement, dated as of October 1, 2004, among
the registrant, several banks and other parties thereto and JPMorgan Chase Bank, N.A., as
administrative agent (Exhibit 99.2 to Current Report on Form 8-K filed October 7, 2004).10(i) 4
    
    First Amendment, dated as of April 8, 2005, to Amended and Restated External Sharing Debt
Agreement, dated as of October 1, 2004, among the registrant, several banks and other parties
thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 to Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005).10(i) 5
    
    Second Amendment, dated as of August 11, 2006, to Amended and Restated External Sharing
Debt Agreement, dated as of October 1, 2004, among the registrant, several banks and other
parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 99.2 to Current Report on Form 8-K
filed August 15, 2006).
 32




---



##### 



ExhibitNumber
    
    Description10(i) 6
    
    Amended and Restated Guarantee and Collateral Agreement, dated as of August 11, 2006, made
by the registrant and certain of its subsidiaries in favor of JPMorgan Chase Bank, N.A., as
collateral agent (Exhibit 99.3 to Current Report on Form 8-K filed August 15, 2006).10(i) 7
    
    Amended and Restated Collateral Sharing Agreement, dated as of August 11, 2006, among the
registrant, certain of its subsidiaries and JPMorgan Chase Bank, N.A., as collateral agent
(Exhibit 99.4 to Current Report on Form 8-K filed August 15, 2006).10(ii)(B) 1
    
    Patent License Agreement, among AT&T Corp., NCR Corporation and the registrant,
effective as of March 29, 1996 (Exhibit 10.7 to
Registration Statement on Form S-1, No.
333-00703).10(ii)(B) 2
    
    Amended and Restated Technology License Agreement, among AT&T Corp., NCR Corporation
and the registrant, effective as of March 29, 1996 (Exhibit 10.8 to Registration Statement on
Form S-1, No. 333-00703).10(ii)(B) 3
    
    Electronics Manufacturing Services Agreement, No. HO32050265, between the registrant
and Solectron Corporation, effective July 21, 2005 (Exhibit 10(ii)(B) 3 to Annual Report on
Form 10-K for the year ended September 30, 2005).*10(ii)(B) 4
    
    External Manufacturing Services Agreement, No. WR71050115, between the registrant and
Celestica Corporation, entered into September 30, 2005, and effective April 1, 2005 (Exhibit
10(ii)(B) 4 to Annual Report on Form 10-K for the year ended September 30, 2005).*10(ii)(B) 5
    
    Transition Agreement between Celestica Corporation and the registrant, dated September
16, 2005 (Exhibit 10(ii)(B) 5 to Annual Report on Form 10-K for the year ended September 30,
2005).*10(iii)(A) 1
    
    Lucent Technologies Inc. Short Term Incentive Program (Exhibit 10(iii)(A) 1 to Annual
Report on Form 10-K for the year ended September 30, 2004).**10(iii)(A) 2
    
    Lucent Technologies Inc. 2004 Equity Compensation Plan for Non-Employee Directors
(Exhibit 10(iii) 1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).**10(iii)(A) 3
    
    First Amendment to the Lucent Technologies Inc. 2004 Equity Compensation Plan for
Non-Employee Directors (Exhibit 10(iii)(A) 6 to Annual Report on Form 10-K for the year ended
September 30, 2004).**10(iii)(A) 4
    
    Lucent Technologies Inc. Deferred Compensation Plan (Exhibit 10(iii)(A) 7 to Annual
Report on Form 10-K for the year ended September 30, 2004).**10(iii)(A) 5
    
    Lucent Technologies Inc. Supplemental Pension Plan (Exhibit 10(iii)(A) 8 to Annual
Report on Form 10-K for the year ended September 30, 2004).**10(iii)(A) 6
    
    Summary of compensation terms for certain named executive officers (Exhibit 10(iii)(A)
14 to Annual Report on Form 10-K for the year ended September 30, 2005).**
 33




---



##### 



ExhibitNumber
    
    Description10(iii)(A) 7
    
    Summary of compensation terms for non-employee directors (Exhibit 10(iii)(A) 15 to
Annual Report on Form 10-K for the year ended September 30, 2005).**10(iii)(A) 8
    
    Officer Severance Policy for Cynthia K. Christy-Langenfeld, dated January 23, 2001
(Exhibit 10(iii)(A) 17 to Annual Report on Form 10-K for the year ended September 30, 2005).**10(iii)(A) 9
    
    Lucent Technologies Executive Officer Severance Policy (Exhibit 10(iii)(A) 18 to
Annual Report on Form 10-K for the year ended September 30, 2004).**10(iii)(A) 10
    
    Lucent Technologies Officer Severance Program (Exhibit 10(iii)(A) 21 to Annual Report
on Form 10-K for the year ended September 30, 2005).**12
    
    Computation of Deficiency of Earnings to Cover Combined Fixed Charges and Preferred Stock
Dividend Requirements and Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividend Requirements.13
    
    Selected portions (pages F-1 to F-79) of the registrants Annual Report to Shareowners for
the year ended September 30, 2006.14
    
    Code of Ethics for Chief Executive Officer and Senior Financial Officers (Exhibit 14 to
Annual Report on Form 10-K for the year ended September 30, 2003).21
    
    List of subsidiaries of the registrant.24
    
    Powers of Attorney executed by directors who signed this report.31.1
    
    Certification of Cynthia K. Christy-Langenfeld required by Rule 13a-14(a) (17 C.F.R.
240.13a-14(a)).31.2
    
    Certification of David W. Hitchcock required by Rule 13a-14(a) (17 C.F.R. 240.13a-14(a)).32
    
    Certification of Cynthia K.
Christy-Langenfeld and David W. Hitchcock pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Certain confidential portions of this exhibit have been omitted and filed separately with the SEC
pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of
1934.**
    
    Management contract or compensatory plan or arrangement. 34