Document:

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                                                                   EXHIBIT 10.16

                                                                           DRAFT

                          DEVELOPMENT PROJECT AGREEMENT

                                 by and between

                            LUCENT TECHNOLOGIES INC.

                                       and

                                   AVAYA INC.

                           Dated as of October 1, 2000
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                          DEVELOPMENT PROJECT AGREEMENT

         This Development Project Agreement (the "Agreement"), effective as of
October 1, 2000 (the "Effective Date"), is by and between Lucent Technologies
Inc., a Delaware corporation with offices at 600 Mountain Avenue, Murray Hill,
New Jersey 07974 ("Lucent"), and Avaya Inc., a Delaware corporation with offices
at 211 Mount Airy Road, Basking Ridge, New Jersey 07920 ("Avaya").

                                 R E C I T A L S

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

         WHEREAS, in furtherance of the foregoing separation, Lucent and Avaya
desire to enter into this Agreement to provide for certain commercial
transactions between the parties as described in Section 1.0 of this Agreement.

         NOW, THEREFORE, in consideration of the premises and for other good and
valid consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:

1.0 TERM AND SCOPE OF AGREEMENT

1.1 The term of this Agreement shall commence on the Effective Date and shall
expire on October 1, 2003, unless earlier terminated in accordance with the
provisions hereof (the "Term"). The Term may be extended for additional one (1)
year periods upon the mutual written agreement of the parties. For specific
Projects, which have a completion date beyond the Term of this Agreement as
specified in their respective Statements of Work, the terms and conditions of
this Agreement shall remain in effect but only with respect to such Projects.

1.2 Avaya and Lucent were affiliated corporations operating under common
ownership and control, and as such, each had access to technology in the form of
inventions, discoveries, ideas, methods, copyrightable works, software, data,
know-how, information, documentation, samples, prototypes or data and including
all patents, copyrights, trade secret protection and other forms of protection
obtained or obtainable thereon ("Intellectual Property" or "IP") developed by or
for the other. Because Avaya and Lucent wish to continue enjoying the benefits
of their prior relationship, they are now entering into this Agreement to
continue sharing certain research and development efforts in certain areas of
technology that are of mutual interest to the parties. To the extent each party
deems appropriate, Avaya and Lucent shall discuss with each other the
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nature and status of their respective research and development activities,
and when in their mutual interest, shall enter into development arrangements to
further their objectives, all in accordance with the terms and conditions set
forth below.

2.0  [THIS SECTION IS RESERVED]

3.0  DEVELOPMENT PROJECTS

3.1 Either party may propose that the other enter into development projects
("Projects") to advance specific technologies or products. Avaya and Lucent will
negotiate in good faith whether to proceed with any Project, however, either
party may, in its sole discretion, choose not to undertake any given Project.

3.2 Each Project mutually agreed upon will be defined by a Statement of Work
which will be in the format of the Sample Statement of Work attached hereto as
Exhibit A, or in such other form as the parties agree is appropriate to the
particular Project, and shall become part of this Agreement upon execution by
authorized representatives of each party. Each Statement of Work will define the
Project's:

         3.2.1 Owners, with the understanding that each party will assign an
         owner to each Project who will be actively involved in Project
         activities and who will have decision-making authority for that party;

         3.2.2 Scope, including the expected outcome, resources required, and
         methodology to be used to develop that outcome;

         3.2.3 Anticipated deliverables (including related documentation) and
         milestones;

         3.2.4 Staffing, with the understanding that, based on whether the
         particular project is a sole or a joint work project, personnel from
         either, or both Avaya and Lucent will ordinarily be assigned to work on
         the Project.

         3.2.5 Funding, with the understanding that funding will be allocated
         based upon (i) the resources (including personnel, equipment,
         materials, time and intellectual property) furnished by each party,
         (ii) the anticipated benefits to be derived by each party from the
         Project; and (iii) the accomplishment by each party of defined
         milestones; and

         3.2.6 If appropriate, Intellectual Property ownership, with the
         understanding that Section 5.0 of this Agreement will be considered the
         default allocation of such ownership and license rights, and that this
         allocation will be adjusted only to the extent otherwise specified in
         the Statement of Work pursuant to Section 3.3 below.

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3.3 Each Statement of Work will be governed by and construed in accordance with
the terms and conditions of this Agreement, but to the extent there is any
inconsistency between the terms and conditions of a Statement of Work and those
of this Agreement, the terms and conditions of this Agreement shall take
precedence and control the rights and obligations of the parties.
Notwithstanding the foregoing sentence, to the extent that any terms and
conditions of this Agreement are to be modified or superseded by the terms and
conditions of a Statement of Work, such terms shall be specifically identified
in the Statement of Work and shall require the signature of a D-level (or its
equivalent) manager of each party, and in the case of any terms and conditions
relating to intellectual property ownership or licensing are to be modified,
superseded or added to, the same will require the signature of the president (or
its equivalent) of Lucent's and Avaya's intellectual property business.

3.4 Specific development activities of the kind contemplated under this
Agreement that are completed or in progress as of the Effective Date, which
activities may be covered by arrangements such as a cross-business unit
agreement pursuant to which ongoing payments are being made or are to be made to
Lucent, shall not be affected by the terms of this Agreement unless such
activities are subsequently covered by a Statement of Work hereunder. Such
activities include, but are not limited to, those activities listed in Exhibit
B.

4.0  PAYMENT

4.1 Each party requesting development to be performed on its behalf will fund
each Project performed by the other party for the requesting party. In the case
of joint development Projects, the parties will mutually agree on how to fund
and staff such development consistent with Section 3.2.5 above. Amounts payable
by the requesting party for each Project will be specified in the Statement of
Work for such Project, and may include all direct and overhead expenses
associated with such project, and may include a reasonable amount of profit.
Such amounts may include lump-sum fees and/or ongoing royalties or fees, such as
a fee for each copy of software licensed or product made. Unless otherwise
agreed to by the parties, such royalties and fees will be established by the
parties at the time they agree to such development and will be specified in the
Statement of Work. All payments will become due thirty (30) days after receipt
of an invoice or other agreed-upon triggering event.

4.2 Any invoiced amount shall be paid within thirty (30) days from the date of
the invoice. If a party fails to pay any invoiced amount when due, any unpaid
amount will be subject to a late payment charge at the rate of one and one-half
percent (1-1/2%) per month (but not to exceed the then-maximum lawful rate).
Payments to Lucent shall be made to LUCENT's account: LUCENT Technologies Inc.,
Licensing Account No. 3750657331, at Bank of America, P.O. Box 277078, Atlanta,
Georgia 30384-7078, United States of America or by bank wire transfer to LUCENT
Technologies Account 3750657331, Swift Code NABKUS3A, ABA Code 111000012.
Payments to Avaya shall be made to Avaya's account:

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[_______________________________] Changes in address or account information may
be specified by written notice.

4.3 For projects involving the purchase of development services, the requesting
party shall bear all taxes, duties and other similar charges (and any related
interest and penalties), however designated, imposed upon or based upon the
provision, sale, license or use of any products developed and services performed
hereunder, excluding taxes on the performing party's net income, unless the
requesting party provides the performing party with a valid tax exempt
certificate. For projects involving joint development, each party will be
responsible for applicable taxes based on its respective expenses, costs, income
or use of the developments associated with the Project.

5.0 INTELLECTUAL PROPERTY RIGHTS

5.1 Ownership and licensing of Intellectual Property conceived, created,
discovered or developed during (or in anticipation ) of the performance of work
pursuant to a Statement of Work but not including any Intellectual Property (a)
pre-existing the preparation of such Statement of Work or (b) developed
independently during such work by an organization other than that organization
directly responsible for performance of the work ("Project IP") will be
determined as follows:

         5.1.1 Each party shall own an equal, undivided, joint interest in and
         to any Project IP that is jointly conceived, created, discovered or
         developed by employees, contractors or agents of both parties ("Joint
         Project IP"), and either party may use and license such jointly
         developed Project IP for any purpose and in any manner they deem
         appropriate without restriction and without accounting to each other.
         Patentable inventions conceived, made or developed jointly by Lucent
         and Avaya shall be deemed jointly owned only to the extent the
         employees of both parties qualify as joint inventors in accordance with
         applicable U.S. law and the rules promulgated by the U.S. Patent &
         Trademark Office (37 C.F.R. 1.45) (hereinafter "Joint Inventions").
         Each party shall endeavor to notify the other and share Project IP as
         reasonably necessary to determine whether Project IP should be
         classified as Joint Project IP, and further, the parties agree to
         disclose and furnish copies to each other of all Joint Project IP.

         5.1.2 Project IP conceived, created, discovered or developed solely by
         one or more employees, contractors or agents of a party will be solely
         owned by that party. It is agreed that such solely owned Project IP
         (including only those inventions and patents in such Project IP not
         covered by the October 1, 2000 Patent and Technology License Agreement
         executed between the Parties) shall be subject to a non-exclusive,
         royalty-free (unless fees are otherwise agreed upon in the Statement of
         Work), perpetual, worldwide license to the other party to use, copy,
         display, perform, modify, create derivative works,

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         license (including the right to sublicense such Project IP except
         solely owned patents obtained thereon), market and distribute the
         Project IP in the usual and ordinary course of its business, and to the
         extent that any portion of the Project IP is incorporated in tangible
         products, to make, have made, use, import, sell and offer to sell such
         products.

5.2 In the case where pre-existing or independently developed Intellectual
Property ("Background IP") of a party is incorporated into a deliverable
specified in, or otherwise identified as a separate deliverable under, a
Statement of Work and use of such Background IP is reasonably necessary for
commercial exploitation of such deliverable, the parties agree to negotiate fair
and reasonable terms and conditions (including any fees) for a limited license
to use such Background IP for such commercial exploitation which shall be set
forth in a separate written agreement or a Statement of Work executed pursuant
to Section 3.3 above. The parties hereby contemplate that any Background IP
which consists of software shall be licensed only in object code format and only
within a field of use reasonably necessary for such commercial exploitation
unless otherwise specified in a Statement of Work. In connection with such
licenses to software in object code format, the parties will negotiate on a case
by case basis (a) any maintenance and other support to be furnished along with
the software (including any fees to be paid therefor), and (b) whether or not to
establish escrow for the source code of such software and the terms and
conditions thereof.

5.3 With respect to Joint Inventions, the parties shall share all relevant
information pertaining to such Joint Inventions and shall decide on a case by
case basis which of the parties shall file and prosecute patent applications for
such Joint Inventions and maintain patents obtained thereon in the U.S. and in
foreign countries (the "Selected Party"). The Selected Party shall, at its sole
expense, diligently file and prosecute patent applications for such Joint
Inventions and maintain patents obtained thereon in the U.S. and in foreign
countries (in accordance with its standard, internal reviews and procedures for
filing and prosecuting inventions and patent applications thereon). If the
Selected Party decides not to file or prosecute a patent application based upon
a particular Joint Invention in the U.S. or any foreign country or maintain any
patent obtained thereon, the other party shall be given adequate opportunity to,
at its sole expense, file, prosecute and maintain such Joint Invention, patent
applications and patents obtained thereon and the Selected Party shall provide
all reasonable assistance and authorizations to the other party to effectuate
such opportunity. In the event either party desires not to file a patent
application on a Joint Invention for the reasonable and good faith purpose of
protecting trade secrets in such Joint Invention, the parties shall mutually
agree on whether or not to file a patent application which agreement shall not
be unreasonably withheld.

6.0 REVISIONS TO SCHEDULES OR DELIVERABLES

6.1 Except as otherwise provided in Section 6.2, the parties acknowledge that
there may be a need to make reasonable changes to the specifications and/or the
milestone schedule for one or more of the deliverables being developed by a
party under a Statement of Work. If a party desires

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to propose a change to the specifications or milestone schedule, then such party
will give notice to the other party. The receiving party agrees to promptly
review the requested changes, and if the proposed change will have an impact on
the receiving party's obligations under such Statement of Work, the receiving
party will provide the initiating party with an estimate, in writing, of any
necessary and reasonable revisions to the Statement of Work (including without
limitation changes in specifications, milestone schedules, staffing and fees) in
order to accommodate the requested change. If agreed upon by both parties, the
revision will be reflected in an amended Statement of Work which will supersede
the relevant portions of the original Statement of Work. If the parties cannot
agree, the matter will be escalated under the provisions set forth in Section
10.1 for the parties to determine (a) whether the proposed changes and revisions
to the Statement of Work are reasonable and do not significantly alter the
receiving party's rights or obligations under the original Statement of Work and
(b) whether the receiving party is reasonably capable of performing the revised
Statement of Work given the circumstances of the parties and Project at the
time. If both (a) and (b) are determined to be true, then the parties shall
proceed with the amended Statement of Work. Notwithstanding any of the
foregoing, if achievement of a party's particular deliverable is dependent upon
performance and/or completion of tasks within the control of the other party or
a third party, the milestone schedule date for such deliverable (and other
affected deliverables) will be adjusted accordingly to reflect any changes in
the performance and/or completion of such tasks.

6.2 In the event either party determines that a particular delivery date in a
Statement of Work will likely be missed, such party shall promptly give notice
to the other party and set forth, in reasonable detail, the reason for the
anticipated delay, any corrective measures the notifying party intends to
undertake, and the estimated revised delivery date. Any such estimated revised
delivery date that is less than seven (7) calendar days beyond the original
delivery date shall be deemed to be accepted by the other party and the
Statement of Work shall be so amended. Any such estimated revised delivery date
that is more than seven (7) days beyond the original delivery date shall be
subject to the Revisions and Change Control procedures described in Section 6.
In the event that either party reasonably believes that repeated minor schedule
changes have significantly hindered the development project, the matter will be
escalated under the provisions set forth in Section 10.1.

7.0  DEVELOPMENT RESPONSIBILITIES

7.1 With respect to development obligations under any Statement of Work, each
party will perform the work in a professional manner and use commercially
reasonable efforts to:

         (i)  develop the deliverables, including related documentation, in
              accordance with the milestone tasks and schedule in the Statement
              of Work, and to design, complete, test, and deliver all
              deliverables by or before their associated delivery dates;

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         (ii)  provide labor, tools, material and facilities necessary and/or
               appropriate for the timely and satisfactory development of the
               deliverables;

         (iii) commit and utilize the resources and qualified personnel that are
               necessary and/or appropriate for the timely and satisfactory
               development of the deliverables;

         (iv)  cooperate with the other party and provide the other party
               reasonable access during normal business hours to personnel
               working in connection with the development performed under such
               Statement of Work;

         (v)   promptly inform the other party regarding any errors it may
               detect in the deliverables.

7.2 Notwithstanding the obligation set forth in Section 7.1(i), the parties
acknowledge and agree that the outcome and results of any work performed by
either party which is research in nature are not guaranteed or warranted in any
manner, whether with respect to merchantability, fitness for a particular
purpose or otherwise.

8.0  LOANED PROPERTY

8.1 In the event that one party loans the other party tools, equipment or
products, as specified in a Statement of Work, (collectively, the "Loaned
Property") solely for the other party's internal use in performing the
development obligations under such Statement of Work, the other party may use
the Loaned Property for development of deliverables and testing purposes, but
may not, without the prior written consent of the other party, further
distribute or use such Loaned Property for any other use, including use for
third party projects. Such party shall return all such Loaned Property
immediately to the owner upon the owner's request, or upon termination of this
Agreement or the relevant Statement of Work. All Loaned Property shall remain
the property of the owner. Each party understands and agrees that the Loaned
Property is provided AS IS and each party disclaims any liability, warranty,
express or implied, including the implied warranties of fitness for a particular
purpose, merchantability and non-infringement of third party rights for the
Loaned Property. The owner shall pay shipping costs for delivery of the Loaned
Property to the other party who shall return all Loaned Property with shipping
and insurance costs prepaid. The borrowing party shall maintain the Loaned
Property in a safe location and in good working order (with assistance and
support from the owner), shall keep the Loaned Property in confidence in
accordance with Section 12.0 below, and shall fully insure the Loaned Property.

9.0    ACCEPTANCE OF DELIVERABLES

9.1 Unless otherwise agreed to in a Statement of Work, the receiving party (the
"Receiving Party") shall have thirty (30) calendar days from the actual delivery
date of a deliverable, to examine and test each deliverable for errors (the
"Acceptance Period"). Within such Acceptance Period, the Receiving Party will
provide the delivering party (the "Delivering Party") with written

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acceptance of the deliverable or a notice of rejection and a statement of errors
which provides the Delivering Party with detailed information about the error as
reasonably determined by the Receiving Party. If the Receiving Party does not
provide the Delivering Party with a notice of rejection within the Acceptance
Period, the Deliverable shall be deemed to be accepted. In the event that the
Receiving Party fails to include a statement of errors with the notice of
rejection, or if the Delivering Party needs further detail on the statement of
errors, then the Delivering Party shall so notify the Receiving Party. Unless
otherwise agreed to in a Statement of Work, the Delivering Party shall use
commercially reasonable efforts to correct the errors set forth in the statement
of errors and redeliver the deliverable to the Receiving Party within thirty
(30) calendar days of the Delivering Party's receipt of the complete statement
of errors. In the case where the Delivering Party believes in good faith that
the correction for a particular error cannot be completed within thirty (30)
days from receipt of the statement of errors, the Delivering Party will provide
the Receiving Party, within two (2) days from receipt of the statement of
errors, with an interim plan which outlines the corrective steps to be taken by
the Delivering Party, the schedule for such corrective steps, and the projected
redelivery date based on such interim plan, for review and written acceptance by
the Receiving Party. In the event that the parties cannot agree on an interim
plan, then the matter will be escalated under the provisions set forth in
Section 10.1 ("Dispute Resolution"). The Receiving Party shall, within fifteen
(15) calendar days from receipt of the redelivered deliverable (or such other
time period described in the Statement of Work, if any) (the "Second Acceptance
Period"), provide the Delivering Party with written acceptance or another notice
of rejection and statement of errors. If the Receiving Party does not provide
the Delivering Party with a notice of rejection within the Second Acceptance
Period, the deliverable shall be deemed accepted. Should the redelivered
deliverable still contain errors on the second delivery as described above or
should the Delivering Party not redeliver the deliverable as set forth herein
(or as otherwise agreed to between the parties), the Receiving Party shall elect
one of the following remedies within fifteen (15) calendar days after receipt of
the second delivery: (i) to extend the correction period for a mutually
agreeable time, (ii) to revise the specifications and/or other acceptance
criteria in a mutually agreeable manner with respect to the particular errors,
or (iii) to terminate the development of the rejected Deliverable. In the case
of termination of the development of a rejected Deliverable, the Receiving Party
shall elect to either (a) retain the deliverable and any rights (including
license and ownership rights) it would otherwise have to the Intellectual
Property relating to such deliverable under Section 5 ("Intellectual Property
Ownership"), or the applicable Statement of Work, and pay to the Delivering
Party the fees specified therefore in the Statement of Work less a mutually
agreed upon equitable amount of fees (agreement not to be unreasonably witheld)
commensurate with the nature and degree of the specific error complained of, or
(b) to return the deliverable and not retain any license rights to the rejected
deliverable ; and in both cases of (a) and (b) above, to pay to the Delivering
Party no less than fifty percent (50%) of the fees attributable to the work
actually performed by the Delivering Party up to the date of termination of the
rejected deliverable (calculated on a loaded salary cost basis for the number of
days actually worked on such deliverable). In the spirit of Section 7.2 and
notwithstanding the foregoing sentence, the parties agree that there shall be no
reduction in the fees paid by one party to the other for work which is research
in nature.

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10.0 DISPUTE RESOLUTION

10.1 Except for claims of threatened or actual unauthorized disclosure or use of
Confidential Information or a violation or misuse of a party's intellectual
property rights, in the event of a dispute between the parties (the "Dispute")
the following escalation procedure shall be initiated. The party raising the
Dispute shall provide the other party with written notice stating in detail the
nature of the Dispute. Within five (5) business days of the date of such notice,
the signatories to the relevant Statement of Work (or the successor to that
person's related responsibilities) shall meet and negotiate in good faith to
resolve such Dispute. Each party agrees that use of this escalation procedure in
connection with termination of this Agreement or the relevant Statement of Work
may not be commenced until the expiration of the sixty (60) day cure period set
forth in Section 11.1, below ("Termination").

11.0 TERMINATION

11.1 In the case of a material breach of this Agreement or a Statement of Work
by a party in default, this Agreement or the relevant Statement of Work may, at
the election of the non-breaching party, be terminated at any time after giving
sixty (60) days written notice detailing the nature of the material breach, and
the other party fails to cure such material breach within such notice period.
The written notice will specify the material breach and state the intention to
terminate if the material breach is not cured. Notwithstanding the foregoing, if
the material breach relates solely to obligations established in a single
Statement of Work, the other party may terminate only that Statement of Work
upon notice as provided by this Section and not the entire Agreement.

11.2 The termination of this Agreement will not result in the termination of any
rights or licenses granted hereunder prior to the date of such termination.

11.3 All rights and obligations of the parties which by their nature would
continue beyond the termination cancellation, or expiration of this Agreement,
shall survive such termination, cancellation or expiration.

12.0 CONFIDENTIALITY

12.1 Each party shall use reasonable efforts, to the same extent it does with
respect to its own proprietary and confidential information of like nature, to
prevent the disclosure to third parties of any of the other party's proprietary
and confidential information which is furnished or disclosed under the scope of
this Agreement in written form when designated "CONFIDENTIAL" or "PROPRIETARY"
from being disclosed to third parties, or in oral or visual form when identified
as confidential or proprietary at the time of disclosure.

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12.2 Section 12.1 shall not apply, and the receiving party shall have no
obligation, with respect to any information which is or becomes public knowledge
through no wrongful act of the receiving party; is already known to the
receiving party without an obligation to keep in confidence; is necessarily
disclosed through a party's reasonable exercise of the licenses granted in this
Agreement (e.g., inherent disclosure by virtue of product sales); is rightfully
obtained by the receiving party from any third party without similar restriction
and without breach of any obligation owed to the disclosing party; is
independently developed by the receiving party without use of the confidential
information in such independent development; or is disclosed pursuant to a
lawful requirement or request of a governmental agency.

12.3 Notwithstanding the restrictions of Section 12.1, either party may provide
confidential information of the other to their third party consultants and
contractors having a need to know, provided, the receiving party binds those
consultants and contractors to terms at least as restrictive as those stated
herein, advises them of their obligations, and indemnifies the disclosing party
for any breach of the obligations.

12.4 The obligations of the parties under this Section 12.0 shall survive for a
period of five (5) years following the term or any termination of this
Agreement, or as otherwise specified in a Statement of Work for confidential
information covered by such Statement of Work.

13.0  WARRANTIES

13.1 Each party warrants that it has the right and power to grant all the rights
to Intellectual Property to be granted pursuant to this Agreement.

13.2 Each party warrants that it has the right and power to enter into this
Agreement and that there are no outstanding assignments, grants, licenses,
encumbrances, obligations or agreements which would prevent it from performing
under the terms of this Agreement.

13.3 The parties and their subsidiaries and affiliates make no representations
or warranties other than as set forth in Section 7.1, this Section 13.0 and
Section 16.1(c), whether expressly or impliedly. By way of example but not of
limitation, the parties and their affiliates make no warranties of
merchantability or fitness for any particular purpose, or that the use of any
information provided or products developed under this Agreement (or any
Statement of Work hereto) will not infringe any patent or other intellectual
property right of any third party.

14.0  LIMITATIONS OF LIABILITY

14.1 Except for a breach of the confidentiality obligations in Section 12.0 or
an infringement by one party of the other party's intellectual property rights,
the entire liability of each party, for

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any claim, loss, damage or expense of the other party, or of any other person or
entity, arising out of this Agreement or any Statement of Work hereto, or the
use of any information furnished hereunder, whether in an action for or arising
out of breach of contract or tort (including negligence, indemnity or strict
liability), shall be the amount of direct damages, including awarded counsel
fees and costs, not to exceed the fees actually paid for the work and
deliverables which gave rise to such claim, loss, damage or expense.

14.2 Except for a breach of the confidentiality obligations in Section 12.0 or
an infringement by one party of the other party's intellectual property rights
and notwithstanding any other provision of this Agreement, neither party shall
be liable for any incidental, indirect, or consequential damages or lost
profits, revenues or savings arising out of this Agreement or any Statement of
Work hereto, whether in an action for or arising out of breach of contract or
tort (including negligence, indemnity or strict liability).

14.3 Each party shall give the other prompt written notice of any claim brought
hereunder. Any arbitration, action or proceeding brought by either party against
the other must be brought within twenty-four (24) months after the party knows
or should have known of the claim.

14.4 This Section 14.0 shall survive failure of an exclusive or limited remedy.

15.0  EXPORT CONTROL

15.1 The parties acknowledge that any information furnished under this Agreement
is subject to U.S. export laws and regulations and that any use or transfer of
such information must be authorized under those regulations. Each party agrees
that it will not use or transmit information in violation of U.S. export
regulations. If requested by a party, the other party will execute written
assurances and other export-related documents as may be required for the former
party to comply with U.S. export regulations.

16.0  MISCELLANEOUS

16.1  Counterparts; Entire Agreement; Corporate Power

(a) This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement.

(b) This Agreement and any exhibits, schedules and appendices hereto contain the
entire agreement between the parties with respect to the subject matter hereof,
supersede all previous agreements, negotiations, discussions, writings,
understandings, commitments and conversations with respect to such subject
matter and there are no agreements or understandings between the parties other
than those set forth or referred to herein.

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                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions
<PAGE>   13
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(c) Each party represents as follows:

each has the requisite corporate or other power and authority and has taken all
corporate or other action necessary in order to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby; and

this Agreement has been duly executed and delivered by it and constitutes a
valid and binding agreement of it enforceable in accordance with the terms
thereof.

16.2  Governing Law

This Agreement shall be governed by and construed and interpreted in accordance
with the laws of the State of New York applicable to contracts to be performed
solely within the State of New York, as to all matters, including matters of
validity, construction, effect, enforceability, performance and remedies.

16.3  Assignability; Successors

(a) This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided, however, that
neither party may assign this Agreement, in whole or in part, or its respective
rights or obligations without the prior written consent of the other party
except as provided in subsection (b) below.

(b) By the provision of notice thereof in accordance with this Agreement, either
party may assign this Agreement and its rights and obligations hereunder, either
in whole or in part, to any entity that is, or that was immediately preceding
such assignment, a current subsidiary, business unit, division or other
Affiliate of such party, that in each case is the successor to any portion of
the business and assets of any such party that relates to this Agreement.

16.4  Relationship of the Parties; Third Party Beneficiaries

(a) Nothing in this Agreement shall be deemed or construed by the parties or any
third party as creating the relationship of principal and agent, partnership or
joint venture between the parties, it being understood and agreed that no
provision contained herein, and no act of the parties, shall be deemed to create
any relationship between the parties other than the relationship of independent
contractor.

(b) The provisions of this Agreement are solely for the benefit of the parties
and are not intended to confer upon any person except the parties any rights or
remedies hereunder, and there are no third party beneficiaries of this
Agreement, and this Agreement shall not provide any third person with any
remedy, claim, liability, reimbursement, claim of action or other right in
addition to those existing without reference to this Agreement.

                                       12
                    Lucent and Avaya Proprietary (Restricted)
                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions
<PAGE>   14
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16.5  Notices

All notices or other communications under this Agreement shall be in writing and
shall be deemed to be duly given when (a) delivered in person or (b) deposited
in the United States mail or private express mail, postage prepaid, addressed as
follows:

If to Lucent, to:          Lucent Technologies Inc.
                           Senior Contract Administrator
                           Lucent Technologies Inc.
                           150 Allen Road, Suite 2000,
                           P.O. Box 1995
                           Liberty Corner, New Jersey 07938, USA

with a copy to:            Lucent Technologies Inc.
                           600 Mountain Avenue
                           Murray Hill, New Jersey 07974
                           Attn: General Counsel, Bell Laboratories

If to Avaya  to:           Avaya Inc.
                           211 Mount Airy Road
                           Basking Ridge, New Jersey  07920
                           Attn: [Chief Technical Officer]

with a copy to:            Avaya Inc.
                           211 Mount Airy Road
                           Basking Ridge, NJ  07920
                           Attn: General Counsel

Any party may, by notice to the other party, change the address to which such
notices are to be given.

16.6  Severability

If any provision of this Agreement or the application thereof to any person or
circumstance is determined by a court of competent jurisdiction to be invalid,
void or unenforceable, the remaining provisions hereof, or the application of
such provision to persons or circumstances or in jurisdictions other than those
as to which it has been held invalid or unenforceable, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated hereby or thereby, as the case may be, is not affected in any
manner adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon such a suitable and equitable
provision to effect the original intent of the parties.

                                       13
                    Lucent and Avaya Proprietary (Restricted)
                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions
<PAGE>   15
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16.7  Force Majeure

Except with respect to payment obligations hereunder, no party shall be deemed
in default of this Agreement to the extent that any delay or failure in the
performance of its obligations under this Agreement results from any cause
beyond its reasonable control and without its fault or negligence, such as acts
of God, acts of civil or military authority, embargoes, epidemics, war, riots,
insurrections, fires, explosions, earthquakes, floods, unusually severe weather
conditions, labor problems or unavailability of parts or raw materials, or, in
the case of computer systems, any failure in electrical or air conditioning
equipment. In the event of any such excused delay, the time for performance
shall be extended for a period equal to the time lost by reason of the delay.

16.8  Publicity

Each of Lucent and Avaya shall consult with each other prior to issuing any
press releases or otherwise making public statements with respect to this
Agreement, the transactions contemplated hereby, or both. In addition, neither
party shall issue or release for publication any articles, advertising, or
publicity materials relating to any products or services made or furnished under
this Agreement or mentioning or implying the name, trademarks, logos, trade
name, service mark or other company identification of the other party or any of
its Affiliates or any of its personnel without the prior written consent of the
other party.

16.9  Headings

The article, section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

16.10  Waivers of Default

Waiver by any party of any default by the other party of any provision of this
Agreement shall not be deemed a waiver by the waiving party of any subsequent or
other default, nor shall it prejudice the rights of the other party.

16.11  Amendments

         No provision of this Agreement shall be deemed waived, amended,
supplemented or modified by any party, unless such waiver, amendment, supplement
or modification is in writing and signed by the authorized representative of the
party against whom it is sought to enforce such waiver, amendment, supplement or
modification.

                                       14
                    Lucent and Avaya Proprietary (Restricted)
                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions
<PAGE>   16
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16.12  Interpretation

Words in the singular shall be held to include the plural and vice versa and
words of one gender shall be held to include the other genders as the context
requires. The terms "hereof," "herein," and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole (including all of the schedules, exhibits and appendices hereto) and
not to any particular provision of this Agreement. Article, section, exhibit,
schedule and appendix references are to the articles, sections, exhibits,
schedules and appendices to this Agreement unless otherwise specified. The word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise requires or unless
otherwise specified. The word "or" shall not be exclusive. Unless expressly
stated to the contrary in this Agreement, all references to "the date hereof,"
"the date of this Agreement," "hereby" and "hereupon" and words of similar
import shall all be references to the Effective Date, regardless of any
amendment or restatement hereof.

                                       15
                    Lucent and Avaya Proprietary (Restricted)
                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions
<PAGE>   17
Development Project Agreement
NJS & DJT

  IN WITNESS WHEREOF, the parties have caused this Development Project Agreement
to be executed by their duly authorized representatives as of the Effective
Date.

LUCENT TECHNOLOGIES INC.                          AVAYA  INC.

By:___________________________                    By:___________________________

Name:                                             Name:

Title:                                            Title:

                                       16
                    Lucent and Avaya Proprietary (Restricted)
                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions
<PAGE>   18
Development Project Agreement
NJS & DJT

                                    EXHIBIT A

                            SAMPLE STATEMENT OF WORK

                                STATEMENT OF WORK
                                       FOR
                                    (PROJECT)

This Statement of Work is made and entered into on ________________ ("Effective
Date") by and between Lucent Technologies and Avaya Inc. pursuant to Section 3.0
of the Development Project Arrangement entered into between the parties as of
___________________ ("DPA").

Upon mutual agreement to the substance of this Statement of Work and execution
of it by authorized representatives of each party, this Statement of Work is to
be attached to and made a part of the Development Project Agreement. This
Statement of Work will be governed by and construed in accordance with the terms
of the DPA, and to the extent there is any inconsistency between the terms of
this Statement of Work and those of the DPA, the terms of DPA shall take
precedence and control the work tasks identified herein. Notwithstanding the
foregoing sentence, to the extent that any terms and conditions of the DPA are
to be modified or superseded by the terms and conditions of this Statement of
Work, such terms shall be specifically identified in Section 11.0 hereof and
shall require the signature of a D-level (or its equivelant) manager of each
party whose signature, and in the event any terms and conditions relating to
intellectual property ownership or licensing are to be modified, superseded or
added to, the same will require the signature of the president (or its
equivalent) of Lucent's and Avaya's intellectual property business.

================================================================================

1.0      Project Name:
2.0      Project Description:
2.1      Scope:
2.2      Expected Outcome:
2.3      Methodology: (Nature of collaboration between Lucentand Avaya)
3.0      Owners:

                                       17
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                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions
<PAGE>   19
Development Project Agreement
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<TABLE>
<CAPTION>
      NAME                   ORGANIZATION             PHONE #                FAX #                  EMAIL ADDRESS
<S>                         <C>                      <C>                     <C>                    <C>
      --------------------- ------------------------ ----------------------- ---------------------- -----------------------------
      --------------------- ------------------------ ----------------------- ---------------------- -----------------------------
</TABLE>

4.0      Start Date of Project:
5.0      Termination Date of Project:
6.0      Deliverables: (i.e. prototypes, technical information, documentation,
         training, etc.)
6.1      Lucent Responsibilities:
6.2      Avaya Responsibilities:
7.0      Milestones:
7.1      Lucent's current milestone expectations:
7.2      Avaya's current milestone expectations:
8.0      Staffing:
8.1      Lucent and Avaya will staff this effort with the following people at
         the following level:

<TABLE>
<CAPTION>
      NAME                   ORGANIZATION             PHONE #/FAX #          EMAIL ADDRESS          TIME COMMITMENT
<S>                         <C>                      <C>                     <C>                    <C>
      --------------------- ------------------------ ----------------------- ---------------------- -----------------------------
      --------------------- ------------------------ ----------------------- ---------------------- -----------------------------
</TABLE>

8.2      Lucent and Avaya personnel are subject to change based upon
         availability, provided that a suitable replacement person capable of
         performing the same work can be found.
9.0      Funding:
9.1      Lucent shall pay $___________ to Avaya for _____ (#) of Avaya Technical
         Headcount.
9.2      Avaya shall pay $___________ to Lucent for _____ (#) of Lucent
         Technical Headcount.
10.0     Miscellaneous Terms NOT Modifying or Superseding the Development
         Project Agreement:
11.0     Terms and conditions modifying or superseding the Development Project
         Agreement:

[Note: Such terms are only effective upon signature by a D-level (or its
equivalent) manager of each party, and in the event any terms and conditions
relating to intellectual property ownership

                                       18
                    Lucent and Avaya Proprietary (Restricted)
                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions
<PAGE>   20
Development Project Agreement
NJS & DJT

or licensing are to be modified, superseded or added to, the same will require
the signature of the president (or its equivalent) of Lucent's and Avaya's
intellectual property business]

IN WITNESS WHEREOF, the parties have caused this Statement of Work to be
executed by their duly authorized representatives:

----------------------     --------          ----------------------     --------
Name                         date            Name                         date
Bell Labs Director                           Avaya (title)

--------------------------------             --------------------------------
Signature                                    Signature

                                       19
                    Lucent and Avaya Proprietary (Restricted)
                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions
<PAGE>   21
Development Project Agreement
NJS & DJT

                                    EXHIBIT B

                  COMPLETED AND CURRENT DEVELOPMENT ACTIVITIES

                                       20
                    Lucent and Avaya Proprietary (Restricted)
                    Solely for Persons Having a Need to Know
                      Use Pursuant to Company Instructions<PAGE>   1

                                                                   EXHIBIT 10.17

-------------------------------------------------------------------------------

                 PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

                                  BY AND AMONG

                                   AVAYA INC.

                                       AND

                   THE PURCHASERS LISTED ON SCHEDULE 1 HERETO

                               ------------------

                                   Dated as of

                                 August 8, 2000

                               ------------------

-------------------------------------------------------------------------------

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            Page

<S>                                                                                                         <C>
                                    ARTICLE I

                        Definitions ....................................................................     2

                                   ARTICLE II

                                Sale and Purchase

         SECTION 2.01.  Agreement to Sell and to Purchase;
                           Purchase Price ..............................................................     10
         SECTION 2.02.  Initial Conditions..............................................................     11
         SECTION 2.03.  Escrow Funding..................................................................     12
         SECTION 2.04.  Release of Escrowed Funds and
                        Securities......................................................................     13

                                   ARTICLE III

                         Representations and Warranties
                                 of the Company

         SECTION 3.01.  Organization and Standing.......................................................     13
         SECTION 3.02.  Capital Stock...................................................................     14
         SECTION 3.03.  Authorization; Enforceability...................................................     15
         SECTION 3.04.  No Violation; Consents..........................................................     16
         SECTION 3.05.  Form 10; Financial Statements...................................................     17
         SECTION 3.06.  Material Adverse Change.........................................................     17
         SECTION 3.07.  Assets..........................................................................     17
         SECTION 3.08.  Intellectual Property...........................................................     18
         SECTION 3.09.  No Undisclosed Material Liabilities.............................................     18
         SECTION 3.10.  Compliance with Laws............................................................     19
         SECTION 3.11.  No Litigation...................................................................     19
         SECTION 3.12.  Compliance with Constituent Documents...........................................     19
         SECTION 3.13.  Environmental Matters...........................................................     20
         SECTION 3.14.  Interim Changes.................................................................     21
         SECTION 3.15.  The Contribution and Distribution...............................................     21

                                   ARTICLE IV

                Representations and Warranties of the Purchasers

         SECTION 4.01.  Organization; Authorization;
                           Enforceability...............................................................     22
         SECTION 4.02.  Private Placement...............................................................     22
         SECTION 4.03.  No Violation; Consents..........................................................     23
</TABLE>

                                        i

<PAGE>   3

<TABLE>
<S>                                                                                                          <C>
         SECTION 4.04.  No Litigation...................................................................     24
         SECTION 4.05.  Financing.......................................................................     24
         SECTION 4.06.  Ownership of Securities.........................................................     25
         SECTION 4.07.  Future Acquisitions.............................................................     25

                                    ARTICLE V

                            Covenants of the Company

         SECTION 5.01.  Access to Books and Records.....................................................     25
         SECTION 5.02.  Compliance with Conditions;
                           Commercially Reasonable Efforts .............................................     26
         SECTION 5.03.  HSR Act Notification............................................................     26
         SECTION 5.04.  Consents and Approvals..........................................................     26
         SECTION 5.05.  Filing of Certificate of Designation............................................     27
         SECTION 5.06.  Reservation of Shares...........................................................     27
         SECTION 5.07.  Listing of Shares...............................................................     27
         SECTION 5.08.  Use of Proceeds.................................................................     27
         SECTION 5.09.  Warburg Group Director and Observer.............................................     27
         SECTION 5.10.  Registration Rights.............................................................     28
         SECTION 5.11.  Preemptive Rights...............................................................     29
         SECTION 5.12.  Escrow Agreement................................................................     33

                                   ARTICLE VI

                           Covenants of the Purchasers

         SECTION 6.01.  Compliance with Conditions;
                           Commercially Reasonable Efforts .............................................     33
         SECTION 6.02.  HSR Act Notification............................................................     33
         SECTION 6.03.  Consents and Approvals..........................................................     34
         SECTION 6.04.  Restrictions on Transfer........................................................     34
         SECTION 6.05.  Standstill......................................................................     34
         SECTION 6.06.  Confidentiality; Information....................................................     36
         SECTION 6.07.  Compliance with Section 355.....................................................     37
         SECTION 6.08.  IPO Lock-up.....................................................................     37
         SECTION 6.09.  Prohibition on Solicitation and Hiring..........................................     38
         SECTION 6.10.  Escrow Agreement................................................................     38

                                   ARTICLE VII

                         Conditions Precedent to Initial
                           Conditions Date and Funding

SECTION 7.01.  Conditions to the Company's
                    Obligations in Respect of the Initial
                    Conditions ..........................................................................    39
</TABLE>

                                       ii
<PAGE>   4

<TABLE>
<S>                                                                                                          <C>
         SECTION 7.02.  Conditions to Each Purchasers'
                          Obligations in Respect of the Initial
                          Conditions .....................................................................   39
         SECTION 7.03.  Conditions to Each Party's
                          Obligations In Respect of the
                          Funding ........................................................................   40
         SECTION 7.04.  Conditions to the Company's
                          Obligations in Respect of the
                          Funding ........................................................................   41
         SECTION 7.05.  Conditions to Each Purchaser's
                          Obligations in Respect of the
                          Funding ........................................................................   41
         SECTION 7.06.  Conditions to Each Party's
                          Obligations In Respect of the
                          Release of Escrowed Funds and
                          Securities .....................................................................   41

                                  ARTICLE VIII

                                  Miscellaneous

         SECTION 8.01.  Survival .........................................................................   42
         SECTION 8.02.  Legends ..........................................................................   42
         SECTION 8.03.  Notices ..........................................................................   43
         SECTION 8.04.  Termination ......................................................................   44
         SECTION 8.05.  GOVERNING LAW ....................................................................   45
         SECTION 8.06.  WAIVER OF JURY TRIAL .............................................................   45
         SECTION 8.07.  Attorney Fees ....................................................................   45
         SECTION 8.08.  Entire Agreement .................................................................   45
         SECTION 8.09.  Modifications and Amendments .....................................................   46
         SECTION 8.10.  Waivers and Extensions ...........................................................   46
         SECTION 8.11.  Titles and Headings; Rules of
                           Construction ..................................................................   46
         SECTION 8.12.  Exhibits and Schedules ...........................................................   46
         SECTION 8.13.  Expenses; Brokers ................................................................   47
         SECTION 8.14.  Press Releases and Public
                           Announcements .................................................................   47
         SECTION 8.15.  Assignment; No Third Party
                           Beneficiaries .................................................................   47
         SECTION 8.16.  Severability .....................................................................   48
         SECTION 8.17.  Counterparts .....................................................................   48
</TABLE>

Schedules

Schedule 1        List of Purchasers
Schedule 3.01     Organization and Standing
Schedule 3.02     Capital Stock
Schedule 3.04     No Violation; Consents
Schedule 3.05     Form 10; Financial Statements

                                       iii
<PAGE>   5

Schedule 3.07     Assets
Schedule 3.08     Intellectual Property
Schedule 3.09     Undisclosed Liabilities
Schedule 3.11     No Litigation
Schedule 3.13     Environmental Matters
Schedule 3.14     Interim Changes
Schedule 3.15     The Contribution and Distribution
Schedule 5.01     Access to Books and Records

Exhibits

Exhibit A         Form of Certificate of Designation
Exhibit B         Form of Series A and Series B Warrant
                    Certificate
Exhibit C         Form of Cravath, Swaine & Moore Opinion
Exhibit D         Registration Rights Provisions

                                       iv
<PAGE>   6
                                                                               1

                           PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT dated
                  as of August 8, 2000, by and among Avaya Inc., a Delaware
                  corporation (the "Company"), and each of the purchasers listed
                  on Schedule 1 hereto (individually, a "Purchaser" and
                  collectively, the "Purchasers").

                  WHEREAS, Lucent Technologies Inc., a Delaware corporation
("Lucent"), and the Company expect to enter into a Contribution and Distribution
Agreement (as defined herein) whereby subject to the terms and conditions
thereof, Lucent will contribute (the "Contribution") to the Company
substantially all the assets and liabilities of its Enterprise Communications
Business (as defined herein) and, following the Contribution, distribute (the
"Distribution"), subject to the terms and conditions of the Contribution and
Distribution Agreement, to Lucent's stockholders all the shares of the Company's
Common Stock;

                  WHEREAS, the Company proposes, subject to the terms and
conditions set forth herein, to issue and sell to the Purchasers 4,000,000
shares (the "Preferred Shares") of its 6-1/2% Series B Convertible Participating
Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock"),
having an initial liquidation preference equal to $100 per share;

                  WHEREAS, the Company proposes, subject to the terms and
conditions set forth herein, to issue and sell to the Purchasers the Series A
Warrants (as defined herein) and the Series B Warrants (as defined herein);

                  WHEREAS, the Purchasers desire, subject to the terms and
conditions set forth herein, to purchase the Securities (as defined herein) from
the Company; and

                  WHEREAS, the Preferred Shares, the Series A Warrants and the
Series B Warrants shall not be issued by the Company or purchased by the
Purchasers unless the Distribution is consummated.
<PAGE>   7
                                                                               2

                  NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows.

                                    ARTICLE I

                                   Definitions

                  (a) As used in this Agreement, the following terms shall have
the following meanings:

                  "Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.

                  "Applicable Law" means (a) any United States Federal, state,
local or foreign law, statute, rule, regulation, order, writ, injunction,
judgment, decree or permit of any Governmental Authority and (b) any rule or
listing requirement of any national stock exchange or Commission recognized
trading market on which securities issued by the Company or any of the
Subsidiaries are listed or quoted.

                  "Business Day" means any day other than a Saturday, a Sunday,
or a day when banks in The City of New York are authorized by Applicable Law to
be closed.

                  "Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock and (ii) with respect to any
other Person, any and all partnership or other equity interests of such Person.

                  "Certificate of Designation" means the Certificate of
Designation of the Powers, Preferences and Relative, Participating, Optional and
Other Special Rights and Qualifications, Limitations and Restrictions thereof
relating to the Series B Preferred Stock, in the form attached hereto as Exhibit
A.

                  "Commission" means the United States Securities and Exchange
Commission.
<PAGE>   8
                                                                               3

                  "Common Stock" means the Common Stock of the Company, par
value $0.01 per share, and, unless the context otherwise requires, includes the
associated Series A Junior Participating Preferred Stock purchase rights
issuable in respect of such shares pursuant to the Rights Agreement.

                  "Common-Stock-Equivalent Security" means securities of the
Company more than 50% of the principal amount, liquidation preference or stated
value of which is convertible into or exchangeable or exercisable for, shares of
Common Stock. Any offerings of units of multiple securities, one or more of
which securities is Common Stock or a Common-Stock-Equivalent Security, shall
not constitute an offering of Common Stock-Equivalent Securities unless more
than 50% of the aggregate principal amount, liquidation preference and/or stated
value of all securities comprising such unit is attributable to Common Stock or
is convertible into or exchangeable or exercisable for, shares of Common Stock.

                  "Confidentiality Agreement" means the Confidentiality
Agreement dated June 1, 2000 between Lucent Technologies Inc. and Warburg.

                  "Contract" means any contract, lease, loan agreement,
mortgage, security agreement, trust indenture, note, bond, or other agreement
(whether written or oral) or instrument.

                  "Contribution and Distribution Agreement" means the
Contribution and Distribution Agreement between the Company and Lucent to be
entered into in connection with the Distribution, substantially in the form
included in the Distribution Documentation Annex.

                  "Conversion Shares" means the shares of Common Stock issuable
upon the conversion of the Series B Preferred Stock in accordance with the terms
of the Certificate of Designation.

                  "Development Project Agreement" means the Development Project
Agreement between the Company and Lucent to be entered into in connection with
the Distribution, substantially in the form included in the Distribution
Documentation Annex.

                  "Distribution Agreements" means the Contribution and
Distribution Agreement, the Interim Services and Systems Replication Agreement,
the Employee Benefits Agreement, the Tax Sharing Agreement, the Patent and
Technology License Agreement, the Trademark License Agreement, the Technology
<PAGE>   9
                                                                               4

Assignment and Joint Ownership Agreement and the Development Project Agreement.

                  "Distribution Documentation Annex" means the Annex delivered
to the Purchasers as of the date hereof containing the Draft Form 10 and the
Distribution Agreements.

                  "Draft Form 10" means the registration statement on Form 10
filed by the Company with the Commission in connection with the Distribution
(and all exhibits and schedules thereto and documents incorporated by reference
therein), in the form included in the Distribution Documentation Annex.

                  "Effective Date" means the date the Form 10 is first declared
effective by the Commission.

                  "Employee Benefits Agreement" means the Employee Benefits
Agreement between the Company and Lucent to be entered into in connection with
the Contribution and the Distribution, substantially in the form included in the
Distribution Documentation Annex.

                  "Enterprise Communications Business" means the business of
providing enterprise voice communications systems and software, communications
applications, professional services for customer and enterprise relationship
management, multiservice networking products and product installation services,
maintenance and other value-added services in respect of the foregoing and the
manufacture of structured cabling systems and electronic cabinets, to be
conducted by the Company and its Subsidiaries following the Contribution, all as
described in the Draft Form 10.

                  "Equity Documents" means this Agreement, the Escrow Agreement,
the Warrants and the Certificate of Designation.

                  "Escrow Agent" means the party identified as such in the
Escrow Agreement.

                  "Escrow Agreement" means the escrow agreement among the
Purchasers, the Company and the Escrow Agent to be entered into in connection
with the Issuance.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
from time to time amended, and the rules and regulations of the Commission
promulgated thereunder.
<PAGE>   10
                                                                               5

                  "Form 10" means the registration statement on Form 10 filed by
the Company with the Commission in connection with the Distribution (and all
exhibits and schedules thereto and documents incorporated by reference therein),
as amended through the Effective Date.

                  "GAAP" means United States generally accepted accounting
principles, consistently applied.

                  "Governmental Authority" means (i) any foreign, Federal, state
or local court or governmental or regulatory agency or authority, (ii) any
arbitration board, tribunal or mediator and (iii) any national stock exchange or
Commission recognized trading market on which securities issued by the Company
or any of the Subsidiaries are listed or quoted.

                  "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and applicable rules and regulations and any similar
state acts.

                  "Intellectual Property" means any patent (including all
reissues, divisions, continuations and extensions thereof), patent application,
patent right, trademark, trademark registration, trademark application,
servicemark, trade name, business name, brand name, copyright, copyright
registration, design, design registration, software, firmware, trade secret,
license, customer list, proprietary technology, know-how, invention, discovery,
improvement, process or formula or any right to any of the foregoing, and all
other forms of intellectual property.

                  "Interim Services and Systems Replication Agreement" means the
Interim Services and Systems Replication Agreement between the Company and
Lucent to be entered into in connection with the Contribution and the
Distribution, substantially in the form included in the Distribution
Documentation Annex.

                  "Lien" means any mortgage, pledge, lien, security interest,
claim, restriction, charge or encumbrance of any kind.

                  "Material Adverse Effect" means a material adverse effect on
the business, condition (financial or otherwise), operations, performance or
properties of the Enterprise Communications Business, taken as a whole.

                  "Patent and Technology Agreement" means the Patent and
Technology Agreement between the Company and Lucent to be entered into in
connection with the Distribution,
<PAGE>   11
                                                                               6

substantially in the form included in the Distribution Documentation Annex.

                  "Permitted Liens" means (i) mechanics', carriers', workmen's,
repairmen's or other like Liens arising or incurred in the ordinary course of
business, Liens arising under original purchase price conditional sales
contracts and equipment leases with third parties entered into in the ordinary
course of business and liens for taxes that are not due and payable or that may
thereafter be paid without penalty, (ii) Liens that secure obligations that are
reflected as liabilities in the Company Financial Statements or Liens the
existence of which is referred to in the notes to the Company Financial
Statements, (iii) other leases, subleases and similar agreements, imperfections
of title or easements, covenants, rights-of-way and encumbrances, if any, that,
individually or in the aggregate, do not materially impair, and could not
reasonably be expected materially to impair, the continued use and operation of
the assets to which they relate in the conduct of the Enterprise Communications
Business as presently conducted, (iv) (A) zoning, building and other similar
legal restrictions, (B) Liens that have been placed by any developer, landlord
or other third party on property over which the Company or any Subsidiary has
easement rights or on any leased property and subordination or similar
agreements relating thereto and (C) unrecorded easements, covenants,
rights-of-way and other similar restrictions and (v) other Liens that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

                  "Permitted Transferee" means, with respect to any Purchaser or
any Permitted Transferee of any Purchaser, any member of the Warburg Group,
Warburg or any subsidiary of Warburg (but excluding any portfolio company of any
member of the Warburg Group); provided, however, that each Permitted Transferee
must agree in writing to be bound by the terms of this Agreement to the same
extent, and in the same manner, as the transferring Purchaser prior to the
transfer of any Preferred Shares, Warrants or Common Stock to such Permitted
Transferee; and provided further, however, that the transfer of Preferred
Shares, Warrants or Common Stock to such Permitted Transferee is in compliance
with all applicable securities laws.

                  "Person" means any individual, partnership, corporation,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or agency or political
subdivision thereof, or other entity.
<PAGE>   12
                                                                               7

                  "Private Letter Ruling" means the private letter ruling dated
August 3, 2000, from the Internal Revenue Service that the Distribution
qualifies as a tax-free distribution under Section 355.

                  "Purchasers' Ownership Interest" means, as of any date, a
percentage equal to the quotient of (x) the sum of (i) the aggregate number of
shares of Common Stock then issuable upon conversion in accordance with the
terms of the Certificate of Designation of the aggregate number of shares of
Series B Preferred Stock owned as of such date by the Purchasers and the
Permitted Transferees and (ii) the aggregate number of shares of Common Stock
owned as of such date by the Purchasers and the Permitted Transferees by (y) the
number of shares of Common Stock as of such date determined in accordance with
GAAP utilizing the treasury stock method.

                  A "Qualifying Ownership Interest" shall be deemed to exist at
any time the Purchasers and the Permitted Transferees own a number of shares of
Series B Preferred Stock and shares of Common Stock that in the aggregate
represent (assuming conversion of any such shares of Series B Preferred Stock
into shares of Common Stock in accordance with the terms of the Certificate of
Designation) not less than 50% of the number of shares of Common Stock that
would be issuable at such time upon conversion of all the Preferred Shares
initially acquired by the Purchasers pursuant to this Agreement (without regard
to whether such Preferred Shares are then outstanding).

                  "Qualified Equity Offering" means a public or nonpublic
offering of Common Stock or a Common Stock-Equivalent Security (collectively,
"New Stock") solely for cash in a capital-raising transaction; provided,
however, that none of the following offerings shall constitute a Qualified
Equity Offering: (i) any offering pursuant to any stock purchase plan, stock
ownership plan, stock option plan or other similar plan where stock is being
issued or offered to a trust, other entity or otherwise, for the benefit of any
employees, officers, consultants or directors of the Company, (ii) any offering
made as part of or in connection with any non-capital-raising transaction
(including, without limitation, a partnership or joint venture or strategic
alliance or investment) and (iii) any offering that would result in an
antidilution adjustment to the Series B Preferred Stock pursuant to Section 7 of
the Certificate of Designation.

                  "Representatives" means, collectively, with respect to any
Person, such Person's directors, partners,
<PAGE>   13
                                                                               8

officers, employees, financial advisors, lenders, accountants, attorneys,
agents, equity investors, controlled Affiliates and controlling persons of such
Person or its controlled Affiliates.

                  "Rights Agreement" means the Rights Agreement to be dated as
of September 30, 2000 between the Company and The Bank of New York, as Rights
Agent.

                  "Section 355" means Section 355 of the Internal Revenue Code
of 1986, as amended.

                  "Securities" means the Preferred Shares and the Warrants.

                  "Securities Act" means the Securities Act of 1933, as from
time to time amended, and the rules and regulations of the Commission
promulgated thereunder.

                  "Series A Warrants" means the four-year warrants to purchase
shares of Common Stock representing 2.0% of the Total Shares Outstanding (as
defined in the Series A Warrant) substantially in the form attached hereto as
Exhibit B.

                  "Series B Preferred Stock" has the meaning set forth in the
second recital to this Agreement. The Series B Preferred Stock has the
designation, powers, preferences and rights, and qualifications, limitations and
restrictions thereof set forth in the Certificate of Designation.

                  "Series B Warrants" means the five-year warrants to purchase
shares of Common Stock representing 1.6% of the Total Shares Outstanding (as
defined in the Series B Warrant) substantially in the form attached hereto as
Exhibit B.

                  "subsidiary" means, with respect to any Person (i) a
corporation a majority of whose capital stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by a subsidiary of such Person, or by such Person and one or
more subsidiaries of such Person, (ii) a partnership in which such Person or a
subsidiary of such Person is, at the date of determination, a general partner of
such partnership and has the power to direct the policies and management of such
partnership, or (iii) any other Person (other than a corporation) in which such
Person, a subsidiary of such Person or such Person and one or more subsidiaries
of such Person, directly or indirectly, at the date of determination thereof,
has (A) at least a majority
<PAGE>   14
                                                                               9

ownership interest or (B) the power to elect or direct the election of a
majority of the directors or other governing body of such Person.

                  "Subsidiary" means a subsidiary of the Company, including
subsidiaries of Lucent that will be transferred to the Company in connection
with the Contribution.

                  "Tax Sharing Agreement" means the Tax Sharing Agreement
between the Company and Lucent to be entered into in connection with the
Contribution and the Distribution, substantially in the form included in the
Distribution Documentation Annex.

                  "Technology Assignment and Joint Ownership Agreement" means
the Technology Assignment and Joint Ownership Agreement between the Company and
Lucent to be entered into in connection with the Distribution, substantially in
the form included in the Distribution
Documentation Annex.

                  "Trademark License Agreement" means the Trademark License
Agreement between the Company and Lucent to be entered into in connection with
the Distribution, substantially in the form included in the Distribution
Documentation Annex.

                  "Transactions" means the transactions contemplated by the
Equity Documents.

                  "Warburg" means the general partner of Warburg, Pincus Equity
Partners, L.P.

                  "Warburg Group" means, collectively, any investment fund that
is an Affiliate of Warburg.

                  "Warrants" means the Series A Warrants and the Series B
Warrants.

                  "Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants in accordance with the terms of the applicable
Warrants.

                  (b) As used in this Agreement, the following terms shall have
the meanings given thereto in the Sections set forth opposite such terms:
<PAGE>   15
                                                                              10

<TABLE>
<CAPTION>
Term                                                       Section
----                                                       -------
<S>                                                        <C>
Closing                                                    2.04
Company                                                    Preamble
Company Financial Statements                               3.05(c)
Contribution                                               Recitals
Contribution and Distribution Agreement                    Recitals
DGCL                                                       3.02(d)
Distribution                                               Recitals
Environmental Law                                          3.13(b)
Funding                                                    2.03
Funding Date                                               2.03
Hazardous Substance                                        3.13(c)
Initial Conditions                                         2.02
Initial Conditions Date                                    2.02
Issuance                                                   2.01
Lucent                                                     Recitals
New Stock                                                  5.11(a)
Notices                                                    8.03
Preferred Shares                                           Recitals
Purchaser; Purchasers                                      Preamble
Purchase Price                                             2.01
Qualifying Ownership Interest                              5.11(a)
Registrable Securities                                     5.10
Registration Rights Provisions                             5.10
Registration Statement                                     5.10
Warburg Group Director                                     5.09(a)
Warburg Group Observer                                     5.09(a)
</TABLE>

                                   ARTICLE II

                                Sale and Purchase

                  SECTION 2.01. Agreement to Sell and to Purchase; Purchase
Price. Immediately following the consummation of the Distribution and upon the
terms and subject to the conditions set forth in this Agreement and the Escrow
Agreement, the Company shall issue and sell (in accordance with the terms of the
Escrow Agreement) to each Purchaser, and each Purchaser, severally and not
jointly, shall purchase and accept (in accordance with the terms of the Escrow
Agreement) from the Company, such number of Preferred Shares and fractional
interests in the Warrants as is
<PAGE>   16
                                                                              11

indicated on Schedule 1 hereto (the "Issuance"), for an aggregate purchase
price, payable (in accordance with the terms of the Escrow Agreement) by wire
transfer of immediately available funds to a bank account or bank accounts
designated by the Company, equal to $100.00 for one Preferred Share, and the
corresponding fractional interest in the Series A Warrants and the Series B
Warrants (the "Purchase Price"). The aggregate purchase price for all the
Preferred Shares and Warrants to be issued and sold to all the Purchasers is
$400.0 million. The Company shall not be required to issue and sell Preferred
Shares and Warrants to any Purchaser unless the conditions set forth in Article
VII to the issuance and sale to all Purchasers shall have been satisfied or
waived.

                  SECTION 2.02. Initial Conditions. The initial conditions in
respect of the Issuance (the "Initial Conditions") shall be satisfied on the
Effective Date, which is expected to be September 1, 2000, or at such other time
and date as the parties hereto shall agree in writing (such date and time, the
"Initial Conditions Date"), at the offices of Cravath, Swaine & Moore, located
at 825 Eighth Avenue, New York, New York 10019 or at such other place as the
parties hereto shall agree in writing.

                  On the Initial Conditions Date:

                  (a)  Each Purchaser shall deliver to the Company:

                  (i) the officer's certificate of such Purchaser contemplated
                  by Section 7.01(c); and

                  (ii) a copy of the Escrow Agreement executed by such
                  Purchaser.

                  (b) The Company shall deliver to each Purchaser:

                  (i) an opinion of Cravath, Swaine & Moore, dated the Initial
                  Conditions Date in the form attached hereto as Exhibit D;

                  (ii) the officer's certificate of the Company contemplated by
                  Section 7.02(e); and

                  (iii) a copy of the Escrow Agreement executed by the Company.

                  (c) The Escrow Agent shall deliver to the Company and each
                  Purchaser a copy of the Escrow Agreement executed by the
                  Escrow Agent.
<PAGE>   17
                                                                              12

                  SECTION 2.03. Escrow Funding. The funding into escrow of the
Issuance (the "Funding") shall take place on the date of the Distribution or, if
such date is not a Business Day, on the Business Day immediately preceding the
date of the Distribution, or at such other time and date as the parties hereto
shall agree in writing (such date and time, the "Funding Date"), at the offices
of Cravath, Swaine & Moore, located at 825 Eighth Avenue, New York, New York
10019 or at such other place as the parties hereto shall agree in writing. The
Funding Date currently is expected to be September 29, 2000.

                  At the Funding:

                  (a)  Each Purchaser shall deliver:

                  (i) to the Escrow Agent, an amount equal to the aggregate
                  Purchase Price of the Preferred Shares and fractional interest
                  in the Warrants being purchased by such Purchaser pursuant to
                  Section 2.01 via wire transfer of immediately available funds
                  to such bank account as the Escrow Agent shall designate not
                  later than two Business Days prior to the Funding Date; and

                  (ii) to the Company, the officer's certificate of such
                  Purchaser contemplated by Section 7.04.

                  (b) The Company shall deliver:

                  (i) to the Escrow Agent, certificates representing the
                  Preferred Shares and fractional interest in the Warrants being
                  purchased by each Purchaser pursuant to Section 2.01, which
                  shall be in definitive form and registered in the name of such
                  Purchaser or its nominee or designee and in such denominations
                  as such Purchaser shall request not later than two Business
                  Days prior to the Funding Date; and

                  (ii) to each Purchaser, the officer's certificate of the
                  Company contemplated by Section 7.05.

                  SECTION 2.04. Release of Escrowed Funds and Securities. The
Escrow Agent shall release the escrowed funds and securities in accordance with
the terms of the Escrow Agreement, and the closing of the issuance and sale of
the Preferred Shares and the Warrants (the "Closing") shall occur immediately
following the satisfaction of the condition set forth in Section 7.06; provided,
however, that if such condition has not been satisfied prior to the second
<PAGE>   18
                                                                              13

Business Day immediately succeeding the Funding Date, the escrowed funds and
securities, plus any earnings thereon (as specified in the Escrow Agreement),
shall be returned to the parties who placed them in escrow on the third Business
Day immediately succeeding the Funding Date.

                                   ARTICLE III

                         Representations and Warranties
                                 of the Company

                  The Company hereby represents and warrants to each Purchaser
on the date hereof and on and as of the Initial Conditions Date and, in the case
of Sections 3.02, 3.14 and 3.15, on and as of the Funding Date as follows:

                  SECTION 3.01. Organization and Standing. (a) The Company is
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted
and as proposed to be conducted immediately following the Distribution. The
Company has furnished to the Purchasers true and correct copies of the Company's
certificate of incorporation and by-laws as amended through the date of this
Agreement and true and correct copies of the Company's certificate of
incorporation and by-laws in substantially the form as will be in effect as of
the Distribution (exclusive of the certificate of designation to be filed in
connection with the Rights Agreement).

                  (b) Each direct and indirect material Subsidiary will, at the
time of the Distribution, be duly incorporated, validly existing and, where
applicable, in good standing under the laws of its jurisdiction of incorporation
and have all requisite power and authority to own its properties and assets and
to carry on its business as it is proposed to be conducted immediately following
the Distribution, and each such material Subsidiary will be qualified to
transact business, and will be in good standing, in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary; except in all cases as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as set forth in Schedule 3.01, (i) all of the outstanding
shares of capital stock of each such material Subsidiary are validly issued,
fully paid, nonassessable and free of preemptive rights and upon consummation of
the Contribution will be owned directly
<PAGE>   19
                                                                              14

or indirectly by the Company and (ii) there are no subscriptions, options,
warrants, rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting or transfer of any shares of capital stock of any such material
Subsidiary, including any right of conversion or exchange under any outstanding
security, instrument or agreement.

                  SECTION 3.02. Capital Stock. (a) The authorized Capital Stock
of the Company immediately following the Distribution will consist solely of (i)
1,500,000,000 shares of Common Stock, of which a number of shares equal to a
number calculated based on the number of shares of Lucent common stock
outstanding on the record date established by Lucent for the Distribution and
the distribution ratio for the Distribution which shall be not less than one
share of Common Stock for every 10 shares of Lucent common stock and not more
than one share of Common Stock for every 20 shares of Lucent common stock will
be issued and outstanding immediately following the Distribution, and (ii)
200,000,000 shares of preferred stock, par value $1.00 per share, of which,
prior to the issuance of the Preferred Shares on the Funding Date as
contemplated by this Agreement, no more than 15,000,000 shares will have been
designated as Series A Junior Participating Preferred Stock and no shares are
issued or outstanding. Each share of Capital Stock of the Company that will be
issued and outstanding immediately following the Funding, including without
limitation the Preferred Shares, will be duly authorized and validly issued and
fully paid and nonassessable, and the issuance thereof will not have been
subject to any preemptive rights or made in violation of any Applicable Law.

                  (b) Except as set forth on Schedule 3.02, there are (i) no
outstanding options, warrants, agreements, conversion rights, exchange rights,
preemptive rights or other rights (whether contingent or not) to subscribe for,
purchase or acquire any issued or unissued shares of Capital Stock of the
Company or any Subsidiary or any Lucent options that will be converted into
options to purchase Common Stock, and (ii) no restrictions upon, or Contracts or
understandings of the Company or any Subsidiary with respect to, the voting or
transfer of any shares of Capital Stock of the Company or any Subsidiary.

                  (c) Prior to the Initial Conditions Date, the Conversion
Shares and Warrant Shares will have been duly authorized and adequately reserved
in contemplation of the conversion of the Series B Preferred Stock and the
exercise
<PAGE>   20
                                                                              15

of the Warrants, respectively, and, when issued and delivered in accordance with
the terms of the Certificate of Designation or the Warrants, as the case may be,
will have been validly issued and will be fully paid and nonassessable, and the
issuance thereof will not have been subject to any preemptive rights or made in
violation any Applicable Law.

                  (d) The holders of the Series B Preferred Stock will, upon
issuance thereof, have the rights set forth in the Certificate of Designation
(subject to the limitations and qualifications set forth therein and under the
General Corporation Law of the State of Delaware (the "DGCL")).

                  SECTION 3.03. Authorization; Enforceability. The Company has
the power and authority to execute, deliver and perform the terms and provisions
of each of the Equity Documents, and, as of the Initial Conditions Date, will
have taken all action necessary to authorize the execution, delivery and
performance by it of each of such Equity Documents and to consummate the
Transactions. As of the Initial Conditions Date, no other corporate proceeding
on the part of the Company will be necessary for such authorization, execution,
delivery and consummation. The Company has duly executed and delivered this
Agreement and, on the Initial Conditions Date, the Company will have duly
executed and delivered each of the other Equity Documents to be executed and
delivered on or prior to Initial Conditions Date. This Agreement constitutes,
and each of the other Equity Documents, when executed and delivered by the
Company, will constitute, a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.

                  SECTION 3.04. No Violation; Consents. (a) Subject to the
governmental filings and other matters referred to in Section 3.04(b), the
execution, delivery and performance by the Company of each of the Equity
Documents and the consummation by the Company of the Transactions do not and
will not contravene any Applicable Law, except for any such contravention that
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Except as set forth on Schedule 3.04, the execution,
delivery and performance by the Company of each of the Equity Documents and the
consummation of the Transactions (i) will not (A) violate, result in a breach of
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under
any Contract to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary is bound or to
<PAGE>   21
                                                                              16

which any of the assets of the Enterprise Communications Business will be
subject immediately following the Distribution, or (B) result in the creation or
imposition of any Lien upon any of the assets of the Enterprise Communications
Business, except for any such violations, breaches, defaults or Liens that would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; and (ii) will not conflict with or violate any provision of the
certificate of incorporation or bylaws or other governing documents of the
Company or any Subsidiary.

                  (b) Except for (i) the filings by Lucent and the Company, if
any, required by the HSR Act and the expiration or termination of the applicable
waiting period with respect thereto, (ii) applicable filings, if any, with the
Commission pursuant to the Exchange Act, (iii) filings under state securities or
"blue sky" laws, (iv) filing of the Certificate of Designation with the
Secretary of State of the State of Delaware, and (v) such customary items as may
be required in connection with the registration of securities for public offer
and sale pursuant to the Registration Rights Provisions, no consent,
authorization or order of, or filing or registration with, any Governmental
Authority or other Person is required to be obtained or made by the Company,
Lucent or any Subsidiary for the execution, delivery and performance of any of
the Equity Documents or the consummation of the Transactions, except where the
failure to obtain such consents, authorizations or orders, or make such filings
or registrations, would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

                  SECTION 3.05. Form 10; Financial Statements. (a) Except as set
forth on Schedule 3.05, the Draft Form 10 does not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading and, to the Company's
knowledge, complies in all material respects with the applicable provisions of
the Exchange Act; it being understood that the fact that information is added,
deleted or changed in response to comments from the Commission is not evidence
that the Draft Form 10 (i) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading, or (ii) failed to comply with the applicable
provisions of the Exchange Act.
<PAGE>   22
                                                                              17

                  (b) As of the Effective Date, the Form 10 will comply in all
material respects with the applicable provisions of the Exchange Act and will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.

                  (c) The historical financial statements of the Company and the
Subsidiaries (including any related notes or schedules) included in the Draft
Form 10 (the "Company Financial Statements") were prepared in accordance with
GAAP (except as may be disclosed therein). The Company Financial Statements
fairly present, on the basis set forth in Note 1 of the audited Company
Financial Statements, the combined financial position of the Company and the
Subsidiaries as of the dates thereof and the results of operations, cash flows
and changes in invested equity for the periods then ended (subject, in the case
of the unaudited interim financial statements, to normal year-end audit
adjustments on a basis comparable with past periods). The Company Financial
Statements do not necessarily reflect the financial position, results of
operations, changes in invested equity and cash flows of the Company if the
Company had been a stand-alone entity, independent of Lucent.

                  SECTION 3.06. Material Adverse Change. Except as disclosed in
the Draft Form 10, since June 30, 2000, there has not been any material adverse
change in the business condition (financial or otherwise), operations,
performance or properties of the Enterprise Communications Business, taken as a
whole, but excluding any such effect resulting from changes in general economic
conditions or the industry described under "Industry Opportunity" in the Draft
Form 10 that do not have a materially disproportionate effect on the business
condition (financial or otherwise), operations, performance or properties of the
Enterprise Communications Business.

                  SECTION 3.07. Assets. Except as set forth in Schedule 3.07,
the Company and the Subsidiaries own and have or, immediately following the
Distribution will own and have, good and valid title to, or a valid leasehold
interest in, or otherwise have or, immediately following the Distribution will
have, sufficient rights to use, all of the properties and assets (real, personal
or mixed, tangible or intangible) reasonably necessary to conduct the Enterprise
Communications Business, free and clear of all Liens, except for Permitted
Liens. This Section 3.07 does not apply to intellectual property (for which
Section 3.08 is applicable).
<PAGE>   23
                                                                              18

                  SECTION 3.08. Intellectual Property. Except as set forth in
Schedule 3.08 and except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, (i) immediately
following the Distribution, the Company or a Subsidiary will have sufficient
rights to use all the Intellectual Property reasonably necessary to conduct the
Enterprise Communications Business (the "Company Intellectual Property") and the
consummation of the Transactions will not conflict with, alter or impair any
such rights; (ii) to the knowledge of the Company, the use of any licensed
Company Intellectual Property by the Company and the Subsidiaries, as licensee
and the use of any other Company Intellectual Property the use of which by the
Company or any Subsidiary is governed by a Contract with a third-party, will,
immediately following the Distribution, be in accordance in all material
respects with the applicable license or Contract pursuant to which the entities
conducting the Enterprise Communications Business acquired the right to use such
Company Intellectual Property; and (iii) since January 1, 1999, neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Company, after
due inquiry of Lucent, Lucent nor any of its subsidiaries has received any
written notification that the Enterprise Communications Business has infringed
upon or violated the Intellectual Property rights of others, and to the
Company's knowledge no Company Intellectual Property is being used or enforced
by the Enterprise Communications Business in a manner that would reasonably be
expected to result in the abandonment, cancellation or unenforceability of any
Company Intellectual Property.

                  SECTION 3.09. No Undisclosed Material Liabilities. Except as
disclosed on Schedule 3.09 or in the Draft Form 10, there are no liabilities of
the Enterprise Communications Business, the Company or the Subsidiaries of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, other than (i) liabilities disclosed, reflected or reserved
against in the balance sheet of the Company and the Subsidiaries dated as of
June 30, 2000 (and the notes thereto) included in the Draft Form 10 or in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" section of the Draft Form 10, including, without limitation, the
section therein captioned "Review of Operations and Related Charge", (ii)
liabilities incurred in the ordinary course consistent with past practice since
June 30, 2000, (iii) liabilities arising under the Equity Documents, (iv)
liabilities not required by GAAP to be recognized or disclosed on a consolidated
balance sheet of the Company and its consolidated Subsidiaries or in the notes
thereto,
<PAGE>   24
                                                                              19

(v) liabilities to be retained by Lucent and (vi) such other liabilities as
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

                  SECTION 3.10. Compliance with Laws. The Enterprise
Communications Business, the Company and the Subsidiaries are in compliance in
all material respects with all Applicable Laws, except for instances of
noncompliance that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect.

                  SECTION 3.11. No Litigation. Except as disclosed in the Draft
Form 10 or Schedule 3.11, there are not any (a) outstanding judgments, orders or
decrees against or affecting the Company or any of the Subsidiaries, (b)
proceedings pending or, to the knowledge of the Company, threatened against or
affecting the Enterprise Communications Business, the Company or any of the
Subsidiaries or (c) investigations by any Governmental Authority that are, to
the knowledge of the Company, pending or threatened against or affecting the
Enterprise Communications Business, the Company or any of the Subsidiaries that,
in any case, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect or a material adverse effect on the ability of
the Company to timely perform its obligations under this Agreement.

                  SECTION 3.12. Compliance with Constituent Documents. None of
the Company or any material Subsidiary is in breach or violation of or in
default in the performance or observance of any term or provision of, and no
event has occurred which, with lapse of time or action by a third party, would
result in a default under the respective articles or certificate of
incorporation, bylaws or similar organizational instruments of such entities.

                  SECTION 3.13. Environmental Matters. (a) Except as set forth
on Schedule 3.13 and except for such matters as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect, (i) the
Enterprise Communications Business is conducted in compliance with all
Environmental Laws, including, without limitation, having all permits, licenses
and other approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) since January 1, 1999,
neither the Company nor any Subsidiary nor, to the knowledge of the Company,
after due inquiry of Lucent, neither Lucent nor any of its subsidiaries has
received any written notices, demand letters or written
<PAGE>   25
                                                                              20

requests for information from any federal, state, local or foreign governmental
entity indicating that any of the entities conducting the Enterprise
Communications Business may be in violation of, or liable under, any
Environmental Law in connection with the ownership or operation of the
Enterprise Communications Business, (iii) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending against the Company or any Subsidiary or, to the knowledge
of the Company, Lucent or any of its subsidiaries or, to the knowledge of the
Company, threatened against such entities relating to any violation, or alleged
violation, of any Environmental Law related to the Enterprise Communications
Business, and (iv) to the knowledge of the Company, no Hazardous Substance has
been disposed of, released or transported in violation of any Environmental Law,
or in a manner giving rise to any liability under Environmental Law, from any
properties owned or operated by the Company or the entities conducting the
Enterprise Communications Business as a result of any activity of the Enterprise
Communications Business.

                  (b) As used herein, "Environmental Law" means any applicable
federal, state, local or foreign law, statute, ordinance, rule, regulation,
code, license, permit, authorization, approval, consent, judgment, decree,
injunction, requirement or enforceable agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each case
as amended and as in effect at the date hereof.

                  (c) As used herein, "Hazardous Substance" means any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental Law.

                  SECTION 3.14. Interim Changes. (a) Since June 30, 2000, except
for (i) actions taken to prepare the Company to be an independent public company
(e.g., the incorporation of the Company and its Subsidiaries, the retention of
additional employees and the creation of a corporate infrastructure), (ii)
actions taken to transfer the Enterprise Communications Business from Lucent and
its subsidiaries to the Company and the Subsidiaries,
<PAGE>   26
                                                                              21

(iii) actions taken to pursue the business and strategy of the Company and the
Subsidiaries as described in the Draft Form 10 and (iv) actions taken to pursue
the restructuring as contemplated by the charge to be incurred in connection
with the company-wide restructuring plan and one-time expenses to be incurred in
connection with the Company's reorganization plans and separation from Lucent
described in the Draft Form 10, the Enterprise Communications Business has been
operated in all material respects in the ordinary course of business. Without
limiting the foregoing, except to the extent consistent with the business and
strategy of the Company and the Subsidiaries as described in the Draft Form 10
or as otherwise described in the Draft Form 10, since June 30, 2000, neither the
Company nor, with respect to the Enterprise Communications Business, any
Subsidiary has entered into any material new lines of business or terminated any
existing material lines of business or agreed in writing or otherwise to do so.

                  (b) The Company has not terminated the employment or
materially reduced the responsibilities of the individuals identified in
Schedule 3.14.

                  SECTION 3.15. The Contribution and Distribution. Assuming
Lucent enters into each of the Distribution Agreements, the Company will enter
into each of the Distribution Agreements in substantially the same form included
in the Distribution Documentation Annex with only such changes (a) as would not
increase the burdens or decrease the benefits of such agreements to the Company
in a manner that would, individually or in the aggregate, have a material
adverse effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Enterprise Communications Business,
taken as a whole, (b) as are modifications to schedules to the Distribution
Agreements to reflect claims made, or actions, suits, demands, claims, hearings,
investigations or proceedings initiated, in each case after the date hereof,
against or affecting the Enterprise Communications Business, the Company or any
Subsidiary (including with respect to any violation of any Environmental Law)
and (c) as are set forth on Schedule 3.15.

                                   ARTICLE IV

                Representations and Warranties of the Purchasers

                  Each Purchaser severally as to itself only, and not jointly,
hereby represents and warrants to the Company
<PAGE>   27
                                                                              22

on the date hereof and as of the Initial Conditions Date and, in the case of
Sections 4.02, 4.06 and 4.07, on and as of the Funding Date, as follows:

                  SECTION 4.01. Organization; Authorization; Enforceability.
Such Purchaser is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has all requisite power and
authority to own its properties and assets and to carry on its business as it is
now being conducted and as currently proposed to be conducted. Such Purchaser
has the power to execute, deliver and perform its obligations under each of the
Equity Documents to which it is a party and has taken all necessary action to
authorize the execution, delivery and performance by it of such Equity Documents
and to consummate the Transactions. No other proceedings on the part of such
Purchaser are necessary for such authorization, execution, delivery and
consummation. Such Purchaser has duly executed and delivered this Agreement and,
on the Initial Conditions Date, such Purchaser will have duly executed and
delivered each of the other Equity Documents to be executed and delivered by it
on or prior to the Initial Conditions Date. This Agreement constitutes, and each
of the other Equity Documents to which such Purchaser is a party, when executed
and delivered by such Purchaser, will constitute, a legal, valid and binding
obligation of such Purchaser, enforceable against such Purchaser in accordance
with its terms.

                  SECTION 4.02. Private Placement. (a) Such Purchaser
understands that (i) the offering and sale of the Securities, the Conversion
Shares and the Warrant Shares in the Issuance by the Company is intended to be
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and (ii) there is no existing public or other market for the Preferred
Shares, the Warrants or the Common Stock.

                  (b) Such Purchaser (i) is a "qualified institutional buyer",
as such term is defined in Rule 144A under the Securities Act or (ii) is an
institutional "accredited investor", as such term is defined in Rule 501(a) of
Regulation D under the Securities Act.

                  (c) Such Purchaser is acquiring the Securities to be acquired
hereunder (and will acquire the Conversion Shares and the Warrant Shares) for
its own account (or for accounts over which it exercises investment authority),
for investment and not with a view to the resale or distribution thereof in
violation of any securities law.
<PAGE>   28
                                                                              23

                  (d) Such Purchaser understands that the Securities, the
Conversion Shares and the Warrant Shares will be issued in a transaction exempt
from the registration or qualification requirements of the Securities Act and
applicable state securities laws, and that such securities must be held
indefinitely unless a subsequent disposition thereof is registered or qualified
under the Securities Act and such laws or is exempt from such registration or
qualification.

                  (e) Such Purchaser (A) has been furnished with or has had full
access to all the information that it considers necessary or appropriate to make
an informed investment decision with respect to the Securities, the Conversion
Shares and the Warrant Shares and that it has requested from the Company, (B)
has had an opportunity to discuss with management of the Company the intended
business and financial affairs of the Company and to obtain information (to the
extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to
it or to which had access, and (C) can bear the economic risk of (x) an
investment in the Securities, the Conversion Shares and the Warrant Shares
indefinitely and (y) a total loss in respect of such investment, has such
knowledge and experience in business and financial matters so as to enable it to
understand and evaluate the risks of and form an investment decision with
respect to its investment in the Securities, the Conversion Shares and the
Warrant Shares and to protect its own interest in connection with such
investment.

                  SECTION 4.03. No Violation; Consents. (a) Subject to the
governmental filings and other matters referred to in Section 4.03(b), the
execution, delivery and performance by such Purchaser of each of the Equity
Documents to which it is a party and the consummation by such Purchaser of the
Transactions do not and will not contravene any Applicable Law, except for any
such contravention that would not, individually or in the aggregate, reasonably
be expected to have a material adverse effect on the ability of such Purchaser
to timely perform its obligations under the Equity Documents. The execution,
delivery and performance by such Purchaser of each of the Equity Documents to
which it is a party and the consummation of the Transactions (i) will not (A)
violate, result in a breach of or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any Contract to which such Purchaser is
party or by which such Purchaser is bound or to which any of its assets is
subject,
<PAGE>   29
                                                                              24

or (B) result in the creation or imposition of any Lien upon any of the assets
of such Purchaser, except for any such violations, breaches, defaults or Liens
that would not, individually or in the aggregate, reasonably be expected to have
a material adverse effect on the ability of such Purchaser to timely perform its
obligations under this Agreement; and (ii) will not conflict with or violate any
provision of the certificate of incorporation or bylaws or other governing
documents of such Purchaser.

                  (b) Except for (i) the filings by such Purchaser, if any,
required by the HSR Act and the expiration or termination of the applicable
waiting period with respect thereto and (ii) applicable filings, if any, with
the Commission pursuant to the Exchange Act, no consent, authorization or order
of, or filing or registration with, any Governmental Authority or other Person
is required to be obtained or made by such Purchaser for the execution, delivery
and performance of any of the Equity Documents or the consummation of any of the
Transactions, except where the failure to obtain such consents, authorizations
or orders, or make such filings or registrations, would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Purchaser to timely perform its obligations under the Equity
Documents.

                  SECTION 4.04. No Litigation. There are not any (a) outstanding
judgments, orders or decrees against or affecting the Purchaser or any of its
subsidiaries, (b) proceedings pending or, to the knowledge of the Purchaser,
threatened against or affecting the Purchaser or any of its subsidiaries or (c)
investigations by any Governmental Authority that are, to the knowledge of the
Purchaser, pending or threatened against or affecting the Purchaser or any of
its subsidiaries that, in any case, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the ability of such
Purchaser to timely perform its obligations under the Equity Documents.

                  SECTION 4.05. Financing. Such Purchaser has on call and will
have on the Funding Date available funds to consummate the purchase of the
Securities to be purchased by it on the Funding Date.

                  SECTION 4.06. Ownership of Securities. Such Purchaser does not
own, directly or indirectly, or have any option or right to acquire, any
securities of Lucent or the Company other than the Preferred Shares and the
Warrants being purchased by it hereunder.
<PAGE>   30
                                                                              25

                  SECTION 4.07. Future Acquisitions. Such Purchaser has no
present plan or intention to acquire, directly or indirectly, 50% or more of the
total voting power or total fair market value (as such terms are interpreted for
purposes of Section 355) of all shares of outstanding Capital Stock of the
Company.

                                    ARTICLE V

                            Covenants of the Company

                  SECTION 5.01. Access to Books and Records. The Company shall
afford to each of the Purchasers and the Purchasers' accountants, counsel and
representatives full access during normal business hours throughout the period
prior to the Initial Conditions Date (or the earlier termination of this
Agreement pursuant to Section 8.04) to all properties, books, Contracts,
commitments and records related to the Enterprise Communications Business and,
during such period, shall, upon request, furnish promptly to each of the
Purchasers all other information concerning the Enterprise Communications
Business as the Purchasers may reasonably request, provided that no
investigation or receipt of information pursuant to this Section 5.01 shall
affect any representation or warranty of the Company or the conditions to the
obligations of the Purchasers. Following the Initial Conditions Date and
throughout the period prior to the Funding Date (or the earlier termination of
this Agreement pursuant to Section 8.04), the Company shall (i) afford to each
of the Purchasers and the Purchasers' accountants, counsel and representatives
such access as may be reasonably necessary to validate the satisfaction of the
conditions to the Funding set forth in Article VII and (ii) provide to the
Purchasers copies of the execution copies of the Distribution Agreements no
later than five Business Days before the Funding Date. All requests pursuant to
this Section 5.01 shall be made to the persons designated from time to time by
the Company for this purpose, who shall initially be the individuals listed on
Schedule 5.01.

                  SECTION 5.02. Compliance with Conditions; Commercially
Reasonable Efforts. The Company shall use all commercially reasonable efforts to
cause all conditions precedent to the obligations of the Company and the
Purchasers to be satisfied. Upon the terms and subject to the conditions of this
Agreement, the Company will use all commercially reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable consistent with
<PAGE>   31
                                                                              26

Applicable Law to consummate and make effective in the most expeditious manner
practicable the Issuance in accordance with the terms of the Equity Documents.

                  SECTION 5.03. HSR Act Notification. To the extent required by
the HSR Act, the Company shall (a) use all commercially reasonable efforts to
file or cause to be filed, as promptly as practicable after the execution and
delivery of this Agreement (and, in any event, within two Business Days of such
execution and delivery), with the United States Federal Trade Commission and the
Antitrust Division of the United States Department of Justice, all reports and
other documents required to be filed by it under the HSR Act concerning the
transactions contemplated hereby and (b) use all commercially reasonable efforts
to promptly comply with or cause to be complied with any requests by the United
States Federal Trade Commission or the Antitrust Division of the United States
Department of Justice for additional information concerning such transactions,
in each case so that the waiting period applicable to this Agreement and the
transactions contemplated hereby under the HSR Act shall expire as soon as
practicable after the execution and delivery of this Agreement. The Company
agrees to request, and to cooperate with the Purchasers in requesting, early
termination of any applicable waiting period under the HSR Act.

                  SECTION 5.04. Consents and Approvals. The Company (a) shall
use all commercially reasonable efforts to obtain all necessary consents,
waivers, authorizations and approvals of all Governmental Authorities (other
than as expressly set forth in Section 5.03 regarding the HSR Act) and of all
other Persons required in connection with the execution, delivery and
performance of this Agreement or the consummation of the Transactions and (b)
shall diligently assist and cooperate with the Purchasers in preparing and
filing all documents required to be submitted by the Purchasers to any
Governmental Authority in connection with the Issuance (which assistance and
cooperation shall include, without limitation, timely furnishing to the
Purchasers all information concerning the Company and its Subsidiaries that
counsel to the Purchasers reasonably determines is required to be included in
such documents or would be helpful in obtaining any such required consent,
waiver, authorization or approval).

                  SECTION 5.05. Filing of Certificate of Designation. Prior to
the Initial Conditions Date, the Company shall file the Certificate of
Designation with the Secretary of State of the State of Delaware pursuant to
Section 151(g) of the DGCL.
<PAGE>   32
                                                                              27

                  SECTION 5.06. Reservation of Shares. The Company shall (a)
cause to be authorized and reserve and keep available at all times during which
any of the Securities remain outstanding, free from preemptive rights, out of
its treasury stock or authorized but unissued shares of Capital Stock, or both,
solely for the purpose of effecting the conversion of the Preferred Shares and
exercise of the Warrants pursuant to the terms of the Certificate of Designation
and the Warrants, respectively, sufficient shares of Common Stock (including any
related rights issuable in respect thereof pursuant to the Rights Agreement) to
provide for the issuance of the maximum number of shares issuable upon
conversion of outstanding Preferred Shares and exercise of outstanding Warrants;
and (b) issue and cause the transfer agent to deliver such shares of Common
Stock (including any related rights issuable in respect thereof pursuant to the
Rights Agreement) as required upon conversion of the Shares or exercise of the
Warrants, and take all actions necessary to ensure that all such shares will,
when issued and paid for pursuant to the conversion of the Preferred Shares or
exercise of the Warrants, be duly and validly issued, fully paid and
nonassessable.

                  SECTION 5.07. Listing of Shares. The Company shall use all
commercially reasonable efforts to cause the shares of Common Stock issuable
upon conversion of the Preferred Shares or exercise of the Warrants to be listed
or otherwise eligible for trading on the New York Stock Exchange or other
national securities exchange.

                  SECTION 5.08. Use of Proceeds. The Company shall use the
proceeds from the Issuance for payment of expenses incurred in connection with
the Transactions and for working capital and general corporate purposes.

                  SECTION 5.09. Warburg Group Director and Observer. (a) The
Warburg Group shall be entitled to designate for election to the Board of
Directors one person reasonably acceptable to the Board of Directors (the
"Warburg Group Director") for so long as the Purchasers and the Permitted
Transferees own a Qualifying Ownership Interest. The Company and the Purchasers
agree that the initial Warburg Group Director shall be Jeffrey Harris.

                  (b) In addition, during such time as the Warburg Group shall
have the right to designate for nomination a Warburg Group Director, the Company
shall permit an authorized representative of Warburg reasonably acceptable to
the Board of Directors (the "Warburg Group Observer") to attend all meetings of
the Board of Directors (but not
<PAGE>   33
                                                                              28

(i) meetings of any committees of the Board of Directors or (ii) executive
sessions of the Board of Directors) as an observer, without authority to vote.
The Company and the Purchasers agree that the initial Warburg Group Observer
shall be Dr. Henry Kressel.

                  (c) Immediately following the closing, the initial Warburg
Group Director shall be appointed to the Board of Directors to a class of
directors whose term expires not earlier than 2002. If a vacancy shall exist in
the office of a Warburg Group Director, the Warburg Group shall be entitled to
designate a successor and the Board of Directors shall elect such successor and,
in connection with the meeting of shareholders of the Company next following
such election, nominate such successor for election as director by the
shareholders and use its commercially reasonable efforts to cause the successor
to be elected. Each Purchaser agrees that Warburg shall identify the individuals
proposed to serve as Warburg Group Director and Warburg Group Observer, and that
the Company shall be entitled to rely solely and exclusively on information
provided by Warburg in connection with the exercise of the Purchasers' rights
pursuant to this Section 5.09.

                  (d) At any time the Purchasers and the Permitted Transferees
cease to have the right to appoint a Warburg Group Director, any Warburg Group
Director shall resign promptly and the Warburg Group Observer shall no longer be
permitted to attend meetings of the Board of Directors.

                  (e) Any Warburg Group Director shall be entitled to such
compensation as is customarily paid by the Company to the Company's outside
directors. The compensation and expenses of any Warburg Group Observer shall be
solely the responsibility of the Purchasers.

                  SECTION 5.10. Registration Rights. The Company shall use all
commercially reasonable efforts to file a registration statement (together with
any registration statement in respect of the Warrants and the Warrant Shares,
the "Registration Statement") covering the Registrable Securities (other than
the Warrants and the Warrant Shares) on behalf of the Purchasers and any
Permitted Transferees with the Commission by March 31, 2001, and a registration
statement covering the Warrants and the Warrant Shares on behalf of the
Purchasers and the Permitted Transferees with the Commission by June 30, 2001.
The expenses of the preparation and filing of such Registration Statement shall
be borne by the Company. Upon filing the Registration Statement, the Company
will use its commercially reasonable efforts to cause the Registration Statement
to be declared
<PAGE>   34
                                                                              29

effective by the Commission and to keep the Registration Statement effective
with the Commission so long as any Registrable Securities remain outstanding.
Provisions relating to the registration rights set forth in this Section 5.10
are included in Exhibit E hereto (the "Registration Rights Provisions").
"Registrable Securities" means the Securities, the Warrant Shares and the
Conversion Shares. As to any particular Registrable Securities, such Registrable
Securities shall cease to be Registrable Securities as soon as they (i) have
been sold or otherwise disposed of pursuant to the Registration Statement or any
other registration statement that was filed with the Commission and declared
effective under the Securities Act, (ii) are eligible for sale pursuant to Rule
144 without being subject to the volume and manner of sale limitations
thereunder, (iii) have been otherwise sold, transferred or disposed of by a
Purchaser to any Person that is not a Permitted Transferee, or (iv) have ceased
to be outstanding. All communications with the Company by the Purchasers and the
Permitted Transferees with respect to the registration rights granted pursuant
to this Section 5.10 shall be made by and through Warburg.

                  SECTION 5.11. Preemptive Rights. (a) So long as the Purchasers
and the Permitted Transferees own a Qualifying Ownership Interest, if at any
time prior to the fifth anniversary of the Distribution, the Company makes a
Qualified Equity Offering, the Purchasers and the Permitted Transferees who own
the securities constituting the Qualifying Ownership Interest (the "Eligible
Purchasers") shall be afforded the opportunity to acquire for the same price
(net of any underwriting discounts or sales commissions) and on the same terms
as such securities are proposed to be offered to others, in the aggregate, up to
the lesser of (x) the amount of New Stock that, if purchased by all the Eligible
Purchasers, would result in the Purchasers' Ownership Interest after giving pro
forma effect to the sale of New Stock being equal to the Purchasers' Ownership
Interest before giving effect to such sale of New Stock and (y) 5.0% of the New
Stock. The amount of New Stock to be made available to the Eligible Purchasers
calculated in accordance with the preceding sentence is referred to herein as
the "Designated Stock". The Eligible Purchasers may allocate among themselves
the aggregate amount of Designated Stock made available to them for purchase
pursuant to this Section 5.11.

                  (b) (i) If the Company proposes to make a Qualified Equity
Offering that is an underwritten public offering or a private offering made to
financial institutions for resale pursuant to Rule 144A, no later than
<PAGE>   35
                                                                              30

five Business Days after the initial filing of a registration statement with the
Commission with respect to such underwritten public offering or the commencement
of such Rule 144A offering, it shall give the Eligible Purchasers written notice
of its intention (including in the case of a registered public offering, a copy
of the prospectus contained in the registration statement filed in respect of
such offering) describing, to the extent possible, the anticipated amount of
securities, price, timing and other terms of such offering. Each Eligible
Purchaser shall have five Business Days from the date of receipt of any such
notice to notify the Company in writing that it wishes to be offered the
opportunity to exercise its preemptive purchase rights. Such notice shall
constitute a non-binding indication of interest of the Eligible Purchaser to
exercise its preemptive rights. The failure to respond during such five Business
Day period shall constitute a waiver of the preemptive rights in respect of such
offering.

                  (ii) If any Eligible Purchaser indicates an interest in
participating in such underwritten public offering or Rule 144A offering, the
Company shall offer the Eligible Purchasers who have indicated an interest in
participating in such offering, if such underwritten offering or Rule 144A
offering is consummated, the Designated Stock (as adjusted to reflect the actual
size of such offering when priced) on the same terms as the New Stock is offered
to the underwriters. Each Eligible Purchaser exercising its preemptive rights
shall enter into a binding commitment to purchase the Designated Stock to be
acquired contemporaneously with the execution of any underwriting agreement or
purchase agreement entered into between the Company and the underwriters of such
underwritten public offering or Rule 144A offering, and the failure to enter
into such an agreement at or prior to such time shall constitute a waiver of the
preemptive rights in respect of such offering. Any offers and sales pursuant to
this Section 5.11 in the context of a registered public offering shall be
conditioned on reasonably acceptable representations and warranties of each
Eligible Purchaser regarding its status as the type of offeree to whom a private
sale can be made concurrently with a registered public offering in compliance
with applicable securities laws. If an Eligible Purchaser elects not to or fails
to consummate any purchase, the Company shall thereafter be entitled for a
period of 90 days to sell or enter into an agreement to sell the Designated
Stock not purchased at a price and upon terms no more favorable to the purchaser
of such securities than were provided to the underwriters.
<PAGE>   36
                                                                              31

                  (c) (i) If the Company proposes to make a Qualified Equity
Offering that it is not an underwritten public offering or Rule 144A offering (a
"Private Placement"), it shall give the Eligible Purchasers written notice of
its intention, describing, to the extent possible, the anticipated amount of
securities, price and other terms upon which the Company proposes to offer the
same. Each Eligible Purchaser shall have five Business Days from the date of
receipt of any such notice to notify the Company in writing that it intends to
exercise such preemptive purchase rights and as to the amount of Designated
Stock such Purchaser desires to purchase, up to the maximum amount calculated
pursuant to Section 5.11(a). Such notice shall constitute a binding agreement of
the Purchaser to purchase the amount of Designated Stock so specified (or a
proportionally lesser amount if the amount of New Stock is subsequently reduced)
upon the price and other terms set forth in the Company's notice to it. The
failure to respond during such five Business Day period shall constitute a
waiver of the preemptive rights in respect of such offering.

                  (ii) If the Purchaser exercises its preemptive purchase rights
in respect of a Private Placement, the closing of the purchase of the New Stock
with respect to which such right has been exercised shall take place within 30
calendar days after the giving of notice of such exercise, which period of time
shall be extended for a maximum of 135 days in order to comply with applicable
laws and regulations; provided, however, that (i) such closing shall be
conditioned on consummation of the closing of the sale of shares of New Stock in
the transaction giving rise to the preemptive rights and (ii) the actual amount
of Designated Stock to be sold to such Eligible Purchaser shall be reduced if
the aggregate number of shares of New Stock sold in the transaction giving rise
to the preemptive rights is reduced and, at the option of such Eligible
Purchaser, may be proportionally increased if the aggregate number of shares of
New Stock sold in such transaction is increased. Each of the Company and each
Eligible Purchaser agrees to use its commercially reasonable efforts to secure
any regulatory approvals or other consents, and to comply with any law or
regulation necessary in connection with the offer, sale and purchase of, such
New Stock.

                  (iii) In the event an Eligible Purchaser fails to exercise its
preemptive purchase rights provided in respect of a Private Placement within
said five Business Day period or, if so exercised, such Eligible Purchaser does
not consummate such purchase, the Company shall thereafter be entitled during
the period of 90 days following the conclusion of the applicable period to sell
or enter into an
<PAGE>   37
                                                                              32

agreement (pursuant to which the sale of the New Stock covered thereby shall be
consummated, if at all, within 30 days from the date of such agreement) to sell
the Designated Stock not purchased pursuant to this Section 5.11, at a price and
upon terms no more favorable to the purchaser of such securities than were
specified in the Company's notice to the Eligible Purchasers. In the event the
Company has not sold the New Stock or entered into an agreement to sell the New
Stock within said 90-day period, the Company shall not thereafter offer, issue
or sell such Designated Stock without first offering such securities to the
Eligible Purchasers in the manner provided above.

                  (iv) The Eligible Purchasers shall not have any rights to
participate in the negotiation of the proposed terms of any Private Placement
and shall be passive investors with respect to such Private Placement, provided
that they shall have the same economic rights (including, without limitation,
preemptive rights and rights relating to closing conditions and indemnification,
if any) as, but, unless agreed to by the Company and the lead purchaser in such
Private Placement, not the corporate governance or other rights granted to, the
other investors in such Private Placement.

                  (d) If registration rights are granted to the investors in any
Private Placement, the Company shall provide registration rights to the Eligible
Purchasers that exercised their preemptive rights on a pari passu basis with
such other investors in such Private Placement. In all other instances, the
Company will provide for the registration, on terms consistent with Section
5.10, for any shares of Common Stock acquired (or issuable upon conversion,
exercise or exchange of any other security acquired) within six months after (i)
the closing of the applicable acquisition (with respect to any Common Stock
acquired) or (ii) the earliest date on which such other securities can be
converted, exercised or exchanged for Common Stock (with respect to any other
security acquired).

                  (e) The Company and the Eligible Purchasers shall cooperate in
good faith to facilitate the exercise of the Eligible Purchasers' preemptive
rights in a manner that does not jeopardize the timing, marketing or execution
of such offering.

                  SECTION 5.12. Escrow Agreement. The Company shall use its
commercially reasonable efforts to enter into an Escrow Agreement having such
terms as are necessary or proper to implement the issuance and purchase of the
Securities as contemplated by Article II.
<PAGE>   38
                                                                              33

                                   ARTICLE VI

                           Covenants of the Purchasers

                  SECTION 6.01. Compliance with Conditions; Commercially
Reasonable Efforts. Each Purchaser will use all commercially reasonable efforts
to cause all conditions precedent to the obligations of the Company and the
Purchasers to be satisfied. Upon the terms and subject to the conditions of this
Agreement, each Purchaser will use all commercially reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable consistent with applicable law to consummate and
make effective in the most expeditious manner practicable the Transactions to
such Purchaser in accordance with the terms of the Equity Documents.

                  SECTION 6.02. HSR Act Notification. To the extent required by
the HSR Act, each Purchaser shall, (a) use all commercially reasonable efforts
to file or cause to be filed, as promptly as practicable after the execution and
delivery of this Agreement (and, in any event, within two Business Days of such
execution and delivery), with the United States Federal Trade Commission and the
Antitrust Division of the United States Department of Justice, all reports and
other documents required to be filed by it under the HSR Act concerning the
transactions contemplated hereby and (b) use all commercially reasonable efforts
to promptly comply with or cause to be complied with any requests by the United
States Federal Trade Commission or the Antitrust Division of the United States
Department of Justice for additional information concerning such transactions,
in each case so that the waiting period applicable to this Agreement and the
transactions contemplated hereby under the HSR Act shall expire as soon as
practicable after the execution and delivery of this Agreement. Each Purchaser
agrees to request, and to cooperate with the Company in requesting, early
termination of any applicable waiting period under the HSR Act.

                  SECTION 6.03. Consents and Approvals. Each Purchaser (a) shall
use all commercially reasonable efforts to obtain all necessary consents,
waivers, authorizations and approvals of all Governmental Authorities (other
than as expressly set forth in Section 6.02 regarding the HSR Act) and of all
other Persons required in connection with the execution, delivery and
performance of the Equity Documents or the consummation of the Transactions and
(b) shall diligently assist and cooperate with the Company in
<PAGE>   39
                                                                              34

preparing and filing all documents required to be submitted by the Company to
any Governmental Authority in connection with the Transactions (which assistance
and cooperation shall include, without limitation, timely furnishing to the
Company all information concerning such Purchaser that counsel to the Company
reasonably determines is required to be included in such documents or would be
helpful in obtaining any such required consent, waiver, authorization or
approval).

                  SECTION 6.04. Restrictions on Transfer. The Purchasers and the
Permitted Transferees shall not knowingly sell, assign, transfer, pledge,
hypothecate, deposit in a voting trust or otherwise dispose of Preferred Shares,
Warrants or shares of Common Stock that would represent (giving effect to the
conversion of any Preferred Shares and the exercise of any Warrants) in the
aggregate 5% or more of the issued and outstanding shares of Common Stock to any
Person or group (as defined for purposes of Rule 13d under the Exchange Act) in
a single transaction or series of related transactions.

                  (b) If the Purchasers are not in violation of this Section
6.04, the restrictions set forth in Section 6.04(a) shall not apply to any
transfer of the Preferred Shares, Warrants or shares of Common Stock (i)
pursuant to a tender offer, exchange offer or any other business combination
available to all stockholders of the Company or (ii) as part of a distribution
of such Preferred Shares, Warrants or shares of Common Stock to the limited
partners of the applicable Purchaser or Permitted Transferee.

                  SECTION 6.05. Standstill. Each Purchaser agrees that, prior to
the fifth anniversary of the date hereof, it will not and will not permit any
member of the Warburg Group or any other controlled Affiliate to, in any manner,
whether publicly or otherwise, directly or indirectly, without the prior written
consent of the Company, (i) acquire, agree to acquire or make any public
proposal to acquire, directly or indirectly, beneficial ownership of any voting
securities or assets of the Company or any Subsidiary, (ii) enter into or
publicly propose to enter into, directly or indirectly, any merger or other
business combination or similar transaction or change of control involving the
Company or any Subsidiary, (iii) make, or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" (as such terms are used in the
proxy rules of the Commission) to vote, or seek to advise or influence any
Person with respect to the voting of, any securities of the Company or any
Subsidiary, (iv) call, or seek to call, a meeting of the Company's stockholders
or initiate any stockholder proposal
<PAGE>   40
                                                                              35

for action by stockholders of the Company, (v) bring any action or otherwise act
to contest the validity of this Section 6.05 or seek a release of the
restrictions contained herein, (vi) form, join or in any way participate in a
"group" (within the meaning of Sections 13(d)(3) of the Exchange Act) with
respect to any securities of the Company or any Subsidiary, (vii) other than any
seat on the Board of Directors expressly granted to the Warburg Group in Section
5.09, seek representation on the Board of Directors of the Company, the removal
of any directors from the Board of Directors of the Company or a change in the
size or composition of the Board of Directors of the Company (including, without
limitation, voting for any directors not nominated by the Board of Directors of
the Company), (viii) enter into any discussions, negotiations, arrangements,
understandings or agreements (whether written or oral) with any other Person
regarding any possible purchase of sale of any securities or assets of the
Company or any Subsidiary, (ix) disclose any intention, plan or arrangement
inconsistent with the foregoing, (x) take, or solicit, propose to or agree with
any other Person to take, any similar actions designed to influence the
management or control of the Company or (xi) advise, assist or encourage any
other persons in connection with any of the foregoing.

                  Nothing in this Section 6.05 shall (i) limit any action taken
by a Warburg Group Director in his or her capacity as a member of the Board of
Directors of the Company, (ii) prohibit or restrict any Purchaser, any member of
the Warburg Group or any other controlled Affiliate of any Purchaser from
responding to any inquiries from any shareholders of the Company as to such
Person's intention with respect to the voting of shares of Common Stock or any
other voting securities of the Company beneficially owned by such Purchaser, any
member of the Warburg Group or any other controlled Affiliate of any Purchaser
so long as such response is consistent with the terms of this Agreement, (iii)
prohibit or restrict a purchase, sale, merger, consolidation or other business
combination transaction involving any portfolio company of any Purchaser, any
member of the Warburg Group or any controlled Affiliate of any Purchaser so long
as the purpose of such transaction is not the acquisition of voting securities
or assets of the Company or any Subsidiary, (iv) prohibit the purchase or other
acquisition of beneficial ownership of (A) any of the Securities, the Conversion
Shares or the Warrant Shares, (B) any New Stock offered to the Eligible
Purchasers pursuant to Section 5.11 or (C) in an amount that, when taken
together with the number of shares of Common Stock beneficially owned by the
Purchasers, the Warburg Group and the Purchasers' controlled Affiliates
(excluding any Warrant
<PAGE>   41
                                                                              36

Shares issuable with respect to any then unexercised Warrants) and the number of
shares of Common Stock issuable upon conversion of Preferred Shares beneficially
owned by the Warburg Group (assuming the liquidation value of such Preferred
Shares had accreted until the fifth anniversary of their date of issuance in
accordance with Section 4 of the Certificate of Designation), would not exceed
9.9% of the then outstanding Common Stock, (v) prohibit or restrict any
agreement, arrangement, understanding, negotiation, discussion, disclosure or
other action exclusively involving Warburg, its controlled Affiliates (other
than any portfolio companies), the Purchasers, any member of the Warburg Group,
and any employee, officer or director thereof or (vi) prohibit any notice to
limited partners of a Warburg Group member in respect of a proposed distribution
of securities of the Company to such limited partners.

                  SECTION 6.06. Confidentiality; Information. (a) Each Purchaser
shall keep all information received by it from the Company or its
Representatives confidential and shall not, without the Company's prior written
consent, disclose such information in any manner whatsoever, in whole or in
part. The Purchasers shall cause any Warburg Group Director and any observer to
the Board of Directors permitted to the Purchasers to comply with the foregoing
requirement.

                  (b) Section 6.06(a) shall not apply to any such information as
(i) is or becomes generally available to the public other than as a result of
any disclosure or other action or inaction by such Purchaser or any of its
Representatives or (ii) is or becomes known or available to such Purchaser on a
non-confidential basis from a source (other than the Company or its
Representatives) that, to the best of such Purchaser's knowledge, is not under a
legal obligation not to disclose such information to such Purchaser or (iii) was
independently developed by such Purchaser or its Representatives without
reference to any information provided by the Company or its Representatives
(except pursuant to clauses (i), (ii) or (iv)) or (iv) was known to such
Purchaser prior to such disclosure by the Company or its Representatives.

                  (c) In the event that such Purchaser or its Representatives
become legally compelled (by oral questions, interrogatories, requests for
information or documents, subpoenas, civil investigative demands or otherwise),
to disclose any information received from the Company or its Representatives,
such Purchaser shall provide the Company with prompt written notice so that the
Company may seek a protective order or other appropriate remedy, or if the
<PAGE>   42
                                                                              37

Company so directs, such Purchaser shall, and shall cause its Representatives
to, exercise its reasonable best efforts to obtain a protective order or other
appropriate remedy at the Company's reasonable expense. Failing the entry of a
protective order or other appropriate remedy or receipt of a waiver hereunder,
such Purchaser shall furnish only that portion of the information which it is
advised by its counsel is legally required to be furnished and shall exercise
its reasonable best efforts to obtain reliable assurance that confidential
treatment shall be accorded such information.

                  (d) The Purchasers shall cause any Warburg Group Director and
any observer to the Board of Directors designated by the Purchasers to provide
such information to the Company as may reasonably be required in connection with
the Form 10 (if designated prior to the Effective Time) or any other filings
with the Commission or any other Governmental Authority in connection with the
Distribution or the Transactions.

                  SECTION 6.07. Compliance with Section 355. No Purchaser shall
take any action or omit to take any action reasonably available to it and not
materially burdensome to it that could reasonably be expected to materially
contribute to a determination that the Contribution or the Distribution would
result in the recognition of gain to Lucent or the Company by virtue of the
Contribution or the Distribution failing to qualify under Section 355.

                  SECTION 6.08. IPO Lock-up. In connection with any initial
public offering of the Common Stock, so long as (i) the Purchasers beneficially
own in the aggregate at least 5% of the Common Stock (calculated in accordance
with Rule 13d under the Exchange Act) (ii) the Purchasers are requested by the
managing underwriter of such initial public offering and (iii) each other
director who beneficially owns Common Stock enters into a "lock-up" agreement of
at least 90 days, each Purchaser agrees to enter into a similar "lock-up"
agreement with the underwriters of such offering containing customary terms and
conditions and restricting sales of Common Stock and other securities
convertible into or exercisable for Common Stock and certain other transactions
having an equivalent economic effect for a period of up to 90 days following the
date of such offering.

                  SECTION 6.09. Prohibition on Solicitation and Hiring. (a) No
Purchaser or Permitted Transferee shall, nor shall it permit any Affiliate
(other than a portfolio company) to, for a period of two years from the date
hereof, directly or indirectly, solicit for employment or hire any
<PAGE>   43
                                                                              38

senior management employee or senior technical employee of the Enterprise
Communications Business, the Company or any Subsidiary, with whom such Purchaser
or Permitted Transferee came into contact as a result of either the due
diligence process in respect of the Transactions or the exercise of the Warburg
Group's director and observer rights in Section 5.09, whether or not such person
would commit a breach of his or her contract of service in leaving such
employment; provided, however, that the foregoing shall not prohibit any
Purchaser, Permitted Transferee or Affiliate from making general solicitations
of employment (or engaging search firms to make such solicitations) not
specifically directed toward employees of the Company or any of its subsidiaries
and/or hiring any employee who responds to any such general solicitation or
initiates contact with any Purchaser, Permitted Transferee or Affiliate without
solicitation.

                  (b) No Purchaser or Permitted Transferee shall, nor shall it
permit any Affiliate (other than a portfolio company) to, for a period of two
years from the date hereof, directly or indirectly, assist (including, without
limitation, through identification, introduction or otherwise for the purpose of
inducing employment) a portfolio company of such Purchaser, Permitted Transferee
or Affiliate in soliciting for employment any senior management employee or
senior technical employee of the Enterprise Communications Business the Company
or any Subsidiary, with whom such Purchaser or Permitted Transferee came into
contact as a result of either the due diligence process in respect of the
Transactions or the exercise of the Warburg Group's director and observer rights
in Section 5.09, whether or not such person would commit a breach of his or her
contract of service in leaving such employment; provided, however, that the
foregoing shall not prohibit any portfolio company from making general
solicitations of employment (or engaging search firms to make such
solicitations) not specifically directed toward employees of the Company or any
of its subsidiaries.

                  SECTION 6.10. Escrow Agreement. Each Purchaser shall use its
commercially reasonable efforts to enter into an Escrow Agreement having such
terms as are necessary or proper to implement the issuance and purchase of the
Securities as contemplated by Article II.
<PAGE>   44
                                                                              39

                                   ARTICLE VII

           Conditions Precedent to Initial Conditions Date and Funding

                  SECTION 7.01. Conditions to the Company's Obligations in
Respect of the Initial Conditions Date. The obligations of the Company to issue
and sell the Securities hereunder shall be subject, at the election of the
Company, to the satisfaction or waiver, on the Initial Conditions Date, of the
following conditions:

                  (a) The representations and warranties of each Purchaser
contained in this Agreement shall have been true and correct when made and, in
addition, shall be repeated and true and correct in all material respects on and
as of the Initial Conditions Date with the same force and effect as though made
on and as of the Initial Conditions Date.

                  (b) Each Purchaser shall have performed in all material
respects all obligations and agreements, and complied in all material respects
with all covenants contained in this Agreement to be performed and complied with
by such Purchaser on the Initial Conditions Date.

                  (c) Each Purchaser shall have delivered to the Company a
certificate executed by it or on its behalf by a duly authorized representative,
dated the Initial Conditions Date, to the effect that each of the conditions
specified in paragraph (a) and (b) of this Section 7.01 has been satisfied.

                  (d) The Form 10 shall have been declared effective by the
Commission on the Initial Conditions Date.

                  SECTION 7.02. Conditions to Each Purchasers' Obligations in
Respect of the Initial Conditions Date. The obligations of each Purchaser to
purchase the Securities hereunder shall be subject to the satisfaction or
waiver, on the Initial Conditions Date, of the following conditions:

                  (a) The representations and warranties of the Company
contained in this Agreement (i) shall have been true and correct when made and
(ii) shall be (A) in the case of representations and warranties that are
qualified as to materiality or Material Adverse Effect, true and correct and (B)
in all other cases, true and correct in all material respects, in the case of
clauses (A) and (B), as of the Initial Conditions Date with the same force and
effect as though made on and as of the Initial Conditions Date.
<PAGE>   45
                                                                              40

                  (b) The Company shall have performed in all material respects
all of its obligations, agreements and covenants contained in this Agreement to
be performed and complied with at or prior to the Initial Conditions Date.

                  (c) The Company shall have entered into the Registration
Rights Agreement.

                  (d) The Company shall have filed the Certificate of
Designation with the Secretary of State of the State of Delaware.

                  (e) The Company shall have delivered to the Purchasers a
certificate executed by it or on its behalf by a duly authorized representative,
dated the Initial Conditions Date, to the effect that each of the conditions
specified in paragraph (a) through (d) of this Section 7.02 has been satisfied.

                  (f) The Purchasers shall have received the opinion of counsel
to the Company, dated the Initial Conditions Date, and addressed to the
Purchasers, substantially in the form attached hereto as Exhibit D.

                  (g) The Form 10 shall have been declared effective by the
Commission on the Initial Conditions Date.

                  SECTION 7.03. Conditions to Each Party's Obligations In
Respect of the Funding. The respective obligations of the Company and each
Purchaser hereunder required to be performed on the Funding Date shall be
subject, to the satisfaction or waiver, at the Funding, of the following
conditions:

                  (a) Any applicable waiting period under the HSR Act shall have
expired or been terminated.

                  (b) No provision of any Applicable Law, injunction, order or
decree of any Governmental Entity shall be in effect which has the effect of
making the Transactions or the ownership by any Purchaser (other than as a
result of such Purchaser not being a U.S. person) of the Securities, the
Conversion Shares or the Warrant Shares illegal or shall otherwise prohibit the
consummation of the Transactions.

                  (c) The Private Letter Ruling shall not have been withdrawn.

                  (d) Lucent shall have declared a dividend distributing all the
shares of Common Stock owned by Lucent
<PAGE>   46
                                                                              41

to holders of Lucent common stock and not revoked such dividend.

                  SECTION 7.04. Conditions to the Company's Obligations in
Respect of the Funding. The obligations of the Company hereunder to be performed
on the Funding Date shall be subject, at the election of the Company, to the
satisfaction or waiver at the Funding, of the following condition: the
representations and warranties of each Purchaser in Section 4.02, 4.06 and 4.07
shall be true and correct as of the Funding Date as though made on and as of the
Funding Date and each Purchaser shall have delivered to the Company a
certificate executed by it or on its behalf by a duly authorized representative,
dated the Funding Date, to such effect.

                  SECTION 7.05. Conditions to Each Purchaser's Obligations in
Respect of the Funding. The obligations of each Purchaser hereunder to be
performed on the Funding Date shall be subject, at the election of such
Purchaser, to the satisfaction or waiver at the Funding, of the following
condition:

                  (a) The representations and warranties of the Company in
         Sections 3.02, 3.14 and 3.15 shall be true and correct as of the
         Funding Date as though made on and as of the Funding Date and the
         Company shall have delivered to such Purchaser a certificate executed
         by it or on its behalf by a duly authorized representative, dated the
         Funding Date, to such effect.

                  (b) Warburg shall be reasonably satisfied that the
         consolidated indebtedness for borrowed money of the Company and the
         Subsidiaries at the time of the Distribution will not exceed the sum of
         (i) $700.0 million, (ii) an amount equal to the aggregate restructuring
         and separation costs and expenses of the Enterprise Communications
         Business incurred by Lucent and its subsidiaries, to the extent such
         costs and expenses exceed $50.0 million (all calculated on a pre-tax
         basis), and (iii) increases in working capital received by the Company
         and the Subsidiaries from Lucent and its subsidiaries pursuant to the
         Contribution and Distribution Agreement in excess of the Company's
         business plan.

                  SECTION 7.06. Conditions to Each Party's Obligations In
Respect of the Release of Escrowed Funds and Securities. The release of the
escrowed funds and securities shall be subject to the consummation of the
Distribution.
<PAGE>   47
                                                                              42

                                  ARTICLE VIII

                                  Miscellaneous

                  SECTION 8.01. Survival. Only those representations,
warranties, agreements and covenants of the parties contained in Sections 2.01
and 2.03, 2.04, 3.02, 3.14, 3.15, 4.02, 4.06 and 4.07, Article V, Article VI and
Article VIII shall survive the Initial Conditions Date. Only those
representations, warranties, agreements and covenants of the parties contained
in Sections 2.01 and 2.03, 2.04, Article V, Article VI and Article VIII and
requiring performance after the Initial Conditions Date or the Funding Date
shall survive the Initial Conditions Date or the Funding Date, as the case may
be. All other representations, warranties, agreements and covenants of the
parties shall not survive the Initial Conditions Date.

                  SECTION 8.02. Legends. (a) So long as applicable, each
certificate representing any portion of the Preferred Shares or the Warrants
shall be stamped or otherwise imprinted with a legend in the following form (in
addition to any legend required under applicable state securities laws):

         "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
         THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. SUCH SHARES MAY
         NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
         DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION PURSUANT TO AN
         EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS AND DELIVERY TO THE
         ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT TO THE
         EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THOSE
         LAWS."

                  (b) In addition, so long as applicable, each certificate
representing any portion of the Preferred Shares or the Warrants shall be
stamped or otherwise imprinted with a legend in the following form:

         "THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
         RESTRICTIONS ON TRANSFER AS SET FORTH IN A PREFERRED STOCK AND WARRANT
         PURCHASE AGREEMENT, DATED AS OF THE 8TH DAY OF AUGUST, 2000, AS IT MAY
         BE AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE
         PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER
         OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND
<PAGE>   48
                                                                              43

         UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH.
         ANY TRANSFER NOT IN COMPLIANCE WITH SUCH AGREEMENT
         SHALL BE VOID."

The legend referred to in this paragraph (b) shall be removed at such time as
such security is transferred to a Person other than a Purchaser or a Permitted
Transferee.

                  SECTION 8.03. Notices. All notices, demands, requests,
consents, approvals or other communications (collectively, "Notices") required
or permitted to be given hereunder or which are given with respect to this
Agreement shall be in writing and shall be personally served, delivered by
reputable air courier service with charges prepaid, or transmitted by hand
delivery, telegram, telex or facsimile, addressed as set forth below, or to such
other address as such party shall have specified most recently by written
notice. Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the next business day
following delivery of such notice to a reputable air courier service.

                  To the Company:

                           Avaya Inc.
                           211 Mount Airy Road
                           Basking Ridge, NJ  07920
                           Attn: Gary K. McGuire
                           Telephone:  (908) 953-6000
                           Fax:  (908) 953-9875

                  with copies to:

                           Avaya Inc.
                           211 Mount Airy Road
                           Basking Ridge, NJ  07820
                           Attn: Pamela F. Craven
                           Telephone: (908) 953-6000
                           Fax:  (908) 953-5462

                  and

                           Cravath, Swaine & Moore
                           Worldwide Plaza
                           825 Eighth Avenue
                           New York, New York 10019
                           Attn:  Susan Webster
                           Telephone:  (212) 474-1000
                           Fax:  (212) 474-3700
<PAGE>   49
                                                                              44

                  To the Purchasers:

                  To the address specified on Schedule 1 hereto,

                  with a copy to:

                           Wachtell, Lipton, Rosen & Katz
                           51 West 52nd Street
                           New York, New York 10019
                           Attn: Andrew Brownstein
                                     David Silk
                           Telephone:  (212) 403-1000
                           Fax:  (212) 403-2000

                  SECTION 8.04. Termination. (a) This Agreement may be
terminated: (i) at any time prior to the Funding by mutual written agreement of
the Company and the Purchasers, (ii) if the Funding shall not have occurred on
or prior to November 15, 2000, by either the Company or the Purchasers, at any
time after November 15, 2000, provided that the right to terminate this
Agreement under this Section 8.04(ii) shall not be available to any party whose
failure to fulfill any obligation under this Agreement was the cause of or
resulted in the failure of the Funding to occur on or before such date, (iii) if
any Governmental Authority shall have issued a nonappealable final order, decree
or ruling or taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the Contribution, the
Distribution or the transactions contemplated by this Agreement, by either the
Company or the Purchasers, provided that the right to terminate this Agreement
pursuant to this Section 8.04(iii) shall not be available to any party whose
failure to fulfill any obligation under this Agreement was the cause of, or
resulted in, such final order, decree or ruling, (iv) by the Purchasers if the
Company shall make (A) any amendment to any Distribution Agreement after the
Initial Conditions Date without the Purchasers' consent that is not referenced
on Schedule 3.15 or that, individually or in the aggregate, would increase the
burdens or decrease the benefits of such agreements to the Company in a manner
that would, individually or in the aggregate, have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Enterprise Communications Business, taken as a
whole other than modifications to schedules to the Distribution Agreements to
reflect claims made, or actions, suits, demands, claims, hearings,
investigations or proceedings initiated, in each case after the date hereof,
against or affecting the Enterprise Communications Business, the Company or any
Subsidiary (including with respect to any
<PAGE>   50
                                                                              45

violation of any Environmental Law) or (B) any amendment to the Employee
Benefits Agreement that would result in a material decrease in the Pension
Transfer Amount (as such term is defined in the Employee Benefits Agreement),
(v) if the conditions set forth in Sections 7.01 and 7.02 have not been
satisfied or waived on or prior to the Effective Date, by the Purchasers on (but
not after) the third Business Day immediately succeeding the Effective Date
(provided that such conditions have not been satisfied prior to such third
Business Day) or (vi) if the escrowed funds and securities have been returned to
the Purchasers and the Company, respectively, pursuant to Section 2.04, by
either the Company or the Purchasers.

                  (b) In the event of termination of this Agreement, written
notice thereof shall be given to the other parties specifying the provision
hereof pursuant to which such termination is made, and this Agreement (except
for the provisions of this Section 8.04, and Sections 8.03, 8.05, 8.06, 8.07,
8.08, 8.13, 8.14, and 8.15 which shall survive such termination) shall become
null and void. The Confidentiality Agreement shall survive any termination of
this Agreement.

                  SECTION 8.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, INTERPRETED UNDER, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.

                  SECTION 8.06. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY OTHER EQUITY DOCUMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY OR THEREBY. EACH PARTY (A) CERTIFIES THAT NO
REPRESENTATIVE OF ANY 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 AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER EQUITY DOCUMENTS, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 8.06.

                  SECTION 8.07. Attorney Fees. A party in breach of this
Agreement shall, on demand, indemnify and hold harmless the other party for and
against all reasonable out-of-pocket expenses, including legal fees, incurred by
such other party by reason of the enforcement and protection of its rights under
this Agreement. The payment of such
<PAGE>   51
                                                                              46

expenses is in addition to any other relief to which such other party may be
entitled.

                  SECTION 8.08. Entire Agreement. (a) This Agreement and the
Equity Documents (including all agreements entered into pursuant hereto and
thereto and all certificates and instruments delivered pursuant hereto and
thereto) constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements,
representations, understandings, negotiations and discussions between the
parties, whether oral or written, with respect to the subject matter hereof.

                  (b) Without limiting the foregoing, the Purchasers and the
Company agree that insofar as such agreement relates to Avaya, the
Confidentiality Agreement shall be deemed terminated effective as of the
Closing.

                  SECTION 8.09. Modifications and Amendments. No amendment,
modification or termination of this Agreement shall be binding upon any other
party unless executed in writing by the parties hereto intending to be bound
thereby.

                  SECTION 8.10. Waivers and Extensions. Any party to this
Agreement may waive any condition, right, breach or default that such party has
the right to waive, provided that such waiver will not be effective against the
waiving party unless it is in writing, is signed by such party, and specifically
refers to this Agreement. Waivers may be made in advance or after the right
waived has arisen or the breach or default waived has occurred. Any waiver may
be conditional. No waiver of any breach of any agreement or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach thereof
nor of any other agreement or provision herein contained. No waiver or extension
of time for performance of any obligations or acts shall be deemed a waiver or
extension of the time for performance of any other obligations or acts.

                  SECTION 8.11. Titles and Headings; Rules of Construction.
Titles and headings of sections of this Agreement are for convenience only and
shall not affect the construction of any provision of this Agreement. Unless the
context otherwise requires:

         (a) a term has the meaning assigned to it;

         (b) "or" is not exclusive;

         (c) "including" means including without limitation; and
<PAGE>   52
                                                                              47

         (d) words in the singular include the plural and words
         in the plural include the singular.

                  SECTION 8.12. Exhibits and Schedules. Each of the exhibits and
schedules referred to herein and attached hereto is an integral part of this
Agreement and is incorporated herein by reference.

                  SECTION 8.13. Expenses; Brokers. All costs and expenses
incurred in connection with this Agreement shall be paid by the party incurring
such cost or expense; provided, however, that the Company will reimburse the
Purchasers for all documented fees and expenses reasonably incurred by them
through the Funding (or earlier termination of this Agreement) related to due
diligence and the negotiation, execution and consummation of the Transactions.
Other than the use of Morgan, Stanley & Co. Incorporated by the Company, each of
the parties represents to the others that neither it nor any of its Affiliates
has used a broker or other intermediary in connection with the Transactions for
whose fees or expenses any other party will be liable. Each party agrees to
indemnify and hold the other parties to this Agreement harmless from and against
any and all claims, liabilities or obligations with respect to any such fees or
expenses asserted by any Person on the basis of any act or statement alleged to
have been made by such party or any of its Affiliates.

                  SECTION 8.14. Press Releases and Public Announcements. All
public announcements or public disclosures relating to the Transactions (other
than the Form 10) shall be made only if mutually agreed upon by the Company and
the Purchasers, except to the extent such disclosure is, in the opinion of
counsel, required by law or by stock exchange regulation, provided that (a) any
such required disclosure shall only be made, to the extent consistent with law
and stock exchange regulation, after consultation with the Purchasers, (b) no
such announcement or disclosure (except as required by law or by stock exchange
regulation) shall identify any Purchaser without such Purchaser's prior consent
and (c) the Company hereby consents to the publication by Warburg, on one
occasion following the Funding but in as many periodicals as Warburg may elect,
of a customary "tombstone" advertisement announcing the investment made pursuant
to this Agreement.

                  SECTION 8.15. Assignment; No Third Party Beneficiaries. This
Agreement and the rights, duties and obligations hereunder may not be assigned
or delegated by the Company without the prior written consent of the Purchasers,
and may not assigned or delegated by any
<PAGE>   53
                                                                              48

Purchaser without the Company's prior written consent, except that without such
consent, prior to the Initial Conditions Date, this Agreement may be assigned or
delegated, in whole or in part, by any Purchaser (or by any assignee referred to
in this provision) to any Permitted Transferee. Except as set forth above, any
assignment or delegation of rights, duties or obligations hereunder made without
the prior written consent of the Purchasers, shall be void and of no effect.
This Agreement and the provisions hereof shall be binding upon and shall inure
to the benefit of each of the parties and their respective successors and
permitted assigns. This Agreement is not intended to confer any rights or
benefits on any Persons other than as expressly set forth in this Section 8.15.

                  SECTION 8.16. Severability. This Agreement shall be deemed
severable, and the invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of this Agreement or of
any other term or provision hereof. Furthermore, in lieu of any such invalid or
unenforceable term or provision, the parties hereto intend that there shall be
added as a part of this Agreement a provision as similar in terms to such
invalid or unenforceable provision as may be possible and be valid and
enforceable.

                  SECTION 8.17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE>   54
                                                                              49

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

                                                     AVAYA INC.,

                                       by
                                              GARY K. MCGUIRE

                                         Name:   Gary K. McGuire
                                         Title:  Chief Financial
                                                 Officer

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.

by:      WARBURG, PINCUS & CO.,
         its General Partner

by
          JEFFREY A. HARRIS

  Name:  Jeffrey A. Harris
  Title: Partner

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.

by:      WARBURG, PINCUS & CO.,
         its General Partner

by
         JEFFREY A. HARRIS

  Name:  Jeffrey A. Harris
  Title: Partner

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.

by:      WARBURG, PINCUS & CO.,
         its General Partner

by
         JEFFREY A. HARRIS

  Name:  Jeffrey A. Harris
  Title: Partner
<PAGE>   55
                                                                              50

WARBURG, PINCUS EQUITY PARTNERS, L.P.

by:  WARBURG, PINCUS & CO.,
     its General Partner

by
     JEFFREY A. HARRIS

  Name:  Jeffrey A. Harris
  Title: Partner
<PAGE>   56
                                                                      Schedule 1

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.

Number of Preferred Shares
being purchased from the Company:  120,000 shares
Fractional Interest in Series A Warrants:  3%
Fractional Interest in Series B Warrants:  3%

Address for Notice:

Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017-3147

Telephone:  (212) 878-0638
Fax:        (212) 878-6139

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.

Number of Preferred Shares
being purchased from the Company:  80,000 shares
Fractional Interest in Series A Warrants:  2%
Fractional Interest in Series B Warrants:  2%

Address for Notice:

Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017-3147

Telephone:  (212) 878-0638
Fax:        (212) 878-6139

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.

Number of Preferred Shares
being purchased from the Company:  20,000 shares
Fractional Interest in Series A Warrants:  0.5%
Fractional Interest in Series B Warrants:  0.5%

Address for Notice:

Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017-3147

Telephone:  (212) 878-0638
Fax:        (212) 878-6139
<PAGE>   57
                                                                               2
WARBURG, PINCUS EQUITY PARTNERS, L.P.

Number of Preferred Shares
being purchased from the Company:  3,780,000 shares
Fractional Interest in Series A Warrants:  94.5%
Fractional Interest in Series B Warrants:  94.5%

Address for Notice:

Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017-3147

Telephone:  (212) 878-0638
Fax:        (212) 878-6139
<PAGE>   58
                                                                       Exhibit A
                                              Form of Certificate of Designation

             CERTIFICATE OF DESIGNATIONS, PREFERENCES
        AND RIGHTS OF SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
                                       OF
                                   AVAYA INC.

                         Pursuant to Section 151 of the
                General Corporation Law of the State of Delaware

         The undersigned, pursuant to the provisions of Sections 103 and 151 of
the General Corporation Law of the State of Delaware, do hereby certify that,
pursuant to the authority expressly vested in the Board of Directors of Avaya
Inc., a Delaware corporation (the "CORPORATION"), by the Corporation's
Certificate of Incorporation, the Board of Directors has duly provided for the
issuance of and created a series of Preferred Stock of the Corporation, par
value $1.00 per share (the "PREFERRED STOCK"), and in order to fix the
designation and amount and the voting powers, designations, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of a series of Preferred Stock,
has duly adopted this Certificate of Designations, Preferences and Rights of
Preferred Stock (the "CERTIFICATE").

         Each share of such series of Preferred Stock shall rank equally in all
respects and shall be subject to the following provisions:

         1. NUMBER OF SHARES AND DESIGNATION. 4,000,000 shares of Preferred
Stock of the Corporation shall constitute a series of Preferred Stock designated
as Series B Convertible Participating Preferred Stock (the "SERIES B PREFERRED
STOCK"). The number of shares of Series B Preferred Stock may be increased (to
the extent of the Corporation's authorized and unissued Preferred Stock) or
decreased (but not below the number of shares of Series B Preferred Stock then
outstanding) by further resolution duly adopted by the Board of Directors and
the filing of a certificate of increase or decrease, as the case may be, with
the Secretary of State of Delaware.

         2. RANK. The Series B Preferred Stock shall, with respect to payment of
dividends, redemption payments, rights upon liquidation, dissolution or winding
up of the affairs of the Corporation, or otherwise (i) rank senior and prior to
the Common Stock, and each other class or series of equity securities of the
Corporation, whether currently issued or issued in the future, that by its terms
ranks junior to the Series B Preferred Stock (whether with respect to payment of
dividends, redemption payments, rights upon liquidation, dissolution or winding
up of the affairs of the Corporation, or otherwise) (all of such equity
securities, including the Common Stock, are collectively referred to herein as
the "JUNIOR SECURITIES"), (ii) rank on a parity with each other class or series
of equity securities of the Corporation, whether currently issued or issued in
the future, that does not by its terms expressly provide that it ranks senior to
or junior to the Series B Preferred Stock (whether with respect to payment of
dividends, redemption payments, rights upon liquidation, dissolution or winding
up of the affairs of the Corporation, or otherwise) (all of such equity
securities are collectively referred to herein as the "PARITY SECURITIES"), and
(iii) rank junior to each other class or series of equity securities of the
Corporation, whether currently issued or issued in the future, that by its terms
ranks senior to the Series B Preferred Stock (whether with respect to payment of
dividends, redemption payments, rights upon liquidation, dissolution or winding
up of the affairs of the Corporation, or otherwise) (all of such equity
securities are collectively referred to herein as the "SENIOR SECURITIES"). The
respective definitions of Junior Securities, Parity Securities and Senior
Securities shall also include any rights or options exercisable or exchangeable
for or convertible into any of the Junior Securities, Parity Securities or
Senior Securities, as the case may be.
<PAGE>   59

         3. DIVIDENDS.

         (a) The holders of shares of Series B Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, dividends on the terms described
below:

                  (i) Holders of shares of Series B Preferred Stock shall be
         entitled to participate equally and ratably with the holders of shares
         of Common Stock in all dividends and distributions paid (whether in the
         form of cash, stock or otherwise) on the shares of Common Stock as if
         immediately prior to each record date for the Common Stock, shares of
         Series B Preferred Stock then outstanding were converted into shares of
         Common Stock (in the manner described in Section 7); provided, however,
         that the holders of shares of Series B Preferred Stock shall not be
         entitled to participate in such dividend or distribution if an
         adjustment to the Conversion Price shall be required with respect to
         such dividends or distributions pursuant to Section 7(c) hereof;

                  (ii) In addition to any dividends paid pursuant to Section
         3(a)(i), in respect of each fiscal quarter beginning with the
         thirteenth (13th) fiscal quarter following the Original Issue Date
         through the twentieth (20th) fiscal quarter following the Original
         Issue Date, the Corporation may, at its option, pay a cash dividend on
         each share of Series B Preferred Stock at an annual rate equal to 3.25%
         (compounded quarterly) of the Liquidation Value then in effect;

                  (iii) In addition to any dividends paid pursuant to Section
         3(a)(i), in respect of each fiscal quarter beginning with the twenty
         first (21st) fiscal quarter following the Original Issue Date through
         the fortieth (40th) fiscal quarter following the Original Issue Date,
         the Corporation may, at its option, pay a cash dividend on each share
         of Series B Preferred Stock at an annual rate equal to 6.5% (compounded
         quarterly) of the Liquidation Value then in effect; and

                  (iv) In addition to any dividends paid pursuant to Section
         3(a)(i), in respect of each fiscal quarter beginning with the forty
         first (41st) fiscal quarter following the Original Issue Date, and
         thereafter, the Corporation shall pay a cash dividend on each share of
         Series B Preferred Stock at an annual rate equal to 12.0% (compounded
         quarterly) of the Liquidation Value then in effect.

For purposes of this Section 3, the first fiscal quarter shall be the period
beginning on the Original Issue Date and ending on the last day of the
Corporation's fiscal quarter in which the Original Issue Date occurs. Dividends
payable pursuant to Section 3(a)(i) shall be payable on the same date that such
dividends are payable to holders of shares of Common Stock. Dividends payable
pursuant to Sections 3(a)(ii) and (iii) shall be payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year (unless such day is
not a Business Day (as

                                       2
<PAGE>   60

defined below), in which event such dividends shall be payable on the next
succeeding Business Day) (each such payment date being a "DIVIDEND PAYMENT DATE"
and the period from the third anniversary of the Original Issue Date until the
first Dividend Payment Date and each such quarterly period thereafter being a
"DIVIDEND PERIOD"). The amount of dividends payable on the Series B Preferred
Stock for the initial Dividend Period, or for any other period shorter or longer
than a full Dividend Period, shall be computed on the basis of a 360-day year of
twelve 30-day months. As used herein, the term "BUSINESS DAY" means any day
except a Saturday, Sunday or day on which banking institutions are legally
authorized to close in the City of New York.

         (b) Each dividend shall be payable to the holders of record of shares
of Series B Preferred Stock as they appear on the stock records of the
Corporation at the close of business on such record dates (each, a "DIVIDEND
PAYMENT RECORD DATE"), which shall be not more than 60 days nor less than 10
days preceding the Dividend Payment Date thereof, as shall be fixed by the Board
of Directors.

         (c) From and after the time, if any, as the Corporation fails to pay to
the holder of any shares of Series B Preferred Stock, on the date specified for
redemption in accordance with Section 6(b), the redemption price calculated
pursuant to Section 5 after such holder has delivered notice to the Corporation
pursuant to Section 6(a) of its intention to exercise its redemption rights
under Section 5, (a) no dividends shall be declared or paid or set apart for
payment, or other distribution declared or made, upon any Junior Securities, nor
shall any Junior Securities be redeemed, purchased or otherwise acquired (other
than a redemption, purchase or other acquisition of shares of Common Stock made
for purposes of any employee or director incentive or benefit plans or
arrangements of the Corporation or any subsidiary of the Corporation or the
payment of cash in lieu of fractional shares in connection therewith) for any
consideration (nor shall any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such Junior Securities) by the
Corporation, directly or indirectly (except by conversion into or exchange for
Junior Securities or the payment of cash in lieu of fractional shares in
connection therewith) and (b) the Corporation shall not, directly or indirectly,
make any payment on account of any purchase, redemption, retirement or other
acquisition of any Parity Securities (other than for consideration payable
solely in Junior Securities or the payment of cash in lieu of fractional shares
in connection therewith); provided, however, that this Section 3(c) shall not be
applicable at any time that the Corporation has paid, in accordance with Section
6(b), the redemption price to each holder that has exercised its redemption
right pursuant to Section 6(a).

         4. LIQUIDATION PREFERENCE.

         (a) The initial liquidation preference for the shares of Series B
Preferred Stock shall be $100.00 per share, which amount shall accrete, (x) from
the Original Issue Date until the tenth anniversary of the Original Issue Date,
at an annual rate of 6.5%, compounded quarterly, and (y) from and after the
tenth anniversary of the Original Issue Date, at an annual rate of 12.0%,
compounded quarterly, in each case, computed on the basis of a 360 day year of
twelve 30 day months (such accreted amount being the "LIQUIDATION VALUE"). The
Liquidation Value shall be calculated on each Dividend Payment Date and the
accretion for the Dividend Period ending on the applicable Dividend Payment Date
shall be reduced by the amount of any cash dividend paid on such Dividend
Payment Date pursuant to Sections 3(a)(ii), 3(a)(iii) or 3(a)(iv); provided,
however, that in the event of a Change in Control within five years after the
Original Issue Date,

                                       3
<PAGE>   61

(A) the Liquidation Value upon such Change in Control shall be increased by the
difference between (i) the Accelerated Amount (as defined below) minus (ii) the
Accelerated Cash Payment (as defined below) (to the extent paid pursuant to the
following proviso) and (B) only the portion of such increased Liquidation Value
equal to the Non-Accelerated Amount (as defined below) shall accrete (in the
manner set forth in Section 4(a)(x)) upon such Change in Control until the fifth
anniversary of the Original Issue Date, upon which anniversary and thereafter
all of the Liquidation Value then in effect (as increased pursuant to Section
4(a)(A) and accreted pursuant to Section 4(a)(B)) shall accrete (in the manner
set forth in Sections 4(a)(x) and 4(a)(y)); provided, further, however, that in
the circumstances described below, the Corporation shall have the option to pay
the Accelerated Cash Payment. The "ACCELERATED CASH PAYMENT" shall mean the
product of (x) EP (as defined below) and (y) (i) in the case of a Change in
Control after the third anniversary of the Original Issue Date, if a cash
dividend was paid on the Dividend Payment Date immediately preceeding such
Change in Control pursuant to Section 3(a)(ii) hereof, the amount of cash
dividends payable pursuant to Section 3(a)(ii) in respect of the fiscal quarter
in which such Change in Control occurs and each fiscal quarter thereafter
through the twentieth (20th) fiscal quarter following the Original Issue Date
and (ii) in the case of a Change in Control prior to the third anniversary of
the Original Issue Date, 100% of the amount of cash dividends payable at the
option of the Corporation pursuant to Section 3(a)(ii) in respect of the
seventeenth (17th) through twentieth (20th) fiscal quarters following the
Original Issue Date, assuming in each case full accretion (as adjusted for
payment of such cash dividends) prior to the date of payment of each dividend.
The "ACCELERATED AMOUNT" shall be: (FV-LV) x EP; and the "NON-ACCELERATED
AMOUNT" shall be: LV x (1-EP), in each case where:

                  (i) FV is the amount of the Liquidation Value had it fully
         accreted from the date of the Change in Control through the fifth
         anniversary of the Original Issue Date,

                  (ii) LV is the Liquidation Value in effect prior to the
         adjustment pursuant to this section, and

                  (iii) EP is (A) in the context of a Change in Control effected
         pursuant to a transaction or series of related transactions that
         constitute a Business Combination, the percentage of consideration paid
         to shareholders of the Corporation in such Business Combination that is
         not paid in common stock of the Corporation or of the surviving
         corporation of the Business Combination or its ultimate parent company
         into or for which shares of common stock of the Corporation were
         converted or exchanged pursuant to the Business Combination (other than
         cash in lieu of fractional shares which shall be deemed to be common
         stock for purposes of this clause (A)); and (B) in the event of any
         other Change in Control, 100%.

         (b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock shall be entitled to receive the greater of (i) the Liquidation
Value of such shares in effect on the date of such liquidation, dissolution or
winding up, plus an amount equal to (A) except to the extent that a dividend
pursuant to Section 3(a)(ii), (iii) or (iv) has been declared in respect of the
Dividend Period during which such liquidation, dissolution or winding up occurs
and such liquidation, dissolution or winding up occurs after the relevant
Dividend Payment Record Date, the unrecognized accretion from the immediately
preceding Dividend Payment Date up to but not including the date of such

                                       4
<PAGE>   62

liquidation, dissolution or winding up and (B) the dividends accrued and unpaid
thereon, whether or not declared, up to but not including the date of such
liquidation, dissolution or winding up or (ii) the payment such holders would
have received had such holders, immediately prior to such liquidation,
dissolution or winding up, converted their shares of Series B Preferred Stock
into shares of Common Stock (pursuant to, and at a conversion rate described in,
Section 7).

         (c) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock (i) shall not be entitled to receive the Liquidation Value of
such shares until payment in full or provision has been made for the payment in
full of all claims of creditors of the Corporation and the liquidation
preferences for all Senior Securities, and (ii) shall be entitled to receive the
Liquidation Value of such shares before any payment or distribution of any
assets of the Corporation shall be made or set apart for holders of any Junior
Securities. Subject to clause (i) above, if the assets of the Corporation are
not sufficient to pay in full the Liquidation Value payable to the holders of
shares of Series B Preferred Stock and the liquidation preference payable to the
holders of any Parity Securities, then such assets, or the proceeds thereof,
shall be distributed among the holders of shares of Series B Preferred Stock and
any such other Parity Securities ratably in accordance with the Liquidation
Value for the Series B Preferred Stock and the liquidation preference for the
Parity Securities, respectively.

         (d) Neither a consolidation or merger of the Corporation with or into
any other entity, nor a merger of any other entity with or into the Corporation,
nor a sale or transfer of all or any part of the Corporation's assets for cash,
securities or other property shall be considered a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 4.

         5. REDEMPTION.

         The holder of shares of Series B Preferred Stock shall have the right
to require the Corporation to redeem such shares of Series B Preferred Stock, in
whole or in part, at such holder's option, (i) upon the Corporation's delivery
of notice of exercise of its conversion rights pursuant to Section 7(a)(ii), at
a cash redemption price equal to the Liquidation Value in effect on the
Redemption Date plus an amount equal to (A) except to the extent that a dividend
pursuant to Section 3(a)(ii), (iii) or (iv) has been declared in respect of the
Dividend Period during which such Redemption Date occurs and the Redemption Date
occurs after the relevant Dividend Payment Record Date, the unrecognized
accretion from the immediately preceding Dividend Payment Date up to but not
including the Redemption Date and (B) the dividends accrued and unpaid thereon,
whether or not declared, up to but not including the Redemption Date or (ii)
within 60 days of a Change in Control, at a cash redemption price equal to 101%
of the Liquidation Value in effect on the Redemption Date, plus an amount equal
to (A) except to the extent that a dividend pursuant to Section 3(a)(ii), (iii)
or (iv) has been declared in respect of the Dividend Period during which such
Redemption Date occurs and the Redemption Date occurs after the relevant
Dividend Payment Record Date, the unrecognized accretion from the immediately
preceding Dividend Payment Date up to but not including the Redemption Date and
(B) the dividends accrued and unpaid thereon, whether or not declared, up to but
not including the Redemption Date. In the event that the Corporation does not
pay the redemption price on the Redemption Date, the redemption price shall be
calculated as if the Redemption Date were the later of the Redemption Date and
the date on which such payment is made.

                                       5
<PAGE>   63

         6. PROCEDURES FOR REDEMPTION.

         (a) In the event of a redemption of shares of Series B Preferred Stock
pursuant to Section 5, notice of such redemption shall be given by first class
mail, postage prepaid, mailed not less than 15 days nor more than 60 days prior
to the Redemption Date, to the office of the Corporation. Such notice shall
state: (i) the date on which the holder is to surrender to the Corporation the
certificates for any shares to be redeemed (such date, or if such date is not a
Business Day, the first Business Day thereafter, the "REDEMPTION DATE") and (ii)
the number of shares of Series B Preferred Stock to be redeemed and, if fewer
than all the shares held by such holder are to be redeemed, the number of shares
to be redeemed from such holder. Any notice mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not the
Corporation receives the notice.

         (b) Upon surrender in accordance with the notice of redemption of the
certificates for any shares so redeemed, such shares shall be redeemed by the
Corporation at the redemption price aforesaid. In case fewer than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.

         7. CONVERSION.

         (a) Right to Convert.

                  (i) Subject to the provisions of this Section 7, each holder
         of shares of Series B Preferred Stock shall have the right, at any time
         and from time to time, at such holder's option, to convert any or all
         of such holder's shares of Series B Preferred Stock, in whole or in
         part, into fully paid and non-assessable shares of Common Stock at the
         conversion price equal to the "INITIAL CONVERSION PRICE" per share of
         Common Stock (as defined below), subject to adjustment as described in
         Section 7(c) (as adjusted, the "CONVERSION PRICE"). The number of
         shares of Common Stock into which a share of the Series B Preferred
         Stock shall be convertible (calculated as to each conversion to the
         nearest 1/1,000,000th of a share) shall be determined by dividing the
         Liquidation Value in effect at the time of conversion by the Conversion
         Price in effect at the time of conversion; provided, however, that,
         except to the extent that a dividend pursuant to Section 3(a)(ii),
         (iii) or (iv) has been declared in respect of the Dividend Period
         during which conversion occurs and conversion occurs after the relevant
         Dividend Payment Record Date, the Liquidation Value in respect of the
         shares of Series B Stock to be converted shall be increased by an
         amount equal to the unrecognized accretion from the immediately
         preceding Dividend Payment Date up to but not including the date of
         conversion. The "INITIAL CONVERSION PRICE" shall be an amount equal to
         the quotient of $7,600,000,000, divided by (y) the Initial Fully
         Diluted Shares Outstanding (as defined below). The Corporation will
         prepare a schedule calculating the Initial Conversion Price and present
         this schedule to the initial holders within 15 Business Days after
         December 31, 2000. If the initial holders concur with such schedule as
         prepared by the Corporation or otherwise do not respond within 10
         Business Days following receipt, the Initial Conversion Price will be
         as set forth therein. If the initial holders dispute the calculation of
         the Initial Conversion

                                       6
<PAGE>   64

         Price pursuant to such schedule as proposed by the Corporation, the
         initial holders will note such dispute in writing to the Corporation
         within 10 Business Days following receipt of Schedule 7(a)(i) from the
         Corporation. If the Corporation and the initial holders cannot agree on
         calculation of the Initial Conversion Price within 5 Business Days
         following the initial holders' written response noting its dispute,
         then the Corporation and the initial holders will chose a mutually
         agreeable investment banking or accounting firm to compute the Initial
         Conversion Price in accordance with this definition, and such
         computation shall be final. The fees and expenses of such firm shall be
         borne equally by the Corporation and the initial holders disputing such
         calculation. "INITIAL FULLY DILUTED SHARES OUTSTANDING" means the sum
         of (x) all issued and outstanding shares of Common Stock of the
         Corporation as of the time immediately following the Distribution (as
         defined in the Purchase Agreement), (y) all shares of Common Stock
         issuable upon exercise or conversion of all options and convertible
         securities issued and outstanding as of the time immediately following
         the Distribution that are held by employees, officers and directors of
         the Corporation and with respect to which the exercise price is less
         than or equal to the Twenty Day Average Price (in each case after
         giving effect to the deemed receipt by the Corporation of the aggregate
         exercise or conversion price of all such options or convertible
         securities and the deemed application of such amount to acquire shares
         of Common Stock at the Twenty Day Average Price of the Common Stock)
         and (z) all shares and restricted shares of Common Stock and all shares
         of Common Stock issuable upon exercise or conversion of all options and
         convertible securities issued, sold or granted following the
         Distribution (other than those referred to in clause (y) above) to
         employees, officers and directors of the Corporation and with respect
         to which the exercise price (or in the case of shares or restricted
         shares, the purchase price) is less than or equal to the Twenty Day
         Average Price (in each case after giving effect to the deemed receipt
         by the Corporation of the aggregate exercise or conversion (or
         purchase) price of all such shares, options or convertible securities
         and the deemed application of such amount to acquire shares of Common
         Stock at the Twenty Day Average Price of the Common Stock). The "TWENTY
         DAY AVERAGE PRICE" shall mean the average of the Market Prices of the
         Common Stock during the twenty consecutive trading days ending on the
         90th day (or if such day is not a business day, the next preceding
         business day) after the Original Issue Date. The calculation of Initial
         Fully Diluted Shares Outstanding shall not take into account Series B
         Preferred Stock or Warrants or the shares of Common Stock into which
         such shares of Series B Preferred Stock are convertible or the shares
         of Common Stock issuable upon exercise of such Warrants. The Initial
         Conversion Price and the Initial Fully Diluted Shares Outstanding shall
         be determined as of December 31, 2000. Following the determination of
         the Initial Conversion Price as set forth herein, the Corporation shall
         amend this Certificate of Designation to set forth the amount thereof.

                  (ii) From and after the fifth anniversary of the Original
         Issue Date, subject to the provisions of this Section 7, the
         Corporation shall have the right to require the holder of shares of
         Series B Preferred Stock, from time to time, at the Corporation's
         option, to convert any or all of such holder's shares of Series B
         Preferred Stock, in whole or in part, into fully paid and
         non-assessable shares of Common Stock at the Conversion Price. The
         number of shares of Common Stock into which a share of the Series B
         Preferred Stock shall be convertible (calculated as to each conversion
         to the nearest 1/1,000,000th of a

                                       7
<PAGE>   65

         share) shall be determined by dividing the Liquidation Value in effect
         at the time of conversion by the Conversion Price in effect at the time
         of conversion.

         (b) Mechanics of Conversion.

                  (i) A holder of shares of Series B Preferred Stock or the
         Corporation, as the case may be, that elects to exercise its conversion
         rights pursuant to Section 7(a) shall provide notice to the other party
         as follows:

                           (A) Holder's Notice and Surrender. To exercise its
                  conversion right pursuant to Section 7(a)(i), the holder of
                  shares of Series B Preferred Stock to be converted shall
                  surrender the certificate or certificates representing such
                  shares at the office of the Corporation (or any transfer agent
                  of the Corporation previously designated by the Corporation to
                  the holders of Series B Preferred Stock for this purpose) with
                  a written notice of election to convert, completed and signed,
                  specifying the number of shares to be converted.

                           (B) Corporation's Notice. To exercise its conversion
                  right pursuant to Section 7(a)(ii), the Corporation shall
                  deliver written notice to such holder, at least 30 days and no
                  more than 75 days prior to the Conversion Date, specifying:
                  (i) the number of shares of Series B Preferred Stock to be
                  converted and, if fewer than all the shares held by such
                  holder are to be converted, the number of shares to be held by
                  such holder; (ii) the Conversion Date; (iii) the number of
                  shares of Common Stock to be issued in respect of each share
                  of Series B Preferred Stock that is converted; (iv) the place
                  or places where certificates for such shares are to be
                  surrendered for issuance of certificates representing shares
                  of Common Stock; and (v) that dividends on the shares to be
                  converted will cease to accrue on such Conversion Date.

         Unless the shares issuable upon conversion are to be issued in the same
         name as the name in which such shares of Series B Preferred Stock are
         registered, each share surrendered for conversion shall be accompanied
         by instruments of transfer, in form satisfactory to the Corporation,
         duly executed by the holder or the holder's duly authorized attorney
         and an amount sufficient to pay any transfer or similar tax in
         accordance with Section 7(b)(vi). As promptly as practicable after the
         surrender by the holder of the certificates for shares of Series B
         Preferred Stock as aforesaid, the Corporation shall issue and shall
         deliver to such holder, or on the holder's written order to the
         holder's transferee, a certificate or certificates for the whole number
         of shares of Common Stock issuable upon the conversion of such shares
         and a check payable in an amount corresponding to any fractional
         interest in a share of Common Stock as provided in Section 7(b)(vii).

                  (ii) Each conversion shall be deemed to have been effected
         immediately prior to the close of business on (x) in the case of
         conversion pursuant to Section 7(a)(i), the first Business Day on which
         the certificates for shares of Series B Preferred Stock shall have been
         surrendered and such notice received by the Corporation as aforesaid
         and (y) in the case of conversion pursuant to Section 7(a)(ii), the
         date specified as the Conversion Date in the Corporation's notice of
         conversion delivered to each holder pursuant to Sec-

                                       8
<PAGE>   66

         tion 7(b)(i)(B) (in either case, the "CONVERSION DATE"). At such time
         on the Conversion Date:

                           (A) the person in whose name or names any certificate
                  or certificates for shares of Common Stock shall be issuable
                  upon such conversion shall be deemed to have become the holder
                  of record of the shares of Common Stock represented thereby at
                  such time; and

                           (B) such shares of Series B Preferred Stock so
                  converted shall no longer be deemed to be outstanding, and all
                  rights of a holder with respect to such shares (x) in the
                  event of conversion pursuant to Section 7(a)(i), surrendered
                  for conversion and (y) in the event of conversion pursuant to
                  Section 7(a)(ii), covered by the Corporation's notice of
                  conversion, shall immediately terminate except the right to
                  receive the Common Stock and other amounts payable pursuant to
                  this Section 7.

         All shares of Common Stock delivered upon conversion of the Series B
         Preferred Stock will, upon delivery, be duly and validly authorized and
         issued, fully paid and nonassessable, free from all preemptive rights
         and free from all taxes, liens, security interests and charges (other
         than liens or charges created by or imposed upon the holder or taxes in
         respect of any transfer occurring contemporaneously therewith).

                  (iii) Holders of shares of Series B Preferred Stock at the
         close of business on a Dividend Payment Record Date shall be entitled
         to receive the dividend payable on such shares on the corresponding
         Dividend Payment Date notwithstanding the conversion thereof following
         such Dividend Payment Record Date and prior to such Dividend Payment
         Date. A holder of shares of Series B Preferred Stock on a Dividend
         Payment Record Date who (or whose transferee) tenders any such shares
         for conversion into shares of Common Stock on such Dividend Payment
         Date will receive the dividend payable by the Corporation on such
         shares of Series B Preferred Stock if and when paid, and the converting
         holder need not include payment of the amount of such dividend upon
         surrender of shares of Series B Preferred Stock for conversion.

                  (iv) Except as provided in clause (iii) above and in Section
         7(c), the Corporation shall make no payment or adjustment for accrued
         and unpaid dividends on shares of Series B Preferred Stock, whether or
         not in arrears, on conversion of such shares or for dividends in cash
         on the shares of Common Stock issued upon such conversion.

                  (v) The Corporation will at all times reserve and keep
         available, free from preemptive rights, out of its authorized but
         unissued Common Stock, solely for the purpose of effecting conversions
         of the Series B Preferred Stock, the aggregate number of shares of
         Common Stock issuable upon conversion of the Series B Preferred Stock.
         The Corporation will procure, at its sole expense, the listing of the
         shares of Common Stock, subject to issuance or notice of issuance on
         the principal domestic stock exchange on which the Common Stock is then
         listed or traded. The Corporation will take all commercially reasonable
         action as may be necessary to ensure that the shares of Common Stock

                                       9
<PAGE>   67

         may be issued without violation of any applicable law or regulation or
         of any requirement of any securities exchange on which the shares of
         Common Stock are listed or traded.

                  (vi) Issuances of certificates for shares of Common Stock upon
         conversion of the Series B Preferred Stock shall be made without charge
         to the holder of shares of Series B Preferred Stock for any issue or
         transfer tax (other than taxes in respect of any transfer occuring
         contemporaneously therewith or as a result of the holder being a
         non-U.S. person) or other incidental expense in respect of the issuance
         of such certificates, all of which taxes and expenses shall be paid by
         the Corporation; provided, however, that the Corporation shall not be
         required to pay any tax which may be payable in respect of any transfer
         involved in the issuance or delivery of shares of Common Stock in a
         name other than that of the holder of the Series B Preferred Stock to
         be converted, and no such issuance or delivery shall be made unless and
         until the person requesting such issuance or delivery has paid to the
         Corporation the amount of any such tax or has established, to the
         satisfaction of the Corporation, that such tax has been paid.

                  (vii) In connection with the conversion of any shares of
         Series B Preferred Stock, no fractions of shares of Common Stock shall
         be issued, but in lieu thereof the Corporation shall pay a cash
         adjustment in respect of such fractional interest in an amount equal to
         such fractional interest multiplied by the Market Price per share of
         Common Stock on the Conversion Date.

                  (viii) If fewer than all of the outstanding shares of Series B
         Preferred Stock are to be converted pursuant to Section 7(a)(ii), the
         shares shall be redeemed on a pro rata basis (according to the number
         of shares of Series B Preferred Stock held by each holder, with any
         fractional shares rounded to the nearest whole share or in such other
         manner as the Board of Directors may determine, as may be prescribed by
         resolution of the Board of Directors).

                  (ix) Notwithstanding anything to the contrary in this
         Certificate, if a notice of conversion has been given by the
         Corporation pursuant to Section 7(b)(ii) and any holder of shares of
         Series B Preferred Stock shall, prior to the close of business on the
         Business Day preceding the Conversion Date, give written notice to the
         Corporation pursuant to Section 6 of the redemption of any or all of
         the shares to be converted held by the holder that would otherwise be
         converted on such Conversion Date, then such conversion shall not
         become effective as to such shares to be redeemed and such redemption
         shall become effective as provided in Section 5.

         (c) Adjustments to Conversion Price. The Conversion Price shall be
adjusted from time to time as follows:

                  (i) Common Stock Issued at Less than Market Value. If the
         Corporation issues or sells any Common Stock other than Excluded Stock
         without consideration or for consideration per share less than the
         Market Price of the Common Stock, as of the day of such issuance or
         sale, the Conversion Price in effect immediately prior to each such
         issuance or sale will immediately (except as provided below) be reduced
         to the price determined by multiplying (A) the Conversion Price at
         which shares of Series B Preferred

                                       10
<PAGE>   68

         Stock were theretofore convertible by (B) a fraction of which the
         numerator shall be the sum of (1) the number of shares of Common Stock
         outstanding immediately prior to such issuance or sale and (2) the
         number of additional shares of Common Stock that the aggregate
         consideration received by the Corporation for the number of shares of
         Common Stock so offered would purchase at the Market Price per share of
         Common Stock on the last trading day immediately preceding such
         issuance or sale, and of which the denominator shall be the number of
         shares of Common Stock outstanding immediately after such issuance or
         sale. For the purposes of any adjustment of the Conversion Price
         pursuant to this Section 7(c), the following provisions shall be
         applicable:

                           (A) In the case of the issuance of Common Stock for
                  cash, the amount of the consideration received by the
                  Corporation shall be deemed to be the amount of the cash
                  proceeds received by the Corporation for such Common Stock
                  before deducting therefrom any discounts or commissions
                  allowed, paid or incurred by the Corporation for any
                  underwriting or otherwise in connection with the issuance and
                  sale thereof.

                           (B) In the case of the issuance of Common Stock
                  (otherwise than upon the conversion of shares of Capital Stock
                  or other securities of the Corporation) for a consideration in
                  whole or in part other than cash, including securities
                  acquired in exchange therefor (other than securities by their
                  terms so exchangeable), the consideration other than cash
                  shall be deemed to be the fair value thereof as determined by
                  the Board of Directors, provided, however, that such fair
                  value as determined by the Board of Directors shall not exceed
                  the aggregate Market Price of the shares of Common Stock being
                  issued as of the date the Board of Directors authorizes the
                  issuance of such shares.

                           (C) In the case of the issuance of (a) options,
                  warrants or other rights to purchase or acquire Common Stock
                  (whether or not at the time exercisable) or (b) securities by
                  their terms convertible into or exchangeable for Common Stock
                  (whether or not at the time so convertible or exchangeable) or
                  options, warrants or rights to purchase such convertible or
                  exchangeable securities (whether or not at the time
                  exercisable):

                                    (1) the aggregate maximum number of shares
                           of Common Stock deliverable upon exercise of such
                           options, warrants or other rights to purchase or
                           acquire Common Stock shall be deemed to have been
                           issued at the time such options, warrants or rights
                           are issued and for a consideration equal to the
                           consideration (determined in the manner provided in
                           Section 7(c)(i) (A) and (B), if any, received by the
                           Corporation upon the issuance of such options,
                           warrants or rights plus the minimum purchase price
                           provided in such options, warrants or rights for the
                           Common Stock covered thereby;

                                    (2) the aggregate maximum number of shares
                           of Common Stock deliverable upon conversion of or in
                           exchange for any such convertible or exchangeable
                           securities, or upon the exercise of options, war-

                                       11
<PAGE>   69

                           rants or other rights to purchase or acquire such
                           convertible or exchangeable securities and the
                           subsequent conversion or exchange thereof, shall be
                           deemed to have been issued at the time such
                           securities were issued or such options, warrants or
                           rights were issued and for a consideration equal to
                           the consideration, if any, received by the
                           Corporation for any such securities and related
                           options, warrants or rights (excluding any cash
                           received on account of accrued interest or accrued
                           dividends), plus the additional consideration
                           (determined in the manner provided in Section 7(c)(i)
                           (A) and (B), if any, to be received by the
                           Corporation upon the conversion or exchange of such
                           securities, or upon the exercise of any related
                           options, warrants or rights to purchase or acquire
                           such convertible or exchangeable securities and the
                           subsequent conversion or exchange thereof;

                                    (3) on any change in the number of shares of
                           Common Stock deliverable upon exercise of any such
                           options, warrants or rights or conversion or exchange
                           of such convertible or exchangeable securities or any
                           change in the consideration to be received by the
                           Corporation upon such exercise, conversion or
                           exchange, but excluding changes resulting from the
                           anti-dilution provisions thereof (to the extent
                           comparable to the anti-dilution provisions contained
                           herein), the Conversion Price as then in effect shall
                           forthwith be readjusted to such Conversion Price as
                           would have been obtained had an adjustment been made
                           upon the issuance of such options, warrants or rights
                           not exercised prior to such change, or of such
                           convertible or exchangeable securities not converted
                           or exchanged prior to such change, upon the basis of
                           such change;

                                    (4) on the expiration or cancellation of any
                           such options, warrants or rights (without exercise),
                           or the termination of the right to convert or
                           exchange such convertible or exchangeable securities
                           (without exercise), if the Conversion Price shall
                           have been adjusted upon the issuance thereof, the
                           Conversion Price shall forthwith be readjusted to
                           such Conversion Price as would have been obtained had
                           an adjustment been made upon the issuance of such
                           options, warrants, rights or such convertible or
                           exchangeable securities on the basis of the issuance
                           of only the number of shares of Common Stock actually
                           issued upon the exercise of such options, warrants or
                           rights, or upon the conversion or exchange of such
                           convertible or exchangeable securities; and

                                    (5) if the Conversion Price shall have been
                           adjusted upon the issuance of any such options,
                           warrants, rights or convertible or exchangeable
                           securities, no further adjustment of the Conversion
                           Price shall be made for the actual issuance of Common
                           Stock upon the exercise, conversion or exchange
                           thereof.

                  (ii) Stock Splits, Subdivisions, Reclassifications or
         Combinations. If the Corporation shall (1) declare a dividend or make a
         distribution on its Common Stock in shares of Common Stock, (2)
         subdivide or reclassify the outstanding shares of Common

                                       12
<PAGE>   70

         Stock into a greater number of shares, or (3) combine or reclassify the
         outstanding Common Stock into a smaller number of shares, the
         Conversion Price in effect at the time of the record date for such
         dividend or distribution or the effective date of such subdivision,
         combination or reclassification shall be adjusted to the number
         obtained by multiplying the Conversion Price at which the shares of
         Series B Preferred Stock were theretofore convertible by a fraction,
         the numerator of which shall be the number of shares of Common Stock
         outstanding immediately prior to such action, and the denominator of
         which shall be the number of shares of Common Stock outstanding
         immediately following such action.

                  (iii) Other Distributions. In case the Corporation shall fix a
         record date for the making of a distribution to all holders of shares
         of its Common Stock (i) of shares of any class or of any Person other
         than shares of the Corporation's Common Stock or (ii) of evidence of
         indebtedness of the Corporation or any Subsidiary or (iii) of assets
         (excluding Ordinary Cash Dividends, and dividends or distributions
         referred to in Section 7(c)(ii)), or (iv) of rights or warrants, in
         each such case the Conversion Price in effect immediately prior thereto
         shall be reduced immediately thereafter to the price determined by
         multiplying (A) the Conversion Price in effect immediately prior
         thereto by (B) a fraction, the numerator of which shall be the Market
         Price per share of Common Stock on such record date less the then fair
         market value (as determined by the Board of Directors, whose good faith
         determination shall be conclusive) as of such record date of the
         shares, assets, evidences of indebtedness, rights or warrants so paid
         with respect to one share of Common Stock, and the denominator of which
         shall be the Market Price per share of Common Stock on such record
         date; provided, however, that in the event the then fair market value
         (as so determined) so paid with respect to one share of Common Stock is
         equal to or greater than the Market Price per share of Common Stock on
         such record date, in lieu of the foregoing adjustment, adequate
         provision shall be made so that each holder of shares of Series B
         Preferred Stock shall have the right to receive the amount and kind of
         shares, assets, evidences of indebtedness, rights or warrants such
         holder would have received had such holder converted each such share of
         Series B Preferred Stock immediately prior to record date for such
         distribution. In the event that such distribution is not so made, the
         Conversion Price then in effect shall be readjusted, effective as of
         the date when the Board of Directors determines not to distribute such
         shares, evidences of indebtedness, assets, rights or warrants, as the
         case may be, to the Conversion Price that would then be in effect if
         such record date had not been fixed.

                  (iv) Certain Repurchases of Common Stock. In case the
         Corporation effects a Pro Rata Repurchase of Common Stock, then the
         Conversion Price shall be reduced to the price determined by
         multiplying the Conversion Price in effect immediately prior to the
         effective date of such Pro Rata Repurchase by a fraction of which the
         numerator shall be the product of (x) the number of shares of Common
         Stock outstanding (including any tendered or exchanged shares) at such
         effective date, multiplied by the Market Price per share of Common
         Stock on the trading day next succeeding such effective date, and the
         denominator of which shall be the sum of (A) the fair market value of
         the aggregate consideration payable to stockholders based upon the
         acceptance (up to any maximum specified in the terms of the tender or
         exchange offer) of all shares validly tendered or exchanged and not
         withdrawn as of such effective date (the shares deemed so accepted,

                                       13
<PAGE>   71

         up to any maximum, being referred to as the "Purchased Shares") and (B)
         the product of the number of shares of Common Stock outstanding (less
         any Purchased Shares) at such effective date and the Market Price per
         share of Common Stock on the trading day next succeeding such effective
         date, such reduction to become effective immediately prior to the
         opening of business on the day following such effective date.

                  (v) Business Combinations. In case of any Business Combination
         or reclassification of Common Stock (other than a reclassification of
         Common Stock referred to in Section 7(c)(ii)), lawful provision shall
         be made as part of the terms of such Business Combination or
         reclassification whereby the holder of each share of Series B Preferred
         Stock then outstanding shall have the right thereafter to convert such
         share only into the kind and amount of securities, cash and other
         property receivable upon the Business Combination or reclassification
         by a holder of the number of shares of Common Stock of the Corporation
         into which a share of Series B Preferred Stock would have been
         convertible immediately prior to the Business Combination or
         reclassification. The Corporation, the Person formed by the
         consolidation or resulting from the merger or which acquires such
         assets or which acquires the Corporation's shares, as the case may be,
         shall make provisions in its certificate or articles of incorporation
         or other constituent documents to establish such rights and to ensure
         that the dividend, voting and other rights of the holders of Series B
         Preferred Stock established herein are unchanged, except as permitted
         by Section 9 or as required by applicable law. The certificate or
         articles of incorporation or other constituent documents shall provide
         for adjustments, which, for events subsequent to the effective date of
         the certificate or articles of incorporation or other constituent
         documents, shall be as nearly equivalent as may be practicable to the
         adjustments provided for in this Section 7.

                  (vi) Successive Adjustments. Successive adjustments in the
         Conversion Price shall be made, without duplication, whenever any event
         specified in Sections 7(c)(i), (ii), (iii), (iv) and (v) shall occur.

                  (vii) Rounding of Calculations; Minimum Adjustments. All
         calculations under this Section 7(c) shall be made to the nearest
         one-tenth (1/10th) of a cent. No adjustment in the Conversion Price is
         required if the amount of such adjustment would be less than $0.01;
         provided, however, that any adjustments which by reason of this Section
         7(c)(vii) are not required to be made will be carried forward and given
         effect in any subsequent adjustment.

                  (viii) Adjustment for Unspecified Actions. If the Corporation
         takes any action affecting the Common Stock, other than action
         described in this Section 7(c), which in the opinion of the Board of
         Directors would materially adversely affect the conversion rights of
         the holders of shares of Series B Preferred Stock, the Conversion Price
         may be adjusted, to the extent permitted by law, in such manner, if
         any, and at such time, as such Board of Directors may determine in good
         faith to be equitable in the circumstances. Failure of the Board of
         Directors to provide for any such adjustment prior to the effective
         date of any such action by the Corporation affecting the Common Stock
         will be evidence that the Board of Directors has determined that it is
         equitable to make no adjustments in the circumstances.

                                       14
<PAGE>   72

                  (ix) Voluntary Adjustment by the Corporation. The Corporation
         may at its option, at any time during the term of the Series B
         Preferred Stock, reduce the then current Conversion Price to any amount
         deemed appropriate by the Board of Directors; provided, however, that
         if the Corporation elects to make such adjustment, such adjustment will
         remain in effect for at least a 15-day period, after which time the
         Corporation may, at its option, reinstate the Conversion Price in
         effect prior to such reduction, subject to any interim adjustments
         pursuant to this Section 7(c).

                  (x) Statement Regarding Adjustments. Whenever the Conversion
         Price shall be adjusted as provided in this Section 7(c), the
         Corporation shall forthwith file, at the principal office of the
         Corporation, a statement showing in reasonable detail the facts
         requiring such adjustment and the Conversion Price that shall be in
         effect after such adjustment and the Corporation shall also cause a
         copy of such statement to be sent by mail, first class postage prepaid,
         to each holder of shares of Series B Preferred Stock at the address
         appearing in the Corporation's records.

                  (xi) Notices. In the event that the Corporation shall give
         notice or make a public announcement to the holders of Common Stock of
         any action of the type described in this Section 7(c) (but only if the
         action of the type described in this Section 7(c) would result in an
         adjustment in the Conversion Price or a change in the type of
         securities or property to be delivered upon conversion of the Series B
         Preferred Stock), the Corporation shall, at the time of such notice or
         announcement, and in the case of any action which would require the
         fixing of a record date, at least 10 days prior to such record date,
         give notice to the holder of shares of Series B Preferred Stock, in the
         manner set forth in Section 7(c)(x), which notice shall specify the
         record date, if any, with respect to any such action and the
         approximate date on which such action is to take place. Such notice
         shall also set forth the facts with respect thereto as shall be
         reasonably necessary to indicate the effect on the Conversion Price and
         the number, kind or class of shares or other securities or property
         which shall be deliverable upon conversion of the Series B Preferred
         Stock. Failure to give such notice, or any defect therein, shall not
         affect the legality or validity of any such action.

                  (xii) Miscellaneous. Except as provided in Section 7(c), no
         adjustment in respect of any dividends or other payments or
         distributions made to holders of Series B Preferred Stock of securities
         issuable upon the conversion of the Series B Preferred Stock will be
         made during the term of the Series B Preferred Stock or upon the
         conversion of the Series B Preferred Stock. In addition,
         notwithstanding any of the foregoing, no such adjustment will be made
         for the issuance or conversion of (a) any Securities (as defined in the
         Purchase Agreement) or (b) any rights under the Rights Agreement or any
         successor agreement unless such rights become exercisable (in which
         case they will be deemed for purposes of this Certificate to have been
         issued at the time they become exercisable).

         8. STATUS OF SHARES. All shares of Series B Preferred Stock that are at
any time redeemed pursuant to Section 5 or converted pursuant to Section 7 and
all shares of Series B Preferred Stock that are otherwise reacquired by the
Corporation shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized but unis-

                                       15
<PAGE>   73

sued shares of Common Stock, without designation as to series, subject to
reissuance by the Board of Directors as shares of any one or more other series.

         9. VOTING RIGHTS.

         (a) The holders of record of shares of Series B Preferred Stock shall
not be entitled to any voting rights except as hereinafter provided in this
Section 9 or as otherwise provided by law.

         (b) The holders of the shares of Series B Preferred Stock (i) shall be
entitled to vote with the holders of the Common Stock on all matters submitted
for a vote of holders of Common Stock (voting together with the holders of
Common Stock as one class), (ii) shall be entitled to a number of votes equal to
the number of votes to which shares of Common Stock issuable upon conversion of
such shares of Series B Preferred Stock would have been entitled if such shares
of Common Stock had been outstanding at the time of the applicable vote and
related record date and (iii) shall be entitled to notice of any stockholders'
meeting in accordance with the Certificate of Incorporation and Bylaws of the
Corporation.

         (c) So long as any shares of Series B Preferred Stock are outstanding:

                  (i) the Corporation shall not, without the written consent or
         affirmative vote at a meeting called for that purpose by holders of at
         least a majority of the outstanding shares of Series B Preferred Stock,
         voting as a single class, amend, alter or repeal any provision of the
         Corporation's Certificate of Incorporation (by merger or otherwise) so
         as to adversely affect the preferences, rights or powers of the Series
         B Preferred Stock; provided that any such amendment, alteration or
         repeal to create, authorize or issue any Junior Securities, or any
         security convertible into, or exchangeable or exercisable for, shares
         of Junior Securities, shall not be deemed to have any such adverse
         effect;

                  (ii) the Corporation shall not, without the written consent or
         affirmative vote at a meeting called for that purpose by holders of at
         least a majority of the outstanding shares of Series B Preferred Stock,
         voting as a single class, create, authorize or issue any Senior
         Securities, or any security convertible into, or exchangeable or
         exercisable for, shares of Senior Securities; and

                  (iii) the Corporation shall not, without the written consent
         or affirmative vote at a meeting called for that purpose by holders of
         at least a majority of the outstanding shares of Series B Preferred
         Stock, voting as a single class, create, authorize or issue any new
         class of Parity Securities or increase the issued and authorized number
         of shares of Series B Preferred Stock to the extent that (A) the
         creation, authorization or issuance of such new class of Parity
         Securities would adversely affect the class voting rights of the Series
         B Preferred Stock or (B) the aggregate liquidation preference of the
         issued and outstanding Parity Securities and Series B Preferred Stock
         could be increased in excess of $400,000,000 as a result of the
         creation, authorization or issuance of such new class of Parity
         Securities or such increased shares of Series B Preferred Stock;

provided that no such consent or vote of the holders of Series B Preferred Stock
shall be required if at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the

                                       16
<PAGE>   74

issuance of any such securities is to be made, as the case may be, all shares of
Series B Preferred Stock at the time outstanding shall have been called for
redemption by the Corporation and the funds necessary for such redemption shall
have been set aside in accordance with Sections 5 and 6.

         (d) The consent or votes required in Section 9(c) shall be in addition
to any approval of stockholders of the Corporation which may be required by law
or pursuant to any provision of the Corporation's Certificate of Incorporation
or Bylaws, which approval shall be obtained by vote of the stockholders of the
Corporation in the manner provided in Section 9(b).

         10. DEFINITIONS.

         Unless the context otherwise requires, when used herein the following
terms shall have the meaning indicated.

         "Affiliate" means with respect to any Person, any other Person
         directly, or indirectly through one or more intermediaries,
         controlling, controlled by or under common control with such Person.
         For purposes of this definition, the term "control" (and correlative
         terms "controlling," "controlled by" and "under common control with")
         means possession of the power, whether by contract, equity ownership or
         otherwise, to direct the policies or management of a Person.

         "Beneficially Own" or "Beneficial Ownership" is defined in Rules 13d-3
         and 13d-5 of the Exchange Act, but without taking into account any
         contractual restrictions or limitations on voting or other rights.

         "Business Combination" means (i) any reorganization, consolidation,
         merger, share exchange or similar business combination transaction
         involving the Corporation with any Person or (ii) the sale, assignment,
         conveyance, transfer, lease or other disposition by the Corporation of
         all or substantially all of its assets.

          "Capital Stock" means (i) with respect to any Person that is a
         corporation or company, any and all shares, interests, participations
         or other equivalents (however designated) of capital or capital stock
         of such Person and (ii) with respect to any Person that is not a
         corporation or company, any and all partnership or other equity
         interests of such Person.

         "Change in Control" shall mean the happening of any of the following
         events:

         (a) The acquisition by any Person of Beneficial Ownership of 50% or
more of either (A) the then-outstanding shares of Common Stock of the
Corporation (the "Outstanding Corporation Common Stock") or (B) the combined
voting power of the then-outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities"); provided, however, that, for purposes of this
definition, the following acquisitions shall not constitute a Change in Control:
(i) any acquisition directly from the Corporation, (ii) any acquisition by the
Corporation, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any company that is an
Affiliate of the Corporation or (iv) any acquisition by any corporation pursuant
to a transaction that complies with (c)(A) and (c)(B) in this definition; or

                                       17
<PAGE>   75

         (b) Individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Corporation's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; or

         (c) Consummation of a Business Combination, in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities that were the Beneficial Owners of the Outstanding
Corporation Common Stock and the Outstanding Corporation Voting Securities
immediately prior to such Business Combination Beneficially Own, directly or
indirectly, more than 50% of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that, as a result of such transaction, owns the Corporation or all
or substantially all of the Corporation's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Corporation
Common Stock and the Outstanding Corporation Voting Securities, as the case may
be, and (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Corporation
or such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 50% or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then-outstanding voting
securities of such corporation; or

         (d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.

         "Common Stock" means the Common Stock of the Corporation, par value
         $0.01 per share.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended,
         or any successor statute, and the rules and regulations promulgated
         thereunder.

         "Excluded Stock" means (i) shares of Common Stock issued by the
         Corporation as a stock dividend payable in shares of Common Stock, or
         upon any subdivision or split-up of the outstanding shares of Capital
         Stock in each case which is subject to the provisions of Section
         7(c)(ii), or upon conversion of shares of Capital Stock (but not the
         issuance of such Capital Stock which will be subject to the provisions
         of Section 7(c)(i)(C)), (ii) the issuance of shares of Common Stock in
         any bona fide underwritten public offering, (iii) the issuance of
         Common Stock in connection with any debt financing from or with one or
         more unaffiliated third parties approved by the Board of Directors
         (including upon the exercise of any warrants issued in connection with
         such financings), (iv) the issuance of shares of Common Stock
         (including upon exercise of options) to directors, advisors, employees
         or consultants of the Corporation pursuant to a stock option plan,
         restricted stock plan or other agreement approved by the Board of
         Directors, (v) the issuance of shares of Common Stock in connection
         with acquisitions of assets or securities of another Person

                                       18
<PAGE>   76

         (other than issuances to affiliates of the Corporation), and (vi) the
         issuance of shares of Common Stock upon exercise of the Series B
         Preferred Stock and the Warrants.

         "Market Price" means, with respect to a particular security, on any
         given day, the average of the highest and lowest reported sale prices
         regular way or, in case no such reported sales takes place on such day,
         the average of the highest asked and lowest bid prices regular way, in
         either case on the principal national securities exchange on which the
         applicable securities is listed or admitted to trading, or if not
         listed or admitted to trading on any national securities exchange, (i)
         the average of the highest and lowest sale prices for such day reported
         by the Nasdaq Stock Market if such security is traded over-the-counter
         and quoted in the Nasdaq Stock Market, or (ii) if such security is so
         traded, but not so quoted, the average of the highest reported asked
         and lowest reported bid prices of such security as reported by the
         Nasdaq Stock Market or any comparable system, or (iii) if such security
         is not listed on the Nasdaq Stock Market or any comparable system, the
         average of the highest asked and lowest bid prices as furnished by two
         members of the National Association of Securities Dealers, Inc.
         selected from time to time by the Corporation for that purpose. If such
         security is not listed and traded in a manner that the quotations
         referred to above are available for the period required hereunder, the
         Market Price per share of Common Stock shall be deemed to be the fair
         value per share of such security as determined in good faith by the
         Board of Directors.

         "Ordinary Cash Dividends" means any cash dividend or cash distribution
         which, when combined on a per share of Common Stock basis with the per
         share amounts of all other cash dividends and cash distributions paid
         on the Common Stock during the 365-day period ending on the Dividend
         Payment Record Date of such dividend or distribution (as adjusted to
         appropriately reflect any of the events referred to in Section 7(c) and
         excluding (a) cash dividends or cash distributions that resulted in an
         adjustment to the Conversion Price, (b) cash dividends paid on the
         Common Stock in which the Preferred Stock participates, and (c) cash
         dividends or cash distributions paid on the Series B Preferred Stock),
         does not exceed 7.5% of the Market Price of a share of Common Stock on
         the trading day immediately preceding the date of declaration of such
         dividend or distribution.

         "Original Issue Date" means the date upon which the initial shares of
         Series B Preferred Stock were originally issued by the Corporation.

         "Person" means an individual, entity or group (within the meaning of
         Section 13(d)(3) or 14(d)(2) of the Exchange Act).

         "Pro Rata Repurchases" means any purchase of shares of Common Stock by
         the Corporation or any Affiliate thereof pursuant to any tender offer
         or exchange offer subject to Section 13(e) of the Exchange Act, or
         pursuant to any other offer available to substantially all holders of
         Common Stock, whether for cash, shares of capital stock of the
         Corporation, other securities of the Corporation, evidences of
         indebtedness of the Corporation or any other person or any other
         property (including, without limitation, shares of capital stock, other
         securities or evidences of indebtedness of a Subsidiary of the
         Corporation), or any combination thereof, effected while the Series B
         Preferred Stock

                                       19
<PAGE>   77

         is outstanding; provided, however, that "Pro Rata Repurchase" shall not
         include any purchase of shares by the Corporation or any Affiliate
         thereof made in accordance with the requirements of Rule 10b-18 as in
         effect under the Exchange Act. The "Effective Date" of a Pro Rata
         Repurchase shall mean the date of acceptance of shares for purchase or
         exchange under any tender or exchange offer which is a Pro Rata
         Repurchase or the date of purchase with respect to any Pro Rata
         Repurchase that is not a tender or exchange offer.

         "Purchase Agreement" means the Purchase Agreement, dated as of August
         8, 2000, among the Corporation and the purchasers named therein,
         including all schedules and exhibits thereto.

         "Rights Agreement" means the Rights Agreement, to be dated as of
         September 30, 2000, between the Corporation and the Bank of New York,
         as Rights Agent, as amended.

         "Subsidiary" of a Person means (i) a corporation, a majority of whose
         stock with voting power, under ordinary circumstances, to elect
         directors is at the time of determination, directly or indirectly,
         owned by such Person or by one or more Subsidiaries of such Person, or
         (ii) any other entity (other than a corporation) in which such Person
         or one or more Subsidiaries of such Person, directly or indirectly, at
         the date of determination thereof has at least a majority ownership
         interest.

         "Warrants" means collectively the warrants which were issued to the
         purchasers named in the Purchase Agreement pursuant to the Purchase
         Agreement.

         11. MERGER OR CONSOLIDATION OF THE CORPORATION.

         Unless approved pursuant to Section 9(c)(i), the Corporation will not
merge or consolidate into, or sell, transfer or lease all or substantially all
of its property to, any other corporation unless the successor, transferee or
lessee corporation, as the case may be (if not the Corporation), (a) expressly
assumes the due and punctual performance and observance of each and every
covenant and condition of this Certificate to be performed and observed by the
Corporation and (b) expressly agrees to exchange, at the holder's option, shares
of Series B Preferred Stock for shares of the surviving corporation's capital
stock on terms substantially similar to the terms under this Certificate.

         12. NO OTHER RIGHTS.

         The shares of Series B Preferred Stock shall not have any relative,
participating, optional or other special rights and powers except as set forth
herein or as may be required by law.

         This Certificate shall become effective at _____ p.m. Eastern Standard
Time on _____ __, 2000.

                                       20
<PAGE>   78

         IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed and acknowledged by its undersigned duly authorized officer this
____ day of _____, 2000.

                                       AVAYA INC.

                                       By:  ___________________________________
                                            Name:
                                            Title:

                                       21
<PAGE>   79
                                                                       Exhibit B
                                                                 Form of Warrant

                      FORM OF SERIES [_________] WARRANT*

         THE WARRANTS REPRESENTED BY THIS INSTRUMENT AND THE SECURITIES ISSUABLE
UPON EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS
IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.

         THE WARRANTS REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT, DATED AS OF THE 8TH DAY OF AUGUST, 2000, AS IT MAY BE AMENDED FROM
TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF
THE ISSUER. NO REGISTRATION OF TRANSFER OF SUCH WARRANTS WILL BE MADE ON THE
BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED
WITH. ANY TRANSFER NOT IN COMPLIANCE WITH SUCH AGREEMENT SHALL BE VOID. [THIS
PARAGRAPH TO BE DELETED WHEN THIS WARRANT IS NO LONGER HELD BY A PURCHASER (AS
DEFINED IN THE PURCHASE AGREEMENT) OR A PERMITTED TRANSFEREE (AS DEFINED IN THE
PURCHASE AGREEMENT)]

                            SERIES [________] WARRANT

No. __                                                        October ___, 2000

              TO PURCHASE SHARES OF COMMON STOCK, PAR VALUE $0.01
                            PER SHARE, OF AVAYA INC.

1.       Definitions. Unless the context otherwise requires, when used herein
         the following terms shall have the meaning indicated.

         "Affiliate" means with respect to any Person, any other Person
         directly, or indirectly through one or more intermediaries,
         controlling, controlled by or under common control with such Person.
         For purposes of this definition, the term "control" (and correlative
         terms "controlling," "controlled by" and "under common control with")
         means possession of the power, whether by contract, equity ownership or
         otherwise, to direct the policies or management of a Person.

         "Board" means the Board of Directors of the Company.

         "Business Combination" means (i) any reorganization, consolidation,
         merger, share exchange or similar business combination transaction
         involving the Company with any Per-

--------

* This is the Form of Warrant for both Series A and Series B.

<PAGE>   80

         son or (ii) the sale, assignment, conveyance, transfer, lease or other
         disposition by the Company of all or substantially all of its assets.

         "Business Day" means any day except Saturday, Sunday and any day which
         shall be a legal holiday or a day on which banking institutions in New
         York City, New York generally are authorized or required by law or
         other governmental actions to close.

         "Capital Stock" means (i) with respect to any Person that is a
         corporation or company, any and all shares, interests, participations
         or other equivalents (however designated) of capital or capital stock
         of such Person and (ii) with respect to any Person that is not a
         corporation or company, any and all partnership or other equity
         interests of such Person.

         "Certificate of Designation" means the Certificate of Designation
         relating to the Preferred Stock filed with the Secretary of State of
         Delaware on September __, 2000.

         "Common Stock" means the Company's common stock, par value $0.01 per
         share.

         "Company" means Avaya Inc., a Delaware corporation.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended,
         or any successor statute, and the rules and regulations promulgated
         thereunder.

         "Excluded Stock" means (i) shares of Common Stock issued by the Company
         as a stock dividend payable in shares of Common Stock, or upon any
         subdivision or split-up of the outstanding shares of Capital Stock in
         each case which is subject to Section 13(B), or upon conversion of
         shares of Capital Stock (but not the issuance of such Capital Stock
         which will be subject to the provisions of Section 13(A)(iii)), (ii)
         the issuance of shares of Common Stock in any bona fide underwritten
         public offering, (iii) the issuance of Common Stock in connection with
         any debt financing from or with one or more unaffiliated third parties
         approved by the Board (including upon the exercise of any warrants
         issued in connection with such financings), (iv) the issuance of shares
         of Common Stock (including upon exercise of options) to directors,
         advisors, employees or consultants of the Company pursuant to a stock
         option plan, employee stock purchase plan, restricted stock plan or
         other agreement approved by the Board, (v) the issuance of shares of
         Common Stock in connection with acquisitions of assets or securities of
         another Person (other than issuances to Affiliates of the Company), and
         (vi) the issuance of shares of Common Stock upon conversion of the
         Preferred Stock and exercise of the Warrants.

         "Exercise Price" has the meaning given to it in Section 2(A).

         "Expiration Time" has the meaning given to it in Section 3.

         "Initial Conversion Price" shall have the meaning set forth in Section
         7 of the Certificate of Designation.

         "Market Price" means, with respect to a particular security, on any
         given day, the average of the highest and lowest reported sale prices
         regular way or, in case no such reported sales takes place on such day,
         the average of the highest asked and lowest bid prices

                                      -2-
<PAGE>   81

         regular way, in either case on the principal national securities
         exchange on which the applicable securities is listed or admitted to
         trading, or if not listed or admitted to trading on any national
         securities exchange, (i) the average of the highest and lowest sale
         prices for such day reported by the Nasdaq Stock Market if such
         security is traded over-the-counter and quoted in the Nasdaq Stock
         Market, or (ii) if such security is so traded, but not so quoted, the
         average of the highest reported asked and lowest reported bid prices of
         such security as reported by the Nasdaq Stock Market or any comparable
         system, or (iii) if such security is not listed on the Nasdaq Stock
         Market or any comparable system, the average of the highest asked and
         lowest bid prices as furnished by two members of the National
         Association of Securities Dealers, Inc. selected from time to time by
         the Company for that purpose. If such security is not listed and traded
         in a manner that the quotations referred to above are available for the
         period required hereunder, the Market Price per share of Common Stock
         shall be deemed to be the fair value per share of such security as
         determined in good faith by the Board.

         "Ordinary Cash Dividends" means any cash dividend or cash distribution
         which, when combined on a per share of Common Stock basis with the per
         share amounts of all other cash dividends and cash distributions paid
         on the Common Stock during the 365-day period ending on the date of
         declaration of such dividend or distribution (as adjusted to
         appropriately reflect any of the events referred to in Section 13 and
         excluding (a) cash dividends or cash distributions that resulted in an
         adjustment to the Exercise Price, (b) cash dividends paid on the Common
         Stock in which the Preferred Stock participates pursuant to Section
         3(a)(i) of the Certificate of Designation and (c) cash dividends or
         cash distributions paid on the Preferred Stock), does not exceed 7.5%
         of the Market Price of a share of Common Stock on the trading day
         immediately preceding the date of declaration of such dividend or
         distribution.

         "Original Issue Date" means the date on which the Warrants of this
         Series were first issued.

         "Person" means an individual, entity or group (within the meaning of
         Section 13(d)(3) or 14(d)(2) of the Exchange Act).

         "Preferred Stock" means the Series B Convertible Participating
         Preferred Stock of the Company or successor preferred stock as
         contemplated by the Certificate of Designation.

         "Pro Rata Repurchases" means any purchase of shares of Common Stock by
         the Company or any Affiliate thereof pursuant to any tender offer or
         exchange offer subject to Section 13(e) of the Exchange Act, or
         pursuant to any other offer available to substantially all holders of
         Common Stock, whether for cash, shares of capital stock of the Company,
         other securities of the Company, evidences of indebtedness of the
         Company or any other person or any other property (including, without
         limitation, shares of capital stock, other securities or evidences of
         indebtedness of a subsidiary of the Company), or any combination
         thereof, effected while this Warrant is outstanding; provided, however,
         that "Pro Rata Repurchase" shall not include any purchase of shares by
         the Company or any Affiliate thereof made in accordance with the
         requirements of Rule 10b-18 as in effect under the Exchange Act. The
         "Effective Date" of a Pro Rata Repurchase shall mean the

                                      -3-
<PAGE>   82

         date of acceptance of shares for purchase or exchange under any tender
         or exchange offer which is a Pro Rata Repurchase or the date of
         purchase with respect to any Pro Rata Repurchase that is not a tender
         or exchange offer.

         "Purchase Agreement" means the Preferred Stock and Warrant Purchase
         Agreement, dated as of August 8, 2000, among the Company and the
         purchasers named therein, including all schedules and exhibits thereto.

         "Rights Agreement" means the Rights Agreement to be dated as of
         September 30, 2000 between the Company and the Bank of New York, as
         Rights Agent, as amended.

         "Rights" is defined in Section 14.

         "Securities Act" means the Securities Act of 1933, as amended, or any
         successor statute, and the rules and regulations promulgated
         thereunder.

         "Shares" is defined in Section 2(A).

         "Subsidiary" of a Person means (i) a corporation, a majority of whose
         stock with voting power, under ordinary circumstances, to elect
         directors is at the time of determination, directly or indirectly,
         owned by such Person or by one or more Subsidiaries of such Person, or
         (ii) any other entity (other than a corporation) in which such Person
         or one or more Subsidiaries of such Person, directly or indirectly, at
         the date of determination thereof has at least a majority ownership
         interest.

         "Warrantholder" has the meaning given to it in Section 2(A).

         "Warrants" means collectively the warrants represented hereby (and by
         any instrument replacing, in whole or in part, this instrument) which
         were issued to the purchasers named in the Purchase Agreement pursuant
         to the Purchase Agreement.

2.       Number of Shares; Exercise Price.

         (A)      This certifies that, for value received, [NAME OF WARBURG,
                  PINCUS ENTITY] or its registered assigns (the "Warrantholder")
                  is entitled, upon the terms and subject to the conditions
                  hereinafter set forth, to acquire from the Company, in whole
                  or in part, up to an aggregate of the Applicable Number of
                  fully paid and nonassessable shares of Common Stock, par value
                  $0.01 per share, (the "Shares") of the Company, at a per Share
                  purchase price (the "Exercise Price") equal to 1.3 times the
                  Initial Conversion Price. The number and type of Shares and
                  the Exercise Price are subject to adjustment as provided
                  herein, and all references to "Shares", "Common Stock" and
                  "Exercise Price" herein shall be deemed to include any such
                  adjustment or series of adjustments. The "Applicable Number"
                  means [2.0%/1.6%]+ of the Total Shares Outstanding. "Total
                  Shares Outstanding" means the quotient of (x) the sum of (a)
                  all issued and outstanding shares of Common Stock as of the
                  Original Issue Date (the "Initial Outstanding Amount"),

-----------

+ Series A = 2.0%; Series B = 1.6%.

                                      -4-
<PAGE>   83

                  and (b) the Option Amount, divided by (y) 0.964. "Option
                  Amount" means the lesser of (a) the sum of (1) all shares of
                  Common Stock issuable upon exercise or conversion of all
                  options and convertible securities granted, sold or issued to
                  directors, officers or employees of the Company as of the
                  Original Issue Date which at such date had an exercise or
                  conversion price less than or equal to the Exercise Price at
                  the Original Issue Date, whether such shares are vested or
                  unvested and without regard to the relationship of the
                  exercise or conversion price thereof to the Market Price of
                  the Common Stock and (2) all shares and restricted shares of
                  Common Stock and all shares of Common Stock issuable upon
                  exercise or conversion of all options and convertible
                  securities granted, sold or issued to directors, officers or
                  employees of the Company after the Original Issue Date and on
                  or prior to the end of the 90th day following the Original
                  Issue Date which had at the date of grant, sale or issuance an
                  exercise price (or in the case of shares or restricted shares,
                  a purchase price) less than or equal to the Exercise Price at
                  such date of grant, sale or issuance, whether such shares are
                  vested or unvested and without regard to the relationship of
                  the exercise or conversion price thereof to the Market Price
                  of the Common Stock and (b) the product of (1) the Initial
                  Outstanding Amount and (2) 0.1765.

         (B)      The Company will prepare a schedule calculating the Applicable
                  Number and the Total Shares Outstanding and present this
                  schedule to the initial holders of Warrants of this Series
                  within 15 Business Days after the 90th day following the
                  Original Issue Date. If the initial holders concur with such
                  schedule as prepared by the Company or otherwise do not
                  respond within 10 Business Days following receipt, the
                  Applicable Number and the Total Shares Outstanding will be as
                  set forth therein. If the initial holders dispute the
                  calculation of the Applicable Number or the Total Shares
                  Outstanding pursuant to such schedule as proposed by the
                  Company, the initial holders will note such dispute in writing
                  to the Company within 10 Business Days following receipt of
                  such schedule from the Company. If the Company and the initial
                  holders cannot agree on the calculation of the Applicable
                  Number and the Total Shares Outstanding within 5 Business Days
                  following the initial holders' written response noting its
                  dispute, then the Company and the initial holders will chose a
                  mutually agreeable investment banking or accounting firm to
                  compute the Applicable Amount and the Total Shares Outstanding
                  in accordance with this Warrant, and such computation shall be
                  final. The fees and expenses of such firm shall be borne
                  equally by the Company and the initial holders disputing such
                  calculations. The calculation of the Applicable Number and the
                  Total Shares Outstanding shall not take into account shares of
                  Preferred Stock or shares of Common Stock into which the
                  shares of Preferred Stock are convertible. The Applicable
                  Number and the Total Shares Outstanding shall be determined as
                  of the 90th day following the Original Issue Date. Following
                  the determination of the Applicable Number and the Total
                  Shares Outstanding the Company and the Warrantholder shall
                  amend this Warrant to set forth the amount thereof.

                                      -5-
<PAGE>   84

3.       Exercise Rights.

         (A)      Exercise of Warrant; Term. The right to purchase the Shares
                  represented by this Warrant is exercisable, in whole or in
                  part, by the Warrantholder, at any time or from time to time
                  but in no event later than 11:59 p.m. New York City Time, on
                  [insert fourth/fifth anniversary of the date of issuance of
                  Warrant]++ (the "Expiration Time"), by (a) the surrender of
                  this Warrant and Notice of Exercise annexed hereto, duly
                  completed and executed on behalf of the Warrantholder, at the
                  office of the Company in Basking Ridge, New Jersey (or such
                  other office or agency of the Company in the United States as
                  it may designate by notice in writing to the Warrantholder at
                  the address of the Warrantholder appearing on the books of the
                  Company), and (b) payment of the Exercise Price for the Shares
                  thereby purchased at the election of the Warrantholder in one
                  of the following manners:

         (i)      by tendering in cash, by certified or cashier's check or by
                  wire transfer payable to the order of the Company; or

         (ii)     by having the Company withhold shares of Common Stock issuable
                  upon exercise of this Warrant equal in value to the aggregate
                  Exercise Price as to which this Warrant is so exercised based
                  on the Market Price of the Common Stock on the trading day
                  prior to the date on which this Warrant and the Notice of
                  Exercise are delivered to the Company.

         (B)      Mandatory Exercise. At any time beginning on the later of (x)
                  the date that is six months after the Original Issue Date or
                  (y) the date that the Warrant Registration Statement shall
                  have become effective under the Securities Act, and continuing
                  until the second anniversary of the Original Issue Date, at
                  the Company's option, the Warrantholder shall be required to
                  exercise this Warrant with respect to up to 50% of the
                  Applicable Number, but only if the average of the Market
                  Prices of the Common Stock has been at least [2.0/2.25]$ times
                  the Initial Conversion Price over a period of 20 consecutive
                  trading days, ending on a trading day with respect to which
                  the Market Price is at least [2.0/2.25]** times the Initial
                  Conversion Price and which is no more than five trading days
                  prior to the date on which the Company delivered written
                  notice thereof to the Warrantholder, which notice shall state
                  the number of Shares subject to such exercise and the date of
                  exercise (which date must be no fewer than 10 days after, and
                  no more than 20 days after, the date of the notice) (the
                  "Exercise Deadline Date"). If the Warrantholder is required to
                  exercise this Warrant pursuant to this Section 3(B), the
                  method of exercise shall be the same as the method described
                  in Section 3(A); provided, however, that if the Warrantholder
                  fails to exercise this Warrant on or prior to the Exercise
                  Deadline Date, the Company shall effect the exercise of this
                  Warrant on the next succeeding day by withholding shares of
                  Common Stock in the manner described in Section 3(A)(ii) based
                  on the Market Price of the Common Stock on the

++ Series A= 4th Anniversary; Series B= 5th Anniversary

$  Series A = 2.0 times; Series B = 2.25 times.

** Series A = 2.0 times; Series B = 2.25 times.

                                      -6-
<PAGE>   85

                  Exercise Deadline Date. The Company shall deliver, in
                  accordance with Section 4, the shares of Common Stock (and any
                  cash in lieu of fractional shares) issued as a result of any
                  exercise pursuant to the proviso to the immediately preceding
                  sentence to the Warrantholder who failed to exercise in the
                  name and at the address of the Warrantholder appearing on the
                  books of the Company and such Warrantholder's Warrant shall
                  thereafter be null and void with respect to the portion of the
                  Warrant so exercised. "Warrant Registration Statement" shall
                  mean a registration statement filed by the Company under the
                  Securities Act registering the sale by the initial purchasers
                  and Permitted Transferees (as defined in the Purchase
                  Agreement) of the Warrants and the shares of Common Stock
                  issuable upon exercise of this Warrant, in accordance with
                  Section 5.10 of the Purchase Agreement.

         (C)      Replacement of Warrant. If the exercising (or selling, as the
                  case may be) Warrantholder does not exercise (or sell, as the
                  case may be) this Warrant in its entirety, the Warrantholder
                  will be entitled to receive from the Company within a
                  reasonable time, not exceeding three (3) Business Days, a new
                  warrant in substantially identical form for the purchase of
                  that number of Shares equal to the difference between the
                  number of Shares subject to this Warrant and the number of
                  Shares as to which this Warrant is so exercised (or sold, as
                  the case may be); provided, however, that if the Warrantholder
                  is required to deliver this Warrant to the Company pursuant to
                  Section 3(B) and fails to do so, the Warrantholder shall not
                  be entitled to receive a new warrant from the Company until
                  the Warrantholder delivers this Warrant to the Company and
                  then only in respect of the portion of the Warrant not
                  exercised pursuant to Section 3(B).

4.       Issuance of Shares; Authorization; Listing. Subject to the next
         sentence, certificates for Shares issued upon exercise of this Warrant
         will be issued in such name or names as the Warrantholder may designate
         and will be delivered to such named Person or Persons within a
         reasonable time, not to exceed three (3) Business Days after the date
         on which this Warrant has been duly exercised in accordance with the
         terms of this Warrant. In the event this Warrant is exercised prior to
         the final determination of the Exercise Price and the number of shares
         of Common Stock issuable upon exercise of this Warrant, such exercise
         shall be effective when made but payment of the exercise price shall be
         made and certificates for Shares shall be issued, three (3) Business
         Days after final determination of the Exercise Price. The Company
         hereby represents and warrants that any Shares issued upon the exercise
         of this Warrant in accordance with the provisions of Section 3 will,
         upon issuance and payment therefor, be duly and validly authorized and
         issued, fully paid and nonassessable, free from all preemptive rights
         and free from all taxes, liens, security interests and charges (other
         than liens or charges created by or imposed upon the Warrantholder or
         taxes in respect of any transfer occurring contemporaneously
         therewith). The Company agrees that the Shares so issued will be deemed
         to have been issued to the Warrantholder as of the close of business on
         the date on which this Warrant and payment of the Exercise Price are
         delivered to the Company in accordance with the terms of this Warrant,
         notwithstanding that the stock transfer books of the Company may then
         be closed or certificates representing such Shares may not be actually
         delivered on such date. The Company will at all times reserve and keep
         available, free from preemptive

                                      -7-
<PAGE>   86

         rights, out of its authorized but unissued Common Stock, solely for the
         purpose of providing for the exercise of this Warrant, the aggregate
         number of shares of Common Stock issuable upon exercise of this
         Warrant. The Company will procure, at its sole expense, the listing of
         the Shares, subject to issuance or notice of issuance on the principal
         domestic stock exchange on which the Common Stock is then listed or
         traded. The Company will take all commercially reasonable action as may
         be necessary to ensure that the Shares may be issued without violation
         of any applicable law or regulation or of any requirement of any
         securities exchange on which the Shares are listed or traded.

5.       No Fractional Shares or Scrip. No fractional Shares or scrip
         representing fractional Shares shall be issued upon any exercise of
         this Warrant. In lieu of any fractional Share to which the
         Warrantholder would otherwise be entitled, the Warrantholder shall be
         entitled to receive a cash payment equal to the Market Price per share
         of Common Stock computed as of the trading day immediately preceding
         the date the Warrant is presented for exercise, multiplied by such
         fraction of a Share.

6.       No Rights as Shareholders. This Warrant does not entitle the
         Warrantholder to any voting rights or other rights as a shareholder of
         the Company prior to the date of exercise hereof.

7.       Charges, Taxes and Expenses. Issuance of certificates for shares of
         Common Stock upon the exercise of this Warrant shall be made without
         charge to the Warrantholder or such designated Persons for any issue or
         transfer tax (other than taxes in respect of any transfer occurring
         contemporaneously therewith or as a result of the holder being a
         non-U.S. person) or other incidental expense in respect of the issuance
         of such certificates, all of which taxes and expenses shall be paid by
         the Company; provided, however, that the Company shall not be required
         to pay any tax which may be payable in respect of any transfer involved
         in the issuance or delivery of shares of Common Stock in a name other
         than that of the Warrantholder or such designated Persons, and no such
         issuance or delivery shall be made unless and until the person
         requesting such issuance or delivery has paid to the Company the amount
         of any such tax or has established, to the satisfaction of the Company,
         that such tax has been paid.

8.       Transfer/Assignment. This Warrant and any rights hereunder are not
         transferable by the Warrantholder, in whole or in part, in the absence
         of any effective registration statement related to this Warrant or an
         opinion of counsel, satisfactory in form and substance to the Company,
         that such registration is not required under the Securities Act and any
         applicable state securities laws. Subject to compliance with the
         preceding sentence, this Warrant and all rights hereunder are
         transferable, in whole or in part, upon the books of the Company by the
         registered holder hereof in person or by duly authorized attorney, and
         a new warrant shall be made and delivered by the Company, of the same
         tenor as this Warrant but registered in the name of the transferee,
         upon surrender of this Warrant, duly endorsed, to the office or agency
         of the Company described in Section 3. All expenses, taxes (other than
         stock transfer taxes or taxes imposed because the transferee is a
         non-U.S. Person) and other charges payable in connection with the
         preparation, execution and delivery of the new warrants pursuant to
         this Section 8 shall be paid by the Company. The restrictions imposed
         by the first sentence of this Section 8 shall terminate as to the

                                      -8-
<PAGE>   87

         Warrant (i) when such security has been effectively registered under
         the Securities Act and disposed of in accordance with the registration
         statement covering such security, except with respect to securities
         held following such disposition by Affiliates of the Company, or (ii)
         when, in the opinion of counsel for the Company, such restrictions are
         no longer required in order to achieve compliance with the Securities
         Act.

9.       Exchange and Registry of Warrant. This Warrant is exchangeable, upon
         the surrender hereof by the Warrantholder at the office or agency of
         the Company described in Section 3, for a new warrant or warrants of
         like tenor representing the right to purchase in the aggregate a like
         number of shares. The Company shall maintain at the office or agency
         described in Section 3 a registry showing the name and address of the
         Warrantholder as the registered holder of this Warrant. This Warrant
         may be surrendered for exchange or exercise, in accordance with its
         terms, at the office of the Company, and the Company shall be entitled
         to rely in all respects, prior to written notice to the contrary, upon
         such registry.

10.      Loss, Theft, Destruction or Mutilation of Warrant. If this Warrant is
         mutilated, lost, stolen or destroyed, the Company will issue and
         deliver in substitution for and upon cancellation of the mutilated
         Warrant, or in substitution for the Warrant lost, stolen or destroyed,
         a new warrant or warrants of like tenor and representing an equivalent
         right or interest, but only upon, in the case of a lost, stolen or
         destroyed certificate, receipt of evidence satisfactory to the Company
         of such loss, theft or destruction. If required by the Company, the
         Warrantholder shall furnish an indemnity bond sufficient to protect the
         Company from any out-of-pocket loss which it may suffer if a Warrant is
         replaced. The Company may charge the Warrantholder for its reasonable
         expenses in replacing a Warrant.

11.      Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
         taking of any action or the expiration of any right required or granted
         herein shall not be a Business Day, then such action may be taken or
         such right may be exercised on the next succeeding day that is a
         Business Day.

12.      Rule 144 Information. The Company covenants that it will file the
         reports required to be filed by it under the Securities Act and the
         Exchange Act and the rules and regulations promulgated thereunder (or,
         if the Company is not required to file such reports, it will, upon the
         request of any Warrantholder, make publicly available such information
         as is described in Rule 144(c)(2) under the Securities Act). Upon the
         request of any Warrantholder, the Company will deliver to such
         Warrantholder a written statement that it has complied with such
         requirements.

13.      Adjustments and Other Rights. The Exercise Price and the number of
         Shares issuable upon exercise of this Warrant shall be subject to
         adjustment from time to time as follows:

         (A)      Common Stock Issued at Less than Market Value. If the Company
                  issues or sells any Common Stock other than Excluded Stock
                  without consideration or for consideration per share less than
                  the Market Price of the Common Stock, as of the day of such
                  issuance or sale, the Exercise Price in effect immediately
                  prior to each

                                      -9-
<PAGE>   88

                  such issuance or sale will immediately (except as provided
                  below) be reduced to the price determined by multiplying the
                  Exercise Price, in effect immediately prior to such issuance
                  or sale, by a fraction, (1) the numerator of which shall be
                  (x) the number of shares of Common Stock outstanding
                  immediately prior to such issuance or sale plus (y) the number
                  of shares of Common Stock which the aggregate consideration
                  received by the Company for the total number of such
                  additional shares of Common Stock so issued or sold would
                  purchase at the Market Price on the last trading day
                  immediately preceding such issuance or sale and (2) the
                  denominator of which shall be the number of shares of Common
                  Stock outstanding immediately after such issue or sale. In
                  such event, the number of shares of Common Stock issuable upon
                  the exercise of this Warrant shall be increased to the number
                  obtained by dividing (i) the product of (a) the number of
                  Shares issuable upon the exercise of this Warrant before such
                  adjustment, and (b) the Exercise Price in effect immediately
                  prior to the issuance giving rise to this adjustment by (ii)
                  the new Exercise Price determined in accordance with the
                  immediately preceding sentence. For the purposes of any
                  adjustment of the Exercise Price and the number of Shares
                  issuable upon exercise of this Warrant pursuant to this
                  Section 13(A), the following provisions shall be applicable:

         (i)      In the case of the issuance of Common Stock for cash, the
                  amount of the consideration received by the Company shall be
                  deemed to be the amount of the cash proceeds received by the
                  Company for such Common Stock before deducting therefrom any
                  discounts or commissions allowed, paid or incurred by the
                  Company for any underwriting or otherwise in connection with
                  the issuance and sale thereof.

         (ii)     In the case of the issuance of Common Stock (otherwise than
                  upon the conversion of shares of Capital Stock or other
                  securities of the Company) for a consideration in whole or in
                  part other than cash, including securities acquired in
                  exchange therefor (other than securities by their terms so
                  exchangeable), the consideration other than cash shall be
                  deemed to be the fair value thereof as determined by the
                  Board, provided, however, that such fair value as determined
                  by the Board shall not exceed the aggregate Market Price of
                  the shares of Common Stock being issued as of the date the
                  Board authorizes the issuance of such shares.

         (iii)    In the case of the issuance of (a) options, warrants or other
                  rights to purchase or acquire Common Stock (whether or not at
                  the time exercisable) or (b) securities by their terms
                  convertible into or exchangeable for Common Stock (whether or
                  not at the time so convertible or exchangeable) or options,
                  warrants or rights to purchase such convertible or
                  exchangeable securities (whether or not at the time
                  exercisable):

         (a)      the aggregate maximum number of shares of Common Stock
                  deliverable upon exercise of such options, warrants or other
                  rights to purchase or acquire Common Stock shall be deemed to
                  have been issued at the time such options, warrants or rights
                  are issued and for a consideration equal to the consideration
                  (determined in the manner provided in Section 13(A)(i) and
                  (ii)), if any, received by the Com-

                                      -10-
<PAGE>   89

                  pany upon the issuance of such options, warrants or rights
                  plus the minimum purchase price provided in such options,
                  warrants or rights for the Common Stock covered thereby;

         (b)      the aggregate maximum number of shares of Common Stock
                  deliverable upon conversion of or in exchange for any such
                  convertible or exchangeable securities, or upon the exercise
                  of options, warrants or other rights to purchase or acquire
                  such convertible or exchangeable securities and the subsequent
                  conversion or exchange thereof, shall be deemed to have been
                  issued at the time such securities were issued or such
                  options, warrants or rights were issued and for a
                  consideration equal to the consideration, if any, received by
                  the Company for any such securities and related options,
                  warrants or rights (excluding any cash received on account of
                  accrued interest or accrued dividends), plus the additional
                  consideration (determined in the manner provided in Section
                  13(A)(i) and (ii)), if any, to be received by the Company upon
                  the conversion or exchange of such securities, or upon the
                  exercise of any related options, warrants or rights to
                  purchase or acquire such convertible or exchangeable
                  securities and the subsequent conversion or exchange thereof;

         (c)      on any change in the number of shares of Common Stock
                  deliverable upon exercise of any such options, warrants or
                  rights or conversion or exchange of such convertible or
                  exchangeable securities or any change in the consideration to
                  be received by the Company upon such exercise, conversion or
                  exchange, but excluding changes resulting from the
                  anti-dilution provisions thereof (to the extent comparable to
                  the anti-dilution provisions contained herein), the Exercise
                  Price and the number of Shares issuable upon exercise of this
                  Warrant as then in effect shall forthwith be readjusted to
                  such Exercise Price and number of Shares as would have been
                  obtained had an adjustment been made upon the issuance of such
                  options, warrants or rights not exercised prior to such
                  change, or of such convertible or exchangeable securities not
                  converted or exchanged prior to such change, upon the basis of
                  such change;

         (d)      on the expiration or cancellation of any such options,
                  warrants or rights (without exercise), or the termination of
                  the right to convert or exchange such convertible or
                  exchangeable securities (without exercise), if the Exercise
                  Price and the number of Shares issuable upon exercise of this
                  Warrant shall have been adjusted upon the issuance thereof,
                  the Exercise Price and the number of Shares issuable upon
                  exercise of this Warrant shall forthwith be readjusted to such
                  Exercise Price and number of Shares as would have been
                  obtained had an adjustment been made upon the issuance of such
                  options, warrants, rights or such convertible or exchangeable
                  securities on the basis of the issuance of only the number of
                  shares of Common Stock actually issued upon the exercise of
                  such options, warrants or rights, or upon the conversion or
                  exchange of such convertible or exchangeable securities; and

         (e)      if the Exercise Price and the number of Shares issuable upon
                  exercise of this Warrant shall have been adjusted upon the
                  issuance of any such options, warrants,

                                      -11-
<PAGE>   90

                  rights or convertible or exchangeable securities, no further
                  adjustment of the Exercise Price and the number of Shares
                  issuable upon exercise of this Warrant shall be made for the
                  actual issuance of Common Stock upon the exercise, conversion
                  or exchange thereof.

         (B)      Stock Splits, Subdivisions, Reclassifications or Combinations.
                  If the Company shall (1) declare a dividend or make a
                  distribution on its Common Stock in shares of Common Stock,
                  (2) subdivide or reclassify the outstanding shares of Common
                  Stock into a greater number of shares, or (3) combine or
                  reclassify the outstanding Common Stock into a smaller number
                  of shares, the number of Shares issuable upon exercise of this
                  Warrant at the time of the record date for such dividend or
                  distribution or the effective date of such subdivision,
                  combination or reclassification shall be proportionately
                  adjusted so that the Warrantholder after such date shall be
                  entitled to purchase the number of shares of Common Stock
                  which such holder would have owned or been entitled to receive
                  after such date had this Warrant been exercised immediately
                  prior to such date. In such event, the Exercise Price in
                  effect at the time of the record date for such dividend or
                  distribution or the effective date of such subdivision,
                  combination or reclassification shall be adjusted to the
                  number obtained by dividing (i) the product of (a) the number
                  of Shares issuable upon the exercise of this Warrant before
                  such adjustment and (b) the Exercise Price in effect
                  immediately prior to the issuance giving rise to this
                  adjustment by (ii) the new number of Shares issuable upon
                  exercise of the Warrant determined pursuant to the immediately
                  preceding sentence.

         (C)      Other Distributions. In case the Company shall fix a record
                  date for the making of a distribution to all holders of shares
                  of its Common Stock (i) of shares of any class or of any
                  Person other than shares of the Company's Common Stock or (ii)
                  of evidence of indebtedness of the Company or any Subsidiary
                  or (iii) of assets (excluding Ordinary Cash Dividends, and
                  dividends or distributions referred to in Section 13(B)), or
                  (iv) of rights or warrants, in each such case the number of
                  Shares issuable upon exercise of this Warrant shall be
                  multiplied by a fraction, the numerator of which is the Market
                  Price per share of Common Stock on such record date and the
                  denominator of which is the Market Price per share of Common
                  Stock on such record date less the fair market value (as
                  reasonably determined by the Board, which amount shall be the
                  cash amount in the case of a distribution in cash) of said
                  shares or evidences of indebtedness or assets or rights or
                  warrants to be so distributed per share of Common Stock; such
                  adjustment shall take effect on the record date for such
                  distribution. In such event, the Exercise Price shall be
                  multiplied by a fraction, the numerator of which is the number
                  of Shares issuable upon the exercise of this Warrant before
                  such adjustment, and the denominator of which is the new
                  number of Shares issuable upon exercise of this Warrant
                  determined in accordance with the immediately preceding
                  sentence. Notwithstanding the foregoing, in the event that the
                  fair market value (as determined above) of the shares or
                  evidences of indebtedness or assets or rights or warrants to
                  be so distributed with respect to one share of Common Stock is
                  equal to or greater than the Market Price per share of Common
                  Stock on such record date, then proper provision shall be made
                  such that upon exercise of the Warrant, the holder shall
                  receive

                                      -12-
<PAGE>   91

                  the amount and kind of such shares, assets, evidences of
                  indebtedness, rights or warrants such holders would have
                  received had such holders exercised this Warrant immediately
                  prior to such record date. In the event that such distribution
                  is not so made, the Exercise Price and the number of Shares
                  issuable upon exercise of this Warrant then in effect shall be
                  readjusted, effective as of the date when the Board determines
                  not to distribute such shares, evidences of indebtedness,
                  assets, rights or warrants, as the case may be, to the
                  Exercise Price that would then be in effect and the number of
                  Shares that would then be issuable upon exercise of this
                  Warrant if such record date had not been fixed.

         (D)      Certain Repurchases of Common Stock. In case the Company
                  effects a Pro Rata Repurchase of Common Stock, then the
                  Exercise Price shall be reduced to the price determined by
                  multiplying the Exercise Price in effect immediately prior to
                  the effective date of such Pro Rata Repurchase by a fraction
                  of which the numerator shall be (i) the product of (x) the
                  number of shares of Common Stock outstanding immediately
                  before such Pro Rata Repurchase and (y) the Market Price of a
                  share of Common Stock on the trading day immediately preceding
                  the first public announcement by the Company or any of its
                  Affiliates of the intent to effect such Pro Rata Repurchase,
                  minus (ii) the aggregate purchase price of the Pro Rata
                  Repurchase, and of which the denominator shall be the product
                  of (i) the number of shares of Common Stock outstanding
                  immediately prior to such Pro Rata Repurchase minus the number
                  of shares of Common Stock so repurchased and (ii) the Market
                  Price per share of Common Stock on the trading day immediately
                  preceding the first public announcement of such Pro Rata
                  Repurchase. In such event, the number of shares of Common
                  Stock issuable upon the exercise of this Warrant shall be
                  increased to the number obtained by dividing (i) the product
                  of (a) the number of Shares issuable upon the exercise of this
                  Warrant before such adjustment, and (b) the Exercise Price in
                  effect immediately prior to the Pro Rata Repurchase giving
                  rise to this adjustment by (ii) the new Exercise Price
                  determined in accordance with the immediately preceding
                  sentence.

         (E)      Business Combinations. In case of any Business Combination or
                  reclassification of Common Stock (other than a
                  reclassification of Common Stock referred to in Section
                  13(B)), any Shares issued or issuable upon exercise of this
                  Warrant after the date of such Business Combination or
                  reclassification will be exchangeable for the number of shares
                  of stock or other securities or property (including cash) to
                  which the Common Stock issuable (at the time of such Business
                  Combination or reclassification) upon exercise of this Warrant
                  immediately prior to such Business Combination or
                  reclassification would have been entitled upon such Business
                  Combination or reclassification; and in any such case, if
                  necessary, the provisions set forth herein with respect to the
                  rights and interests thereafter of the Warrantholder shall be
                  appropriately adjusted so as to be applicable, as nearly as
                  may reasonably be, to any shares of stock or other securities
                  or property thereafter deliverable on the exercise of this
                  Warrant. In determining the kind and amount of stock,
                  securities or the property receivable upon consummation of
                  such Business Combination or reclassification, if the holders
                  of Common Stock have the right to elect the kind or amount of
                  consideration receivable upon consummation of such

                                      -13-
<PAGE>   92

                  Business Combination, then the Warrantholder shall have the
                  right to make a similar election upon exercise of this Warrant
                  with respect to the number of shares of stock or other
                  securities or property which the Warrantholder will receive
                  upon exercise of this Warrant.

         (F)      Successive Adjustments. Successive adjustments in the Exercise
                  Price and the number of shares of Common Stock issuable upon
                  exercise of this Warrant shall be made, without duplication,
                  whenever any event specified in Sections 13(A), (B), (C), (D)
                  and (E) shall occur.

         (G)      Rounding of Calculations; Minimum Adjustments. All
                  calculations under this Section 13 shall be made to the
                  nearest one-tenth (1/10th) of a cent or to the nearest
                  one-hundreth (1/100th) of a share, as the case may be. No
                  adjustment in the Exercise Price or the number of Shares into
                  which this Warrant is exercisable is required if the amount of
                  such adjustment would be less than $0.01 or one-tenth (1/10th)
                  of a share of Common Stock, as the case may be; provided,
                  however, that any adjustments which by reason of this Section
                  13(G) are not required to be made will be carried forward and
                  given effect in any subsequent adjustment.

         (H)      Timing of Issuance of Additional Common Stock Upon Certain
                  Adjustments. Notwithstanding the foregoing, in any case in
                  which the provisions of this Section 13 shall require that an
                  adjustment shall become effective immediately after a record
                  date for an event, the Company may defer until the occurrence
                  of such event (i) issuing to the Warrantholder of this Warrant
                  exercised after such record date and before the occurrence of
                  such event the additional shares of Common Stock issuable upon
                  such exercise by reason of the adjustment required by such
                  event over and above the shares of Common Stock issuable upon
                  such exercise before giving effect to such adjustment and (ii)
                  paying to such Warrantholder any amount of cash in lieu of a
                  fractional share of Common Stock; provided, however, that the
                  Company upon request shall deliver to such Warrantholder a due
                  bill or other appropriate instrument evidencing such
                  Warrantholder's right to receive such additional shares, and
                  such cash, upon the occurrence of the event requiring such
                  adjustment.

         (I)      Adjustment for Unspecified Actions. If the Company takes any
                  action affecting the Common Stock, other than action described
                  in this Section 13, which in the opinion of the Board would
                  materially adversely affect the exercise rights of the
                  Warrantholders, the Exercise Price for the Warrants and/or the
                  number of Shares received upon exercise of the Warrant may be
                  adjusted, to the extent permitted by law, in such manner, if
                  any, and at such time, as such Board may determine in good
                  faith to be equitable in the circumstances. Failure of the
                  Board to provide for any such adjustment prior to the
                  effective date of any such action by the Company affecting the
                  Common Stock will be evidence that the Board has determined
                  that it is equitable to make no adjustments in the
                  circumstances.

         (J)      Voluntary Adjustment by the Company. The Company may at its
                  option, at any time during the term of the Warrants, reduce
                  the then current Exercise Price or in-

                                      -14-
<PAGE>   93

                  crease the number of Shares for which the Warrant may be
                  exercised to any amount deemed appropriate by the Board;
                  provided, however, that if the Company elects to make such
                  adjustment, such adjustment will remain in effect for at least
                  a 15-day period, after which time the Company may, at its
                  option, reinstate the Exercise Price or number of Shares in
                  effect prior to such reduction, subject to any interim
                  adjustments pursuant to this Section 13.

         (K)      Statement Regarding Adjustments. Whenever the Exercise Price
                  or the number of Shares into which this Warrant is exercisable
                  shall be adjusted as provided in this Section 13, the Company
                  shall forthwith file, at the principal office of the Company a
                  statement showing in reasonable detail the facts requiring
                  such adjustment and the Exercise Price that shall be in effect
                  and the number of Shares into which this Warrant shall be
                  exercisable after such adjustment and the Company shall also
                  cause a copy of such statement to be sent by mail, first class
                  postage prepaid, to each Warrantholder at the address
                  appearing in the Company's records.

         (L)      Notices. In the event that the Company shall give notice or
                  make a public announcement to the holders of Common Stock of
                  any action of the type described in this Section 13 (but only
                  if the action of the type described in this Section 13 would
                  result in an adjustment in the Exercise Price or the number of
                  Shares into which this Warrant is exercisable or a change in
                  the type of securities or property to be delivered upon
                  exercise of this Warrant), the Company shall, at the time of
                  such notice or announcement, and in the case of any action
                  which would require the fixing of a record date, at least 10
                  days prior to such record date, give notice to the
                  Warrantholder, in the manner set forth in Section 13(K), which
                  notice shall specify the record date, if any, with respect to
                  any such action and the approximate date on which such action
                  is to take place. Such notice shall also set forth the facts
                  with respect thereto as shall be reasonably necessary to
                  indicate the effect on the Exercise Price and the number, kind
                  or class of shares or other securities or property which shall
                  be deliverable upon exercise of this Warrant. Failure to give
                  such notice, or any defect therein, shall not affect the
                  legality or validity of any such action.

         (M)      Miscellaneous. Except as provided in Section 13, no adjustment
                  in respect of any dividends or other payments or distributions
                  made to Warrantholders of securities issuable upon exercise of
                  Warrants will be made during the term of a Warrant or upon the
                  exercise of a Warrant. In addition, notwithstanding any of the
                  foregoing, no such adjustment will be made for the issuance or
                  conversion of (a) any Securities (as defined in the Purchase
                  Agreement) or (b) any rights under the Rights Agreement or any
                  successor agreement unless such rights become exercisable (in
                  which case they will be deemed for purposes of this Warrant to
                  have been issued at the time they become exercisable).

         (N)      No Impairment. The Company will not, by amendment of its
                  Articles or through any reorganization, transfer of assets,
                  consolidation, merger, dissolution, issue or sale of
                  securities or any other voluntary action, avoid or seek to
                  avoid the observance or performance of any of the terms to be
                  observed or performed hereunder

                                      -15-
<PAGE>   94

                  by the Company, but will at all times in good faith assist in
                  the carrying out of all the provisions of this Warrant and in
                  taking of all such action as may be necessary or appropriate
                  in order to protect the rights of the Warrantholder.

14.      Rights. Whenever the Company shall issue shares of Common Stock upon
         exercise of this Warrant, the Company shall issue, together with each
         such share of Common Stock, one right to purchase Series A Junior
         Participating Preferred Stock, $1.00 par value per share, of the
         Company (or other securities in lieu thereof) pursuant to the Rights
         Agreement, or any similar rights issued to holders of Common Stock in
         addition thereto or in the replacement therefor (such rights, together
         with any additional or replacement rights, being collectively referred
         to as the "Rights"), whether or not such Rights shall be exercisable at
         such time, but only if such Rights are issued and outstanding and held
         by the other holders of Common Stock (or evidenced by outstanding share
         certificates representing Common Stock) at such time and have not
         expired or been redeemed.

15.      Merger or Consolidation of the Company. The Company will not merge or
         consolidate into, or sell, transfer or lease all or substantially all
         of its property to, any other corporation unless the successor,
         transferee or lessee corporation, as the case may be (if not the
         Company), (a) expressly assumes the due and punctual performance and
         observance of each and every covenant and condition of this Warrant to
         be performed and observed by the Company and (b) expressly agrees to
         exchange, at the Warrantholder's option, this Warrant for a warrant or
         warrants on such surviving corporation's common stock on terms
         substantially similar to the terms under this Warrant.

16.      GOVERNING LAW. THIS WARRANT SHALL BE BINDING UPON ANY SUCCESSORS OR
         ASSIGNS OF THE COMPANY. THIS WARRANT SHALL CONSTITUTE A CONTRACT UNDER
         THE LAWS OF THE STATE OF DELAWARE AND FOR ALL PURPOSES SHALL BE
         CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
         DELAWARE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES.

17.      Attorneys' Fees. A party in breach of this Warrant shall, on demand,
         indemnify and hold harmless the other party for and against all
         reasonable out-of-pocket expenses, including legal fees, incurred by
         such other party by reason of the enforcement and protection of its
         rights under this Warrant. The payment of such expenses is in addition
         to any other relief to which such other party may be entitled.

18.      Amendments. This Warrant may be amended and the observance of any term
         of this Warrant may be waived only with the written consent of the
         Company and the Warrantholder.

19.      Notice. All notices hereunder shall be in writing and shall be
         effective (a) on the day on which delivered if delivered personally or
         transmitted by telex or telegram or telecopier with evidence of
         receipt, (b) one Business Day after the date on which the same is
         delivered to a nationally recognized overnight courier service with
         evidence of receipt, or (c) five Business Days after the date on which
         the same is deposited, postage prepaid, in the U.S. mail, sent by
         certified or registered mail, return receipt requested, and addressed
         to the party to be notified at the address indicated below for the
         Company, or at the address

                                      -16-
<PAGE>   95

         for the Warrantholder set forth in the registry maintained by the
         Company pursuant to Section 9, or at such other address and/or telecopy
         or telex number and/or to the attention of such other person as the
         Company or the Warrantholder may designate by ten-day advance written
         notice.

20.      Entire Agreement. This Warrant and the forms attached hereto contain
         the entire agreement between the parties with respect to the subject
         matter hereof and supersede all prior and contemporaneous arrangements
         or undertakings with respect thereto.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -17-
<PAGE>   96

         IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by a duly authorized officer.

Dated:  October ___, 2000

                                        AVAYA INC.

                                        By:  __________________________________
                                             Name:
                                             Title:

                                      -18-
<PAGE>   97

                          [FORM OF NOTICE OF EXERCISE]

                              Date: ______________

TO:    Avaya Inc.

RE:    Election to Subscribe for and Purchase Common Stock

         The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for and purchase the number of shares of the
Common Stock set forth below covered by such Warrant. The undersigned, in
accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate
Exercise Price for such shares of Common Stock in the manner set forth below. A
new warrant evidencing the remaining shares of Common Stock covered by such
Warrant, but not yet subscribed for and purchased, should be issued in the name
set forth below. If the new warrant is being transferred, an opinion of counsel
is attached hereto with respect to the transfer of such warrant.

Number of Shares of Common Stock: ______________________________

Method of Payment of Exercise Price: ___________________________

Name and Address of Person to be
Issued New Warrant:  ____________________________________________
                     ____________________________________________
                     ____________________________________________
                     ____________________________________________

                                        Holder:  ______________________________
                                        By: ___________________________________
                                        Name: _________________________________
                                        Title: ________________________________

                                      -19-
<PAGE>   98
                                                                       Exhibit C
                                         Form of Cravath, Swaine & Moore Opinion

                  1. Based solely on a certificate from the Secretary of State
of the State of Delaware, the Company is a corporation validly existing and in
good standing under the laws of the State of Delaware.

                  2. Each of the Purchase Agreement and the Escrow Agreement has
been duly authorized, executed and delivered by the Company, and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other similar
laws relating or affecting creditors' rights generally from time to time in
effect and to general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, regardless
of whether considered in a proceeding in equity or at law). With respect to the
foregoing opinion, (i) insofar as provisions contained in the Registration
Rights Provisions provide for indemnification, the enforceability thereof may be
limited by public policy considerations, (ii) the availability of a decree for
specific performance or an injunction is subject to the discretion of the court
requested to issue any such decree or injunction and (iii) we express no opinion
as to the enforceability of Section 5.09 of the Purchase Agreement.

                  3. The Certificate of Designation has been duly authorized and
executed by the Company, and, based solely upon advice from Corporation Trust
Company, has been filed with the Secretary of State of the State of Delaware.

                  4. The Series B Preferred Shares have been duly and validly
authorized, and, when issued and delivered to and paid for by the Purchasers
pursuant to the Purchase Agreement, will be validly issued, fully paid, and
nonassessable.

                  5. The Warrants have been duly authorized, executed, issued
and delivered and, when delivered to and paid for by the Purchasers pursuant to
the Purchase Agreement, will constitute valid and legally binding obligations of
the Company.

                  6. The shares of Common Stock into which the Series B
Preferred Shares are convertible and for which the Warrants are exercisable have
been duly and validly authorized and, when issued and delivered upon conversion
of the Series B Preferred Shares, as contemplated in the Certificate of
Designation, or exercise of the Warrants will be validly issued, fully paid, and
nonassessable.
<PAGE>   99
                                                                       Exhibit D
                                                  Registration Rights Provisions

                  1. Suspension of Registration Statement. Anything in this
Agreement to the contrary notwithstanding, it is understood and agreed that the
Company shall not be required to keep any shelf registration effective or
useable for offers and sales of the Registrable Securities, file a post
effective amendment to a shelf registration statement or prospectus supplement
or to supplement or amend any registration statement, if (A) the Registration
Statement, any prospectus or prospectus supplement constituting a part thereof,
or any document incorporated by reference in any of the foregoing contains 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 not misleading,
in the light of the circumstances under which they are made; (B) the Company is
in possession of material information that it deems advisable not to disclose in
a Registration Statement; (C) the Company has determined to proceed with a
public offering of its equity securities and, in the judgment of the managing
underwriter thereof or the Company (if such offering is not underwritten), sales
under the Registration Statement would have a material adverse effect on such
offering; or (D) the Company is engaged in any program for the purchase of
shares of its own Common Stock, unless such repurchase program and the requested
sale may proceed concurrently pursuant to an exemption under the Commission's
Regulation M or any other applicable exemption (it being understood that, to the
extent consistent with any such program, the Company will use commercially
reasonable efforts to make an exemption available to the beneficiaries of these
registration rights (the "Beneficiaries") or to otherwise open up a sufficient
window period under Regulation M to enable the Beneficiary to obtain the
liquidity it desires hereunder). The Company shall provide notice of any such
suspension to the Warburg Group Director, or if there is then no Warburg Group
Director, to Warburg and each Beneficiary in accordance with Section 8.03 of
this Agreement. Upon receipt by a Beneficiary of notice of an event of the kind
described in this Section 1, such Beneficiary shall forthwith discontinue such
Beneficiary's disposition of Registrable Securities until the Company has
provided notice that such disposition may continue and of any supplemented or
amended prospectus indicated in such notice. The Company agrees that any period
in which sales, transfers or dispositions must be discontinued as a result of a
given occurrence of a circumstance referred to in the preceding sentence shall
not exceed 60 days, and shall not exceed 120 days in the aggregate over any
12-month period.

                  2. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Beneficiary, its officers and directors, and
each person, if any, who
<PAGE>   100
                                                                               2

controls such Beneficiary, within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by such Beneficiary, any of its
officers or directors or any such controlling person in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any prospectus relating to Registrable Securities (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by 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 under
which they were made, not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished by such
Beneficiary or the plan of distribution furnished in writing to the Company by
or on behalf of such Beneficiary expressly for use therein; provided, however,
that the foregoing indemnity agreement with respect to any prospectus shall not
inure to the benefit of such Beneficiary if a copy of the most current
prospectus at the time of the delivery of the securities was made available to
such Beneficiary but was not provided by the Beneficiary or any Underwriter to
the buyer of such securities and such current prospectus would have cured the
defect giving rise to such loss, claim, damage or liability. The Company also
agrees to indemnify any Underwriters of any Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of Beneficiary
provided in this Section 2. As used throughout this Exhibit, "Underwriter" means
a securities dealer who purchases any Registrable Securities as principal and
not as part of such dealer's market-making activities.

                  3. Indemnification by Each Beneficiary. Each Beneficiary
agrees, severally and not jointly, to indemnify and hold harmless the Company,
its officers and directors, and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Beneficiary, but only with reference to information furnished by such
Beneficiary or the plan of distribution furnished in writing by or on behalf of
such Beneficiary expressly for use in the Registration Statement or any
prospectus relating to the
<PAGE>   101
                                                                               3

Registrable Securities, or any amendment or supplement thereto or any
preliminary prospectus. Each Beneficiary also agrees, severally and not jointly,
to indemnify and hold harmless any Underwriters of the Registrable Securities,
their officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Company
provided in this Section 3. Notwithstanding anything to the contrary contained
in this Exhibit, the obligations of any Beneficiary pursuant to this Section 3
shall not exceed the amount of proceeds received by such Beneficiary for the
relevant Registrable Securities.

                  4. Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
Section 2 or 3 of this Exhibit, such person (the "Indemnified Party") shall
promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Party") in writing and the Indemnifying Party, upon the request of
the Indemnified Party, shall retain counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own counsel
(which counsel shall be reasonably accountable to the Indemnifying Party), but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (a) the Indemnifying Party and the Indemnified Party
shall have mutually agreed in writing to the retention of such counsel or (b)
the named parties to any such proceeding (including any impleaded parties)
include both the Indemnified Party and the Indemnifying Party and, in the
written opinion of counsel for the Indemnified Party, representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicts of interests between them. It is understood that the Indemnifying
Party shall not, in connection with any proceeding or related proceedings
involving one or more Indemnified Parties in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel required under the circumstances) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are submitted in writing for payment. In the case of any such
separate firm for the Indemnified Parties, such firm shall be designated in
writing by the Indemnified Parties or, if the Indemnified Parties are
exclusively Beneficiaries, by Warburg. The
<PAGE>   102
                                                                               4

Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment.

                  5. Contribution. If the indemnification provided for in this
Exhibit is unavailable to an Indemnified Party in respect of any losses, claims,
damages or liabilities referred to herein, then each such Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims, damages
or liabilities (a) in such proportion as is appropriate to reflect the relative
benefits received by the Company, Beneficiary and the Underwriters from the
offering of the securities, or (b) if the allocation provided by clause (a)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (a) above but
also the relative fault of the Company, such Beneficiary and the Underwriters in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company, such Beneficiary
and the Underwriters shall be deemed to be in the same respective proportions as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by each of the Company and
such Beneficiary and the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the prospectus, bear to the aggregate public offering price of the securities.
The relative fault of the Company, such Beneficiary and the Underwriters shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

                  The Company and each Beneficiary agrees that it would not be
just and equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or
<PAGE>   103
                                                                               5

payable by an Indemnified Party as a result of the losses, claims, damages or
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and each Beneficiary shall not be required to contribute
any amount in excess of the amount by which the net proceeds of the offering
(before deducting expenses) received by such Beneficiary exceeds the amount of
any damages which such Beneficiary has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. 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.

                  6. Survival. The indemnity and contribution agreements
contained in this Exhibit shall remain operative and in full force and effect
regardless of (a) any termination of this Agreement or any underwriting
agreement, (b) any investigation made by or on behalf of any Indemnified Person
or by or on behalf of the Company and (c) the consummation of the sale or
successive resales of the Registrable Securities.

                  7. Registration Expenses. In connection with the Registrable
Securities, the Company shall pay the following reasonable expenses incurred in
connection with such registration: (a) registration and filing fees with the
Commission, (b) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualifications of the Registrable Securities), (c) printing expenses, (d)
fees and expenses incurred in connection with the listing of the Registrable
Securities on the stock exchanges, if any, on which the applicable class of
Registrable Securities is then listed or, if such class of Registrable
Securities is not then listed, on the principal national stock exchange on which
the Common Stock is then listed, (e) fees and expenses of counsel and
independent certified public accountants for the Company (including the
<PAGE>   104
                                                                               6

expenses of any comfort letters reasonably required by any Underwriters), (f)
the fees and expenses of any additional experts retained by the Company in
connection with such registration and (g) fees and expenses in connection with
any review of underwriting arrangements by the National Association of
Securities Dealers, Inc. Each Beneficiary shall pay any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities by
it and any out-of-pocket expenses of such Beneficiary, including its counsel
fees, accountant fees and expenses. The Company shall pay internal Company
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties).

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