<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1997.
REGISTRATION NO. 333-42261
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
LUCENT TECHNOLOGIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3661 22-3408857
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
600 MOUNTAIN AVENUE
MURRAY HILL, NEW JERSEY 07974
(908) 582-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PAMELA F. CRAVEN
VICE PRESIDENT -- LAW
LUCENT TECHNOLOGIES INC.
600 MOUNTAIN AVENUE
MURRAY HILL, NEW JERSEY 07974
(908) 582-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
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MICHAEL J. HOLLIDAY, ESQ. PETER B. TARR, ESQ.
LUCENT TECHNOLOGIES INC. SUSAN W. MURLEY, ESQ.
600 MOUNTAIN AVENUE HALE AND DORR LLP
MURRAY HILL, NEW JERSEY 07974 60 STATE STREET
BOSTON, MASSACHUSETTS 02109
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective and all other
conditions to the merger (the "Merger") of Prancer Acquisition, Inc., a wholly-
owned subsidiary of Lucent Technologies Inc., with and into Prominet Corporation
pursuant to the Agreement and Plan of Merger described in the enclosed Proxy
Statement/Prospectus have been satisfied or waived.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE PRICE(2) FEE(4)
- -------------------------------------------------------------------------------------------------------------
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Common Stock, $.01 par value(3).......... 2,500,000 shares (2) $2,989,634 $881.94
=============================================================================================================
</TABLE>
(1) Represents the estimated maximum number of shares of Lucent Common Stock
which are issuable upon consummation of the Merger, computed based on the
estimated maximum number of shares of Prominet Common Stock (9,265,470),
Prominet Series A Preferred Stock (10,117,788) and Prominet Series B
Preferred Stock (4,076,484) that may be converted into shares of Lucent
Common Stock to be registered.
(2) Pursuant to Rule 457(f)(2) promulgated under the Securities Act of 1933, the
registration fee is based on the book value of the Prominet Capital Stock,
as of December 11, 1997.
(3) Includes associated Preferred Share Purchase Rights, which initially are
attached to and trade with the shares of Lucent Common Stock being
registered hereby. Value attributable to such Preferred Share Purchase
Rights, if any, is reflected in the market price of Lucent Common Stock.
(4) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
LUCENT TECHNOLOGIES INC.
CROSS-REFERENCE TABLE
CROSS REFERENCE SHEET BETWEEN ITEMS OF FORM S-4 AND PROXY STATEMENT/PROSPECTUS
PURSUANT TO ITEM 501(b) OF REGULATION S-K.
<TABLE>
<CAPTION>
ITEM CAPTION OR LOCATION IN
NUMBER ITEM IN FORM S-4 PROXY STATEMENT/PROSPECTUS
- ------ --------------------------------------------- ---------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus....... Facing Page, Cross-Reference Table and
Outside Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Table of Contents, "Available
Information" and "Incorporation of
Documents by Reference"
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ "Summary" and "Risk Factors"
4. Terms of the Transaction..................... "Summary," "The Merger," "Terms of the
Merger Agreement" and "Comparison of
the Rights of Holders of Lucent Common
Stock and the Rights of Holders of
Prominet Capital Stock"
5. Pro Forma Financial Information.............. Not Applicable
6. Material Contacts with the Company Being
Acquired..................................... "The Merger"
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters.............................. Not Applicable
8. Interests of Named Experts and Counsel....... "Experts" and "Legal Matters"
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
10. Information with Respect to S-3
Registrants.................................. "Incorporation of Documents by
Reference," "Recent Developments" and
"Certain Information Concerning Lucent"
11. Incorporation of Certain Information by
Reference.................................... "Incorporation of Documents by
Reference" and "Available Information"
12. Information with Respect to S-2 or S-3
Registrants.................................. Not Applicable
13. Incorporation of Certain Information by
Reference.................................... Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.................. Not Applicable
15. Information with Respect to S-3 Companies.... Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................... Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies.................... "Summary" and "Certain Information
Concerning Prominet"
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM CAPTION OR LOCATION IN
NUMBER ITEM IN FORM S-4 PROXY STATEMENT/PROSPECTUS
- ------ --------------------------------------------- ---------------------------------------
<C> <S> <C>
18. Information if Proxies, Consents or
Authorizations Are to Be Solicited........... "Incorporation of Documents by
Reference," "Summary," "Prominet
Special Meeting," "The Merger,"
"Appraisal Rights" and "Certain
Information Concerning Prominet"
19. Information if Proxies, Consents or
Authorizations Are Not to Be Solicited, or in
an Exchange Offer............................ Not Applicable
</TABLE>
<PAGE> 4
PROMINET CORPORATION
400 NICKERSON ROAD
MARLBOROUGH, MASSACHUSETTS 01752
December 18, 1997
Dear Stockholder:
At our Special Meeting of Stockholders (the "Special Meeting") to be held
on January 21, 1998, you will be asked to vote upon the approval and adoption of
the Agreement and Plan of Merger dated as of December 9, 1997 (the "Merger
Agreement") among Lucent Technologies Inc. ("Lucent"), Prancer Acquisition,
Inc., a wholly-owned subsidiary of Lucent ("Acquisition"), and Prominet
Corporation ("Prominet"), providing for the merger of Acquisition with and into
Prominet upon the terms and subject to the conditions of the Merger Agreement
(the "Merger"). Holders of Prominet Series A Preferred Stock and Prominet Series
B Preferred Stock are also being asked to vote upon determinations as to whether
the Merger will be a liquidation, dissolution or winding up with respect to the
Prominet Series A Preferred Stock and Prominet Series B Preferred Stock,
respectively. The foregoing proposals are described more fully in the
accompanying Proxy Statement/Prospectus.
After careful consideration, Prominet's Board of Directors has unanimously
determined that the terms of the Merger Agreement and the Merger are fair to,
and in the best interests of, Prominet and its stockholders. Accordingly,
Prominet's Board of Directors has unanimously approved the Merger Agreement and
unanimously recommends that the stockholders of Prominet vote FOR approval of
the Merger Agreement and the Merger. The approval of the Merger Agreement and
the Merger requires the affirmative vote of holders of at least a majority of
the outstanding shares of the Prominet Common Stock (including, for purposes of
determining such majority, the shares of Prominet Series A Preferred Stock and
Prominet Series B Preferred Stock, calculated as if such shares had been
converted into Prominet Common Stock), and the affirmative vote of at least 75%
of the Prominet Series A Preferred Stock and at least 75% of the Prominet Series
B Preferred Stock (each voting as a class). In addition, Prominet's Board of
Directors has unanimously recommended that (i) the holders of Prominet Series A
Preferred Stock vote FOR approval of a determination that the Merger not be
deemed a liquidation, dissolution or winding up with respect to the Prominet
Series A Preferred Stock entitling such holders to cash distributions, provided
that approval of this proposal will not affect the right of the holders of
Prominet Series A Preferred Stock to receive the liquidation preference which is
reflected in the exchange ratio of Lucent Common Stock for Prominet Series A
Preferred Stock and (ii) the holders of Prominet Series B Preferred Stock vote
FOR approval of a determination that the Merger not be deemed a liquidation,
dissolution or winding up with respect to the Prominet Series B Preferred Stock
entitling such holders to a liquidation preference.
In connection with the execution of the Merger Agreement, Lucent entered
into a Voting Agreement with Robert Badavas, Brian Ramelson, Joshua Weiss,
Carmena Limited Partnership, Charles River Partnership VII, A Limited
Partnership, Matrix IV Entrepreneurs Fund, L.P., Matrix Partners IV, L.P. and
Menlo Ventures VI, L.P., the beneficial holders of approximately 61% of the
issued and outstanding shares of Prominet Common Stock, approximately 76% (on a
fully diluted basis) of the issued and outstanding shares of Prominet Series A
Preferred Stock and approximately 76% (on a fully diluted basis) of the issued
and outstanding shares of Prominet Series B Preferred Stock, respectively,
pursuant to which these stockholders have agreed to vote in favor of the
approval of the Merger Agreement and the Merger and have granted certain
officers of Acquisition an irrevocable proxy and power of attorney to vote their
shares in favor of the approval of the Merger Agreement and the Merger. Any
issued and outstanding shares of Prominet Common Stock, Prominet Series A
Preferred Stock or Prominet Series B Preferred Stock held by a person who has
not voted in favor of or consented to the Merger and who complies with the
applicable provisions of the Delaware General Corporation Law (the "DGCL")
concerning the right of holders of shares of capital stock of Prominet to
require appraisal of such shares shall not be converted as described in the
accompanying Proxy Statement/Prospectus, but shall, by virtue of the Merger,
become the right to receive such consideration as may be determined to be due
such holder pursuant to the DGCL.
Stockholders are urged to review carefully the information contained in the
Proxy Statement/Prospectus attached hereto prior to deciding how to vote their
shares at the Special Meeting.
<PAGE> 5
Whether or not you expect to attend the Special Meeting in person, please
complete, sign and promptly return the enclosed proxy in the enclosed
postage-prepaid envelope to assure representation of your shares. You may revoke
your proxy at any time before it has been voted, and if you attend the Special
Meeting you may vote in person, even if you previously returned your proxy. Your
prompt cooperation will be greatly appreciated.
Sincerely,
MENACHEM E. ABRAHAM
President, Chief Executive Officer and
Treasurer
<PAGE> 6
PROMINET CORPORATION
400 NICKERSON ROAD
MARLBOROUGH, MASSACHUSETTS 01752
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 21, 1998
TO THE STOCKHOLDERS OF PROMINET CORPORATION
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Prominet Corporation, a Delaware corporation ("Prominet"), will be
held on January 21, 1998, at 10:00 a.m., local time, at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts 02109.
At the Special Meeting you will be asked to consider and vote upon the
following proposal:
To approve and adopt the Agreement and Plan of Merger dated as of December
9, 1997 (the "Merger Agreement"), among Lucent Technologies Inc., a Delaware
corporation ("Lucent"), Prancer Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Lucent ("Acquisition"), and Prominet, providing for
the merger of Acquisition with and into Prominet upon the terms and subject to
the conditions of the Merger Agreement (the "Merger").
In addition, at the Special Meeting, the holders of Prominet Series A
Preferred Stock will be asked to consider and vote upon the following proposal:
To approve a determination that, for purposes of Article FOURTH, Section
B2(c) of Prominet's Certificate of Incorporation, as amended, the Merger shall
not be deemed a liquidation, dissolution or winding up with respect to the
Prominet Series A Preferred Stock entitling the holders of Prominet Series A
Preferred Stock to cash distributions as a result of the Merger, provided that
nothing in this proposal shall affect the right of the holders of Prominet
Series A Preferred Stock to receive the liquidation preference which is
reflected in the Series A Exchange Ratio (as defined below).
In addition, at the Special Meeting, the holders of Prominet Series B
Preferred Stock will be asked to consider and vote upon the following proposal:
To approve a determination that, for purposes of Article FOURTH, Section
C2(c) of Prominet's Certificate of Incorporation, as amended, the Merger shall
not be deemed a liquidation, dissolution or winding up with respect to the
Prominet Series B Preferred Stock entitling the holders of Prominet Series B
Preferred Stock to a liquidation preference.
Pursuant to the Merger Agreement each share of Prominet capital stock
("Prominet Capital Stock") issued and outstanding at the effective time of the
Merger will be converted (a) in the case of each share of Common Stock of
Prominet, into 0.1027 ("Common Stock Exchange Ratio"), (b) in the case of each
share of Prominet Series A Preferred Stock, into 0.1102 ("Series A Exchange
Ratio"), (c) in the case of each share of Prominet Series B Preferred Stock,
into 0.1027 ("Series B Exchange Ratio"), of a fully paid and nonassessable share
of common stock, par value $.01 per share, of Lucent ("Lucent Common Stock") and
(d) each option to purchase shares of Prominet Common Stock ("Prominet Option")
that is not exercised prior to the consummation of the Merger will be assumed by
Lucent and will thereafter represent an option to purchase a certain number of
shares of Lucent Common Stock at an exercise price that, in each case, is
proportionately adjusted to reflect the Common Stock Exchange Ratio. Any issued
and outstanding shares of Prominet Capital Stock held by a person who has not
voted in favor of or consented to the Merger and who complies with the
applicable provisions of the Delaware General Corporation Law (the "DGCL")
concerning the right of holders of shares of Prominet Capital Stock to require
appraisal of their shares of Prominet Capital Stock shall not be converted as
described in the accompanying Proxy Statement/Prospectus, but shall, by virtue
of the Merger, become the right to receive such consideration as may be
determined to be due such holder pursuant to the DGCL.
<PAGE> 7
THE BOARD OF DIRECTORS OF PROMINET UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
IN ADDITION, THE BOARD OF DIRECTORS OF PROMINET UNANIMOUSLY RECOMMENDS THAT
(i) THE HOLDERS OF PROMINET SERIES A PREFERRED STOCK VOTE FOR APPROVAL OF A
DETERMINATION THAT THE MERGER NOT BE DEEMED A LIQUIDATION, DISSOLUTION OR
WINDING UP ENTITLING SUCH HOLDERS TO CASH DISTRIBUTIONS, AND (ii) THE HOLDERS OF
PROMINET SERIES B PREFERRED STOCK VOTE FOR APPROVAL OF A DETERMINATION THAT THE
MERGER NOT BE DEEMED A LIQUIDATION, DISSOLUTION OR WINDING UP ENTITLING SUCH
HOLDERS TO A LIQUIDATION PREFERENCE.
Detailed information concerning the Merger Agreement and the Merger is
contained in the accompanying Proxy Statement/Prospectus; please read it
carefully.
For the Board of Directors,
MENACHEM E. ABRAHAM
President, Chief Executive Officer and
Treasurer
Marlborough, Massachusetts
December 18, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. A STOCKHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT
ANY TIME BEFORE IT IS EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO
PROMINET, BY SUBSEQUENTLY FILING ANOTHER PROXY OR BY ATTENDING THE SPECIAL
MEETING AND VOTING IN PERSON.
HOLDERS OF PROMINET CAPITAL STOCK SHOULD NOT SEND
STOCK CERTIFICATES WITH THEIR PROXIES.
<PAGE> 8
<TABLE>
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LUCENT TECHNOLOGIES INC. PROMINET CORPORATION
600 MOUNTAIN AVENUE 400 NICKERSON ROAD
MURRAY HILL, NEW JERSEY MARLBOROUGH,
07974 MASSACHUSETTS 01752
</TABLE>
PROXY STATEMENT/PROSPECTUS
------------------------
This Proxy Statement/Prospectus constitutes the prospectus of Lucent
Technologies Inc., a Delaware corporation ("Lucent"), with respect to the
issuance of approximately 2,500,000 shares of common stock of Lucent, par value
$.01 per share (the "Lucent Common Stock"), together with the corresponding
percentage right (a "Lucent Right") to purchase shares of Lucent junior
preferred stock, par value $1.00 per share ("Lucent Junior Preferred Stock"),
issued pursuant to the Rights Agreement, dated as of April 4, 1996 (the "Rights
Agreement"), between Lucent and The Bank of New York, as successor agent (the
"Rights Agent") to be issued in a merger (the "Merger") between Prominet
Corporation, a Delaware corporation ("Prominet"), and Prancer Acquisition, Inc.,
a Delaware corporation that is a wholly-owned subsidiary of Lucent
("Acquisition"), upon the terms and subject to the conditions set forth in the
Agreement and Plan of Merger, dated as of December 9, 1997 (the "Merger
Agreement"), among Lucent, Acquisition and Prominet, with Prominet surviving as
a wholly-owned subsidiary of Lucent. Subject to the terms and conditions of the
Merger Agreement, each share of capital stock of Prominet ("Prominet Capital
Stock") outstanding immediately prior to the time the Merger is effective (other
than the shares of Prominet capital stock owned by Lucent or Prominet which
shall be canceled and other than Dissenting Shares (as defined below)) will be
converted (subject to adjustment in certain circumstances) (i) in the case of
the Prominet Common Stock, into 0.1027, (ii) in the case of the Prominet Series
A Preferred Stock, into 0.1102 and (iii) in the case of the Prominet Series B
Preferred Stock, into 0.1027, of a share of Lucent Common Stock. Each holder of
a warrant to purchase Prominet Capital Stock (other than Associated Warrants (as
defined below) which, by their terms, will terminate at the Effective Time) has
agreed that, at the time the Merger becomes effective, its warrant will be
converted (subject to adjustment in certain circumstances) into the right to
receive the number of shares of Lucent Common Stock (decreased to the nearest
full share) equal to the number of shares of Prominet Capital Stock subject to
such warrant immediately prior to the Effective Time multiplied by (i) in the
case of warrants having an exercise price per share of less than $1.00, 0.1027
and (ii) in the case of warrants having an exercise price per share equal to or
greater than $1.00 but less than $2.00, 0.0796. Cash will be paid in lieu of any
fractional share of Lucent Common Stock. Shares of Prominet which are not voted
in favor of the Merger and as to which the holders have properly demanded
appraisal ("Dissenting Shares") in accordance with the Delaware General
Corporation Law (the "DGCL") will be entitled to receive such consideration as
determined to be due in accordance with the DGCL.
Within 10 business days after the time the Merger becomes effective, Lucent
will cause 432,210 shares of Lucent Common Stock (together with the
corresponding Lucent Rights) issued in connection with the Merger to be
deposited in escrow with The Bank of New York, as escrow agent. The number of
shares (and Lucent Rights) received by each stockholder of Prominet in
connection with the Merger will be reduced by such stockholder's pro rata
portion of such escrowed shares (and Lucent Rights). The escrowed shares (and
Lucent Rights) will be distributed to the stockholders of Prominet Capital Stock
entitled thereto only if certain conditions are met. See "RISK FACTORS."
The consummation of the Merger is subject, among other things, to the
approval and adoption of the Merger Agreement by a majority of the outstanding
shares entitled to vote thereon at the Prominet Special Meeting (as defined
below), provided that a quorum is present. Concurrent with the Merger Agreement,
Lucent has entered into a voting agreement with eight Prominet stockholders,
including certain officers and directors of Prominet, of which three
stockholders hold approximately 61% (on a fully diluted basis) of the issued and
outstanding shares of Prominet Common Stock, four stockholders hold
approximately 76% (on a fully diluted basis) of the issued and outstanding
shares of Prominet Series A Preferred Stock and four stockholders hold
approximately 76% (on a fully diluted basis) of the issued and outstanding
shares of Prominet Series B Preferred Stock, pursuant to which such stockholders
have agreed to vote in favor of the Merger and have granted certain officers of
Acquisition an irrevocable proxy and power of attorney to vote their shares in
favor of the Merger. See "THE MERGER -- Interests of Certain Persons in the
Merger."
SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DESCRIPTION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY STOCKHOLDERS BEFORE VOTING. A CONFORMED
COPY OF THE MERGER AGREEMENT IS ATTACHED HERETO AS APPENDIX A.
Lucent Common Stock is listed for trading under the symbol "LU" on the New
York Stock Exchange (the "NYSE"). On December 9, 1997, the last trading day
prior to the public announcement of the Merger, the last reported sale price of
Lucent Common Stock, as reported on the NYSE Composite Transactions Tape, was
$80 1/8 per share. On December 17, 1997, the last trading day prior to the date
of this Proxy Statement/Prospectus, the last reported sale price of Lucent
Common Stock, as reported on the NYSE Composite Transactions Tape, was $76 per
share.
This Proxy Statement/Prospectus is being furnished to the stockholders of
Prominet in connection with the solicitation of proxies by the Board of
Directors of Prominet (the "Prominet Board") for use at a special meeting of the
stockholders of Prominet (the "Prominet Special Meeting") to be held on January
21, 1998, at 10:00 a.m., local time, at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts 02109, and at any adjournment thereof, for
the purpose of considering and voting upon the Merger.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY LUCENT OR
PROMINET. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF LUCENT, PROMINET OR ACQUISITION
SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS OR THAT INFORMATION IN THIS
PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THE DATES THEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is December 18, 1997.
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF DOCUMENTS BY REFERENCE............................................... 2
SUMMARY............................................................................... 3
Risk Factors........................................................................ 3
The Companies....................................................................... 3
Accounting Treatment................................................................ 4
Recent Developments................................................................. 4
Prominet Special Meeting............................................................ 4
Voting Rights....................................................................... 4
Share Ownership of Management....................................................... 5
Quorum; Required Vote............................................................... 5
The Merger and the Merger Agreement................................................. 5
Other Related Matters............................................................... 7
Appraisal Rights.................................................................... 8
Comparison of the Rights of Holders of Lucent Common Stock and the Rights of Holders
of Prominet Capital Stock........................................................ 8
Market Prices and Dividends......................................................... 8
Summary Selected Financial Information.............................................. 9
RISK FACTORS.......................................................................... 11
Escrowed Shares..................................................................... 11
Fixed Exchange Ratios Despite Changes in Lucent Stock Price......................... 11
Conflicts of Interest............................................................... 12
Absence of Review of Adequacy of Merger Consideration............................... 12
Tax Risks Associated With the Merger................................................ 12
PROMINET SPECIAL MEETING.............................................................. 12
Date, Time, Place and Purpose....................................................... 12
Record Date; Voting Rights.......................................................... 13
Voting Agreements................................................................... 13
Share Ownership of Management....................................................... 13
Quorum; Required Vote............................................................... 14
Proxies............................................................................. 14
Solicitation of Proxies; Expenses................................................... 15
THE MERGER............................................................................ 15
General............................................................................. 15
Background of the Merger............................................................ 16
Recommendation of the Prominet Board................................................ 17
Interests of Certain Persons in the Merger.......................................... 17
Lucent's Reasons for the Merger..................................................... 18
Prominet's Reasons for the Merger................................................... 18
Resales of Lucent Common Stock...................................................... 19
</TABLE>
i
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
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TERMS OF THE MERGER AGREEMENT......................................................... 20
Conversion of Shares in the Merger.................................................. 20
No Fractional Shares................................................................ 20
Adjustment of Exchange Ratios....................................................... 21
Exchange Agent; Procedures For Exchange of Certificates............................. 21
Effective Time of the Merger........................................................ 22
Dissenting Shares................................................................... 22
Escrow Arrangements................................................................. 22
Representations and Warranties...................................................... 23
Conduct of Business Pending the Merger.............................................. 24
Reorganization...................................................................... 25
No Solicitation..................................................................... 25
Conditions to the Merger............................................................ 25
Stock Options; Unvested Restricted Stock; Warrants.................................. 26
Indemnification..................................................................... 27
Termination......................................................................... 27
Fees and Expenses................................................................... 28
Amendment........................................................................... 28
Waiver.............................................................................. 28
OTHER RELATED MATTERS................................................................. 28
Escrow Agreement.................................................................... 28
Non-Competition Agreements.......................................................... 29
Accounting Treatment................................................................ 29
Certain Federal Income Tax Consequences............................................. 29
Stock Exchange Listing.............................................................. 31
DESCRIPTION OF LUCENT CAPITAL STOCK................................................... 31
APPRAISAL RIGHTS...................................................................... 31
Rights of Dissenting Stockholders................................................... 31
COMPARISON OF THE RIGHTS OF HOLDERS OF LUCENT COMMON STOCK AND THE RIGHTS OF HOLDERS
OF PROMINET CAPITAL STOCK........................................................... 33
Capitalization...................................................................... 34
Voting Rights....................................................................... 34
Number, Election, Vacancy and Removal of Directors.................................. 34
Amendments to Certificates of Incorporation......................................... 35
Amendments to Bylaws................................................................ 36
Stockholder Action.................................................................. 36
Notice of Certain Stockholder Actions............................................... 36
Special Stockholder Meetings........................................................ 37
Limitation of Personal Liability of Directors....................................... 37
Dividends........................................................................... 37
Conversion.......................................................................... 37
CERTAIN INFORMATION CONCERNING LUCENT................................................. 38
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
<S> <C>
CERTAIN INFORMATION CONCERNING PROMINET............................................... 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 39
Management of Prominet.............................................................. 41
Director Compensation............................................................... 42
Executive Compensation.............................................................. 42
1996 Stock Option Plan.............................................................. 42
Restricted Stock Agreements......................................................... 43
Prominet Stock Information.......................................................... 45
Certain Transactions................................................................ 46
LEGAL MATTERS......................................................................... 48
EXPERTS............................................................................... 48
PROMINET FINANCIAL STATEMENTS......................................................... F-1
APPENDICES
Appendix A -- Agreement and Plan of Merger
Appendix B -- Delaware General Corporation Law
</TABLE>
iii
<PAGE> 12
AVAILABLE INFORMATION
Lucent is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following Regional Offices of the
Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such materials relating to Lucent may also be inspected at the NYSE,
20 Broad Street, New York, New York 10005. The Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov.
Lucent has filed with the Commission a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") under
the Securities Act of 1933 (the "Securities Act") with respect to the issuance
of shares of Lucent Common Stock in connection with the Merger. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is made to the
Registration Statement and the Exhibits thereto for further information.
Statements contained or incorporated by reference herein concerning the
provisions of any agreement or other document filed as an Exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete and reference is hereby made to the copy thereof so filed
for more detailed information, each such statement being qualified in its
entirety by such reference.
The information in this Proxy Statement/Prospectus concerning Lucent and
Acquisition has been furnished by Lucent; the information concerning Prominet
and its subsidiaries has been furnished by Prominet. Prominet is not subject to
the informational requirements of the Exchange Act.
All reports and other documents filed by Lucent pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Prominet Special Meeting, and
any and all adjustments thereof shall be deemed to be incorporated by reference
herein and to be a part hereof from the dates of filing of such reports and
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER
THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER OF PROMINET CAPITAL STOCK, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST TO CORPORATE HEADQUARTERS, LUCENT
TECHNOLOGIES INC., 600 MOUNTAIN AVENUE, MURRAY HILL, NEW JERSEY 07974, TELEPHONE
NUMBER 1-888-4 LUCENT. IN ORDER TO ENSURE TIMELY DELIVERY OF DOCUMENTS, ANY
REQUEST THEREFOR SHOULD BE MADE NO LATER THAN JANUARY 13, 1998.
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<PAGE> 13
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to
the Securities Act and the Exchange Act are incorporated herein by reference
(Commission File No. 001-11639):
1. Lucent's Transition Report on Form 10-K for the transition period
from January 1, 1996 through September 30, 1996, filed with the Commission
on December 30, 1996;
2. Lucent's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1996, March 31, 1997 (as amended by Form 10-Q/A filed May 21,
1997) and June 30, 1997;
3. The "Description of Capital Stock" section of Lucent's Registration
Statement on Form 10 filed with the Commission on February 26, 1996, as
amended by Amendment No. 1 thereto filed on Form 10/A on March 12, 1996,
Amendment No. 2 thereto filed on Form 10/A on March 22, 1996 and Amendment
No. 3 thereto filed on Form 10/A on April 1, 1996; and
4. Lucent's Current Report on Form 8-K dated October 21, 1997.
As used herein, unless the context otherwise clearly requires: "Lucent"
refers to Lucent Technologies Inc. and its consolidated subsidiaries and
"Prominet" refers to Prominet Corporation and its subsidiary. Capitalized terms
not defined in this Proxy Statement/Prospectus have the respective meanings
specified in the Merger Agreement.
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<PAGE> 14
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/ Prospectus or in documents incorporated herein by
reference. This summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements included
or incorporated by reference in this Proxy Statement/Prospectus. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
------------------------
STOCKHOLDERS OF PROMINET ARE URGED TO READ THIS PROXY STATEMENT/PROSPECTUS
AND THE APPENDICES HERETO IN THEIR ENTIRETY AND SHOULD CONSIDER CAREFULLY THE
INFORMATION SET FORTH BELOW UNDER THE HEADING "RISK FACTORS."
------------------------
RISK FACTORS
In considering whether to approve and adopt the Merger Agreement, the
stockholders of Prominet should consider that: (i) there is a risk that if
Product Delivery (as defined below) is not timely, all or a portion of the
432,210 shares of Lucent Common Stock (and corresponding Lucent Rights)
deposited into escrow pursuant to the Merger Agreement will not be distributed
to the Prominet stockholders otherwise entitled thereto; (ii) each of the
Exchange Ratios (as defined below) is a fixed ratio and will not be adjusted in
the event of any increase or decrease in the market price of Lucent Common Stock
prior to the time that the Merger becomes effective; (iii) certain directors and
executive officers of Prominet may be deemed to have conflicts of interest with
respect to the Merger; (iv) no independent financial adviser to Prominet has
considered whether the consideration to be received by holders of Prominet
Capital Stock in connection with the Merger is fair to such holders from a
financial point of view; and (v) there is a risk that all the gain or loss
realized by the holders of Prominet Capital Stock as a result of the Merger will
be subject to tax. See "RISK FACTORS."
THE COMPANIES
Lucent. Lucent is one of the world's leading designers, developers and
manufacturers of telecommunications systems, software and products. These
integrated systems and software applications enable network operators and
business enterprises to connect, route, manage and store information between and
within locations. Lucent is a global leader in the sale of public
telecommunications systems, and is a supplier of systems or software to most of
the world's largest networks. Lucent is also a global leader in the sale of
business communications systems and microelectronic components for
communications systems and computer manufacturers. Lucent was formed from the
systems and technology units that were formerly part of AT&T Corp. ("AT&T"),
including the research and development capabilities of Bell Laboratories.
Lucent's principal executive offices are located at 600 Mountain Avenue, Murray
Hill, New Jersey 07974 and its telephone number is (908) 582-8500.
Prominet. Prominet was founded in February 1996 to develop a family of
high-capacity, high-density, multilayer-capable ethernet switching and routing
systems designed for gigabit-scaled campus networking. Prominet's products under
development are designed to provide (i) 45.76 gigabits of switching capacity,
(ii) Layer 2 switching and Layer 3 routing performance at 33 and 18 million
packets per second ("pps"), respectively, (iii) bandwidth management, (iv)
advanced applications such as quality of service (QoS), class of service and IP
multicasting, and (v) a competitive cost of megabit per port pricing.
Prominet recently began shipping its P550(TM) Cajun(TM) Switch, a
high-capacity, multilayer switch that provides 10/100/1,000 megabits per second
of capacity in a compact, fault tolerant 7-slot chassis. The Switch's 45.76
gigabits per second ("Gbps") of total backplane capacity permits network
managers to deliver more than 33 million pps of system throughput.
Prominet currently has under development the P550(TM) Cajun(TM) Switch with
Integrated Routing, which is designed to enable scalable, packet-by-packet, IP
and IPX routing at wire speed with the Layer 2 switching capabilities of the
initial P550(TM) Cajun(TM) Switch in the same 7-slot chassis. This technology is
intended to perform many of the same Layer 3 functions as legacy software-based
routers, but at multi-gigabit speeds and at a lower cost. The silicon-based
implementation is designed to enable full multi-level quality of service (QoS)
capabilities, including the ability to make routing and prioritization decisions
based on Layer 3 application information, at 10/100/1,000 wire speeds.
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<PAGE> 15
Acquisition. Acquisition was incorporated in Delaware on December 4, 1997
solely for the purpose of consummating the Merger. Acquisition has limited
assets and no business and has not carried on any activities other than those
which are directly related to its formation and its execution of the Merger
Agreement. Its principal executive offices are located at 211 Mt. Airy Road,
Basking Ridge, New Jersey 07920 and its telephone number is (908) 953-4900.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted
accounting principles. In connection with the Merger, it is anticipated that
Lucent will take a one-time charge associated with acquired in-process research
and development. Such charge is expected to be approximately $150 million and
will be taken in the fiscal quarter in which the Merger is consummated.
RECENT DEVELOPMENTS
On December 15, 1997, Lucent acquired Livingston Enterprises, Inc.
("Livingston"), a leading provider of integrated remote access networking
solutions for Internet Service Providers. The acquisition was structured as a
stock-for-stock merger and Lucent will issue up to 7,661,129 shares of Lucent
Common Stock in consideration for all Livingston common stock not owned by
Lucent and its affiliates immediately prior to the merger. The acquisition is
intended to constitute a tax-free reorganization under the Internal Revenue Code
of 1986, as amended (the "Code"). The acquisition will be accounted for as a
purchase for accounting and financial reporting purposes, in accordance with
generally accepted accounting principles, and, in connection therewith, it is
anticipated that Lucent will take, in the fiscal quarter ended December 31,
1997, a one-time charge of approximately $427 million associated with acquired
in-process research and development.
PROMINET SPECIAL MEETING
Purpose. The Prominet Special Meeting will be held on January 21, 1998 at
10:00 a.m., local time, to consider and vote upon a proposal to approve and
adopt the Merger Agreement, which provides for the merger of Acquisition with
and into Prominet, with Prominet continuing as the surviving corporation (the
"Surviving Corporation") and a wholly-owned subsidiary of Lucent. Holders of
Prominet Series A Preferred Stock and Prominet Series B Preferred Stock are also
being asked to vote upon determinations as to whether the Merger will be a
liquidation, dissolution or winding up with respect to the Prominet Series A
Preferred Stock and Prominet Series B Preferred Stock, respectively. See
"PROMINET SPECIAL MEETING -- Date, Time, Place and Purpose."
Record Date. Only holders of record of Prominet Capital Stock at the close
of business on December 16, 1997 (the "Prominet Record Date") are entitled to
receive notice of and to vote at the Prominet Special Meeting. At the close of
business on the Prominet Record Date, there were approximately 7,150,772 shares
of Prominet Common Stock issued and outstanding, approximately 9,921,067 shares
of Prominet Series A Preferred Stock issued and outstanding and approximately
4,028,355 shares of Prominet Series B Preferred Stock issued and outstanding.
Each share of Prominet Common Stock entitles the registered holder thereof to
one vote, each share of Prominet Series A Preferred Stock entitles the
registered holder thereof to one vote and each share of Prominet Series B
Preferred Stock entitles the registered holder thereof to one vote. In addition,
each share of Prominet Series A Preferred Stock and Prominet Series B Preferred
Stock entitles the holder thereof to one vote within its respective class. See
"PROMINET SPECIAL MEETING -- Record Date; Voting Rights."
VOTING RIGHTS
In connection with the execution of the Merger Agreement, Lucent entered
into a Voting Agreement with Carmena Limited Partnership, Brian Ramelson and
Joshua Weiss, beneficial owners of approximately 61% of the issued and
outstanding shares of Prominet Common Stock, Charles River Partnership VII, A
Limited Partnership ("Charles River"), Matrix Partners IV, L.P. ("Matrix"),
Matrix IV Entrepreneurs Fund, L.P. ("Matrix Entrepreneurs") and Robert Badavas,
beneficial holders of approximately 76% (on a fully diluted basis) of the issued
and outstanding shares of Prominet Series A Preferred Stock and
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<PAGE> 16
Charles River, Matrix, Matrix Entrepreneurs and Menlo Ventures VI, L.P.
("Menlo"), beneficial owners of approximately 76% (on a fully diluted basis) of
the issued and outstanding shares of Prominet Series B Preferred Stock, pursuant
to which such holders have agreed to vote in favor of the approval of the Merger
Agreement and the Merger and have granted certain officers of Acquisition an
irrevocable proxy and power of attorney to vote the shares in favor of approval
of the Merger Agreement and the Merger. See "PROMINET SPECIAL MEETING -- Voting
Agreements."
SHARE OWNERSHIP OF MANAGEMENT
As of the Prominet Record Date, the directors and executive officers of
Prominet beneficially owned approximately 3,912,170 (approximately 54.5%) of the
issued and outstanding shares of Prominet Common Stock, 7,744,353 (approximately
77.3%) (on a fully diluted basis) of the issued and outstanding shares of the
Prominet Series A Preferred Stock and 2,244,943 (approximately 55.5%) (on a
fully diluted basis) of the issued and outstanding shares of the Prominet Series
B Preferred Stock. See "THE MERGER -- Interests of Certain Persons in the
Merger."
QUORUM; REQUIRED VOTE
A majority of the shares of Prominet Capital Stock entitled to vote on the
Merger Agreement and on the proposals to each of the holders of Prominet Series
A Preferred Stock and Prominet Series B Preferred Stock, in each case,
represented in person or by proxy at the Prominet Special Meeting, is required
in order for a quorum to be present. In the absence of a quorum, the Prominet
Special Meeting may be adjourned by the vote of a majority of the shares
represented.
Approval and adoption of the Merger Agreement will require the affirmative
vote of (a) a majority of outstanding shares of Prominet Common Stock entitled
to vote thereon (including, for purposes of determining such a majority, the
shares of Prominet Series A Preferred Stock and Prominet Series B Preferred
Stock, calculated as if such shares had been converted into Prominet Common
Stock at a conversion ratio of one for one for the Prominet Series A Preferred
Stock and one for one for the Prominet Series B Preferred Stock, respectively)
and (b) 75% of the outstanding shares of each of the Prominet Series A Preferred
Stock and the Prominet Series B Preferred Stock entitled to vote thereon at the
Prominet Special Meeting, voting as a class, provided that a quorum is present.
Approval and adoption of the proposals to the holders of Prominet Series A
Preferred Stock and holders of Prominet Series B Preferred Stock will require
the vote of 80% of the outstanding shares of the Prominet Series A Preferred
Stock and the Prominet Series B Preferred Stock entitled to vote thereon at the
Prominet Special Meeting, respectively, provided that a quorum is present.
THE MERGER AND THE MERGER AGREEMENT
General. On December 9, 1997, Lucent, Acquisition and Prominet executed
the Merger Agreement. A copy of the Merger Agreement is attached as Appendix A
to this Proxy Statement/Prospectus and is incorporated herein by reference. At
the Effective Time (as defined below) of the Merger, Acquisition will be merged
with and into Prominet, with Prominet continuing as the Surviving Corporation
and a wholly-owned subsidiary of Lucent. As a result of the Merger, the separate
corporate existence of Acquisition will cease and Prominet will succeed to all
the rights and be responsible for all the obligations of Acquisition in
accordance with the DGCL. Subject to the terms and conditions of the Merger
Agreement, each share of Prominet Capital Stock outstanding immediately prior to
the Effective Time (other than shares owned directly or indirectly by Lucent or
Prominet which shall be canceled and other than Dissenting Shares) will be
converted (a) in the case of each share of Prominet Common Stock, into 0.1027
(the "Common Stock Exchange Ratio"), (b) in the case of each share of Prominet
Series A Preferred Stock, into 0.1102 (the "Series A Exchange Ratio") and (c) in
the case of each share of Prominet Series B Preferred Stock, into 0.1027 (the
"Series B Exchange Ratio") of a share of Lucent Common Stock, in each case,
together with the corresponding percentage of a Lucent Right. Each holder of a
warrant to purchase Prominet Capital Stock (other than Associated Warrants (as
defined below) which, by their terms, will terminate at the Effective Time) has
agreed that, at the time the Merger becomes effective, its warrant will be
converted into the right to receive the number of shares of Lucent Common Stock
(decreased to the nearest full share) equal to the number of shares of Prominet
Capital Stock subject to such warrant immediately prior to the Effective Time
multiplied by (i) in the case of warrants having an exercise price per share of
less than $1.00, 0.1027 (the
5
<PAGE> 17
"Warrant A Exchange Ratio") and (ii) in the case of warrants having an exercise
price per share equal to or greater than $1.00 but less than $2.00, 0.0796 (the
"Warrant B Exchange Ratio" and, together with the Warrant A Exchange Ratio, are
referred to as the "Warrant Exchange Ratios"). The Common Stock Exchange Ratio,
the Series A Exchange Ratio, the Series B Exchange Ratio, the Warrant A Exchange
Ratio and the Warrant B Exchange Ratio are collectively referred to as the
"Exchange Ratios." The Exchange Ratios are subject to adjustment in certain
circumstances. Cash will be paid in lieu of any fractional share of Lucent
Common Stock. The consideration for Dissenting Shares, if any, will be paid in
accordance with the provisions of the DGCL. Within 10 business days after the
Effective Time of the Merger, Lucent will cause 432,210 shares of the Lucent
Common Stock (together with the corresponding Lucent Rights) issued in
connection with the Merger to be deposited in escrow with The Bank of New York,
as escrow agent (the "Escrow Agent"). Such shares (and Lucent Rights) will be
distributed to the holders of Prominet Capital Stock entitled thereto only if
certain conditions are met with respect to the delivery of Prominet's P550(TM)
Cajun(TM) Switch with Integrated Routing. See "RISK FACTORS -- Escrowed Shares,"
"THE MERGER -- General," "TERMS OF THE MERGER AGREEMENT -- Conversion of Shares
in the Merger," "-- No Fractional Shares," "-- Adjustment of Exchange Ratios,"
"-- Dissenting Shares," "-- Escrow Arrangements" and "APPRAISAL RIGHTS."
At the Effective Time, all outstanding stock options to purchase Prominet
Common Stock ("Stock Options") will be assumed by Lucent and will thereafter
represent options to purchase a number of shares of Lucent Common Stock (and
Lucent Rights) at an exercise price proportionately adjusted to reflect the
Common Stock Exchange Ratio ("Substitute Options"). Following the Merger, the
Substitute Options will continue to be subject to the terms and conditions of
Prominet's 1996 Stock Option Plan (the "1996 Stock Plan"), and the applicable
option agreements, including vesting restrictions, if any. See "TERMS OF THE
MERGER AGREEMENT -- Stock Options; Unvested Restricted Stock; Warrants" and
"OTHER RELATED MATTERS -- Escrow Agreement."
Recommendation of the Prominet Board. The Prominet Board has unanimously
determined that the Merger is advisable and fair to, and in the best interests
of, Prominet and its stockholders and has approved the Merger Agreement. The
Prominet Board has also unanimously determined that the proposals to the holders
of the Prominet Series A Preferred Stock and Prominet Series B Preferred Stock,
respectively, are in the best interests of Prominet and the holders of the
Prominet Series A Preferred Stock and Prominet Series B Preferred Stock,
respectively. THE PROMINET BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
PROMINET VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE
PROMINET SPECIAL MEETING. IN ADDITION, THE PROMINET BOARD UNANIMOUSLY RECOMMENDS
THAT (I) THE HOLDERS OF PROMINET SERIES A PREFERRED STOCK VOTE FOR APPROVAL OF A
DETERMINATION THAT THE MERGER NOT BE DEEMED A LIQUIDATION, DISSOLUTION OR
WINDING UP ENTITLING SUCH HOLDERS TO CASH DISTRIBUTIONS, AND (II) THE HOLDERS OF
PROMINET SERIES B PREFERRED STOCK VOTE FOR APPROVAL OF A DETERMINATION THAT THE
MERGER NOT BE DEEMED A LIQUIDATION, DISSOLUTION OR WINDING UP ENTITLING SUCH
HOLDERS TO A LIQUIDATION PREFERENCE. For a discussion of the interests that
certain officers and directors of Prominet have with respect to the Merger, in
addition to their interests as stockholders of Prominet generally, see "THE
MERGER -- Interests of Certain Persons in the Merger." Such interests, together
with other relevant factors, were considered by the Prominet Board in making its
recommendation and approving the Merger Agreement. See "THE
MERGER -- Recommendation of the Prominet Board" and "-- Prominet's Reasons for
the Merger." In addition, certain stockholders of Prominet have the right to
appoint or approve the directors of Prominet pursuant to the Stockholders'
Agreement (as defined below). See "COMPARISON OF THE RIGHTS OF HOLDERS OF LUCENT
COMMON STOCK AND THE RIGHTS OF HOLDERS OF PROMINET CAPITAL STOCK -- Number,
Election, Vacancy and Removal of Directors -- Prominet."
Interests of Certain Persons in the Merger. As of the Prominet Record
Date, the directors and executive officers of Prominet beneficially owned
approximately (i) 3,912,170 shares of Prominet Common Stock, 7,744,353 shares of
Prominet Series A Preferred Stock and 2,244,943 shares of Prominet Series B
Preferred Stock for which they will receive the same consideration in connection
with the Merger as other holders of
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<PAGE> 18
Prominet Common Stock, Prominet Series A Preferred Stock and Prominet Series B
Preferred Stock, respectively, and (ii) Associated Warrants (as defined below)
to acquire 66,666 shares of Prominet Common Stock and unexercised options to
acquire 250,000 shares of Prominet Common Stock which will be treated as
described herein under "TERMS OF THE MERGER AGREEMENT -- Stock Options; Unvested
Restricted Stock; Warrants." Concurrent with the execution of the Merger
Agreement, Lucent entered into employment agreements with Menachem E. Abraham,
President, Chief Executive Officer and Treasurer, Joshua Weiss, Vice
President -- Engineering, Douglas Ruby, Vice President -- Product Marketing,
Timothy Lieto, Vice President -- Sales and Marketing and Allen D. Zubatkin, Vice
President -- Operations of Prominet and certain other employees of Prominet,
which provide certain benefits to each of them. In addition, Lucent has agreed
to provide significant additional compensation to certain employees of Prominet
(including members of senior management) if certain performance criteria
(principally related to successful delivery of products and achieving certain
levels of revenue) are satisfied. Mr. Abraham, Charles River, Matrix and Menlo
(which pursuant to the Stockholders' Agreement (as defined below) have the right
to appoint or approve the directors of Prominet) and Matrix Entrepreneurs and
Menlo Entrepreneurs Fund VI, L.P. ("Menlo Entrepreneurs") hold 8% Subordinated
Notes (the "Notes") of Prominet in an aggregate principal amount of $4,000,000.
The Notes, including any interest thereon, are due and payable at the Effective
Time. In connection with the Notes, Prominet issued Common Stock Purchase
Warrants (the "Associated Warrants") to the holders of the Notes to purchase an
aggregate of 88,888 shares of Prominet Common Stock at an exercise price of
$4.50 per share. As amended, the Associated Warrants are not exercisable before
the earlier of April 1, 1998 and the termination of the Merger Agreement and
will terminate without exercise if the Effective Time occurs on or before March
31, 1998. See "THE MERGER -- Interests of Certain Persons in the Merger" and
"CERTAIN INFORMATION CONCERNING PROMINET -- Certain Transactions."
Effective Time of the Merger. The Merger will become effective at the time
(the "Effective Time") of the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware in accordance with the provisions of
the DGCL, such later date as may be specified in the Certificate of Merger or
such later date as Lucent, Acquisition and Prominet may mutually agree. The
Certificate of Merger will be filed as soon as practicable following the
satisfaction or waiver of the conditions in the Merger Agreement. The parties
currently anticipate that the Merger will occur on or before January 31, 1998,
although there can be no assurance as to whether or when the Merger will occur.
See "TERMS OF THE MERGER AGREEMENT -- Effective Time of the Merger."
Conditions of the Merger. The respective obligations of the parties to
consummate the Merger are subject to the satisfaction or waiver of certain
conditions including the approval and adoption of the Merger Agreement by the
requisite vote of the Prominet stockholders, the continued effectiveness of the
Registration Statement and the receipt of certain regulatory approvals. The
respective obligations of Lucent and Acquisition on the one hand and Prominet on
the other are also conditioned upon the satisfaction or waiver by the other
party of certain conditions including performance of obligations, no material
adverse change and receipt of certain consents. See "TERMS OF THE MERGER
AGREEMENT -- Conditions to the Merger."
Termination. The Merger Agreement may be terminated (a) by mutual consent;
(b) by either Lucent or Prominet, if (i) the Effective Time does not occur by
March 31, 1998, subject to certain limitations or (ii) any court or governmental
authority having jurisdiction has permanently enjoined or prohibited the Merger;
or (c) by either Lucent or Prominet if the other materially breaches its
obligations under the Merger Agreement unless such failure is cured within 15
days. See "TERMS OF THE MERGER AGREEMENT -- Termination."
OTHER RELATED MATTERS
Certain Federal Income Tax Consequences. The Merger is intended to
constitute a "reorganization" within the meaning of Section 368(a) of the Code,
in which case no gain or loss will be recognized by the stockholders of Prominet
as a result of the Merger, except with respect to cash, if any, received in lieu
of fractional shares of Lucent Common Stock and cash received by dissenting
Prominet stockholders. See "OTHER RELATED MATTERS -- Certain Federal Income Tax
Consequences."
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<PAGE> 19
APPRAISAL RIGHTS
Holders of shares of Prominet Capital Stock who have not voted in favor of
the Merger or consented thereto in writing and who have demanded properly in
writing appraisal of such shares in accordance with Section 262 of the DGCL, are
entitled to dissenters' appraisal rights under the DGCL in connection with the
Merger. See "APPRAISAL RIGHTS."
COMPARISON OF THE RIGHTS OF HOLDERS OF LUCENT COMMON STOCK AND THE RIGHTS OF
HOLDERS OF PROMINET
CAPITAL STOCK
The rights of the Prominet stockholders are currently governed by the DGCL
and by Prominet's Certificate of Incorporation (as amended, the "Prominet
Certificate"), the Bylaws of Prominet (as amended, the "Prominet Bylaws"). The
rights of certain Prominet stockholders are also governed by the Amended and
Restated Stockholders' Agreement dated as of April 25, 1997, as amended on
December 9, 1997, by and among Prominet and certain holders of Prominet Capital
Stock (the "Stockholders' Agreement"). At the Effective Time, Prominet
stockholders who receive Lucent Common Stock as full or partial consideration in
the Merger will become stockholders of Lucent and their rights as Lucent
stockholders will be governed by the DGCL and by Lucent's Restated Certificate
of Incorporation (as amended, the "Lucent Certificate") and the Bylaws of Lucent
(as amended, the "Lucent Bylaws"). There are various differences between
Prominet's Certificate of Incorporation and Bylaws and those of Lucent. See
"COMPARISON OF THE RIGHTS OF HOLDERS OF LUCENT COMMON STOCK AND THE RIGHTS OF
HOLDERS OF PROMINET CAPITAL STOCK."
MARKET PRICES AND DIVIDENDS
Lucent Common Stock is listed and traded on the NYSE under the symbol "LU."
The table below indicates the high and low sales prices per share of Lucent
Common Stock as reported on the NYSE Composite Transactions Tape and the
dividends declared per share, during the calendar quarters indicated. Dividends
are declared at the discretion of Lucent's Board of Directors (the "Lucent
Board") and may be discontinued at any time if the Lucent Board should determine
that it is in the best interests of Lucent to eliminate the payment of
dividends.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
<S> <C> <C> <C>
1996
Second Quarter (from April 4, 1996)............................ 39 1/4 29 3/4 $.075
Third Quarter.................................................. 45 7/8 30 5/8 .075
Fourth Quarter................................................. 53 1/8 42 1/8 .075
1997
First Quarter.................................................. 60 5/8 44 3/4 .075
Second Quarter................................................. 74 3/16 49 7/8 .075
Third Quarter.................................................. 90 3/4 72 3/16 .075
Fourth Quarter (through December 16, 1997)..................... 90 3/16 72 3/8 $.075
</TABLE>
On December 9, 1997, the last full trading day prior to the public
announcement of the Merger, the last sale price per share of Lucent Common Stock
was $80 1/8. On December 17, 1997, the last full trading day for which
information was available prior to the date of this Proxy Statement/Prospectus,
the last sale price per share reported for Lucent Common Stock was $76. Because
there is no established trading market for shares of Prominet Capital Stock,
information with respect to the market prices thereof and the equivalent per
share market prices of Lucent Common Stock has been omitted.
THE MARKET PRICE OF SHARES OF LUCENT COMMON STOCK IS SUBJECT TO
FLUCTUATION. AS A RESULT, STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR LUCENT COMMON STOCK.
8
<PAGE> 20
SUMMARY SELECTED FINANCIAL INFORMATION
Lucent. The following tables present summary historical financial
information for Lucent. This information is based upon the consolidated
financial statements of Lucent incorporated by reference and should be read in
conjunction therewith and the notes thereto for the periods presented. The
historical financial information set forth below may not be indicative of
Lucent's future performance and does not necessarily reflect what the financial
position and results of operations of Lucent would have been had Lucent operated
as a separate, stand-alone entity during the periods covered. Per share data for
net income and dividends for years prior to 1995 have not been presented because
Lucent's businesses were operated through various divisions and subsidiaries of
AT&T. See "INCORPORATION OF DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS
NINE MONTHS ENDED
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------- -------------------------------------------
----------------------- 1996(2) 1995(1) 1994 1993 1992
1996(1) ----------- 1995 ------- ------- ------- -----------
----------- -----------
(UNAUDITED)
(UNAUDITED) (UNAUDITED)
1997
-------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LUCENT HISTORICAL:
RESULTS OF OPERATIONS
Revenues.................. $19,427 $17,368 $15,859 $13,986 $21,413 $19,765 $17,734 $17,312
Gross margin.............. 8,410 6,319 6,569 6,143 8,468 8,428 7,646 6,929
Operating income (loss)... 1,993 (1,406) 487 434 (1,000) 971 669 404
Income (loss) before
cumulative effect of
accounting changes...... 1,138 (1,048) 224 150 (867) 482 430 179
Cumulative effects of
accounting change....... -- -- -- -- -- -- (4,208) --
Net income (loss)......... 1,138 (1,048) 224 150 (867) 482 (3,778) 179
Earnings (loss) per common
share -- Historical(3)... 1.77 (1.88) 0.38 0.28 (1.65) n/a n/a n/a
Earnings (loss) per common
share -- Pro Forma(4)... n/a (1.65) 0.35 0.24 (1.36) n/a n/a n/a
Dividends per common
share................... 0.15 0.075 0.15 -- -- n/a n/a n/a
FINANCIAL POSITION
Total assets.............. $22,873 $21,932 $22,626 $18,219 $19,722 $17,340 $17,109 $14,466
Working capital........... 3,097 2,330 2,068 188 (384) 246 1,773 (1,719)
Total debt................ 3,440 4,044 3,997 4,192 4,014 3,164 3,195 3,942
Shareowners' equity....... 3,843 2,411 2,686 2,783 1,434 2,476 2,580 3,098
OTHER INFORMATION
Selling, general and
administrative expenses
as a percentage of
revenues................ 21.4% 33.7% 26.8% 28.9% 33.1% 27.1% 28.3% 27.8%
Research and development
expenses as a percentage
of revenue.............. 11.7 10.8 11.6 12.0 11.1 10.6 11.1 9.9
Gross margin percentage... 43.3 36.4 41.4 43.9 39.5 42.6 43.1 40.0
</TABLE>
- ---------------
(1) Includes pretax restructuring and other charges of $2,801 ($1,847 after
taxes) recorded as $892 of costs, $1,645 of selling, general and
administrative expenses and $264 of research and development expenses.
(2) Beginning September 30, 1996, Lucent changed its fiscal year end from
December 31 to September 30, and reported results for the nine-month
transition period ended September 30, 1996.
(3) The calculation of earnings per share on a historical basis includes the
retroactive recognition to January 1, 1995 of the 524,624,894 shares owned
by AT&T.
(4) The calculation of earnings per share on a pro forma basis assumes that all
636,661,931 common shares outstanding on April 10, 1996 were outstanding
since January 1, 1995 and gives no effect to the use of proceeds from the
initial public offering of Lucent Common Stock.
9
<PAGE> 21
Prominet. The following selected financial data should be read in
conjunction with Prominet's financial statements and the notes thereto, and with
the section captioned "CERTAIN INFORMATION CONCERNING PROMINET -- Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
statement of operations data for the period ended December 31, 1996 and the
balance sheet data at December 31, 1996 are derived from, and are qualified by
reference to, the audited financial statements of Prominet. The statement of
operations data should be read in conjunction with such audited financial
statements, the notes thereto and the report of Price Waterhouse LLP,
independent accountants. See "PROMINET FINANCIAL STATEMENTS." The results of
operations for the period ended December 31, 1996 and September 30, 1997 may not
be indicative of Prominet's future results.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
NINE MONTHS (FEBRUARY 2, 1996) (FEBRUARY 2, 1996)
ENDED THROUGH THROUGH
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
PROMINET HISTORICAL:
RESULTS OF OPERATIONS
Revenue..................................... $ 111,540 $ -- $ --
Cost of revenue............................. 999,596 -- --
Gross margin (loss)......................... (888,046) -- --
Costs and expenses
Research and development.................. 5,009,230 990,634 2,234,168
Sales and marketing....................... 1,789,056 106,808 217,212
General and administrative................ 481,513 205,437 299,017
Loss from operations........................ (8,167,845) (1,302,879) (2,750,397)
Net income (loss)........................... (8,095,425) (1,184,559) (2,585,790)
Net loss per share (unaudited).............. (.42) -- (.18)
FINANCIAL POSITION
Total assets................................ 5,654,203 $ 5,678,536 4,840,959
Working capital............................. 1,640,605 4,564,422 3,169,965
Total long-term debt........................ 1,099,490 525,584 810,681
Redeemable preferred stock.................. 13,584,874 6,000,000 6,000,000
Stockholders' equity (deficit).............. $(10,595,192) $ (1,081,359) $ (2,482,590)
</TABLE>
10
<PAGE> 22
RISK FACTORS
The following risk factors or investment considerations, in addition to the
other information contained or incorporated by reference in this Proxy
Statement/Prospectus, should be considered by holders of Prominet Capital Stock
in evaluating whether to approve the Merger and thereby become holders of Lucent
Common Stock. These factors should be considered in conjunction with the other
information included or incorporated by reference into this Proxy
Statement/Prospectus.
This Risk Factors section and other sections of this Proxy
Statement/Prospectus contain forward-looking statements, including prospective
financial and non-financial information, that are based on current expectations,
estimates, forecasts and projections about the industries in which Lucent and
Prominet operate, their managements' beliefs and assumptions made by their
management. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. Lucent and Prominet undertake no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. See "SUMMARY -- Market Prices and
Dividends."
ESCROWED SHARES
The Merger Agreement provides that within 10 business days after the
Effective Time, Lucent will cause 432,210 shares of Lucent Common Stock
(together with the corresponding Lucent Rights) issued in connection with the
Merger (the "Escrowed Shares") to be deposited into an escrow fund (the Escrowed
Shares, as adjusted for any stock splits or combinations, the "Escrow Fund"),
held by the Escrow Agent. The number of shares of Lucent Common Stock (and
Lucent Rights) to be received by each stockholder of Prominet will be reduced by
such stockholder's pro rata portion of such Escrowed Shares (and Lucent Rights).
The Escrow Fund will be distributed in full to the Prominet stockholders
entitled to receive such shares only if, on or prior to June 30, 1998,
Prominet's P550(TM) Cajun(TM) Switch with Integrated Routing satisfies the
criteria utilized by Lucent in introducing its new products in the data
networking industry, including, without limitation, that such product (a) has
industry-leading reliability, (b) can be manufactured in high volumes at
reasonable production costs, (c) contains state-of-the-art features and
functionality, (d) has general industry-wide interoperability and (e) provides
significant value by offering high performance capability for a reasonable
purchase price ("Product Delivery"). If Product Delivery occurs (i) after June
30, 1998 but on or prior to July 31, 1998, the Escrow Agent will deliver only
60% of the Escrow Fund to the Prominet stockholders entitled to receive such
shares; (ii) after July 31, 1998 but on or prior to August 31, 1998, the Escrow
Agent will deliver only 30% of the Escrow Fund to the Prominet stockholders
entitled to receive such shares; and (iii) after August 31, 1998, none of the
Escrow Fund will be delivered to the Prominet stockholders. There can be no
assurance that Product Delivery will occur on or prior to August 31, 1998. See
"TERMS OF THE MERGER AGREEMENT -- Escrow Arrangements" and "OTHER RELATED
MATTERS -- Escrow Agreement."
FIXED EXCHANGE RATIOS DESPITE CHANGES IN LUCENT STOCK PRICE
As a result of the Merger, each outstanding share of Prominet Capital Stock
will be converted (i) in the case of Prominet Common Stock, into 0.1027, (ii) in
the case of Prominet Series A Preferred Stock, into 0.1102 and (iii) in the case
of Prominet Series B Preferred Stock, into 0.1027, of a share of Lucent Common
Stock, including, in each case, the corresponding Lucent Right. In addition,
each holder of a warrant to acquire Prominet Capital Stock (other than holders
of Associated Warrants which, by their terms, will expire at the Effective Time)
have agreed that such warrant (other than the Associated Warrants) will be
converted (i) in the case of warrants having an exercise price per share of less
than $1.00, 0.1027 and (ii) in the case of warrants having an exercise price per
share equal to or greater than $1.00 but less than $2.00, 0.0796, of a share of
Lucent Common Stock, including, in each case, the corresponding Lucent Right.
The Merger Agreement does not provide for adjustment of the Exchange Ratios
based on fluctuations in the price of
11
<PAGE> 23
Lucent Common Stock prior to the Effective Time. Accordingly, the value of the
consideration to be received by stockholders of Prominet as a result of the
Merger will depend upon the market price of Lucent Common Stock at the Effective
Time. The closing price for Lucent Common Stock on the NYSE on December 9, 1997,
the last trading day prior to the public announcement of the Merger, was $80 1/8
per share and on December 17, 1997, the last trading day before the date of this
Proxy Statement/Prospectus, was $76 per share. There can be no assurance that
the market price of Lucent Common Stock on and after the Effective Time will not
be lower than such prices. See "SUMMARY -- Market Prices and Dividends."
CONFLICTS OF INTEREST
In considering the recommendation to adopt and approve the Merger by the
Prominet Board, the stockholders of Prominet should be aware that certain
officers and directors of Prominet may be deemed to have conflicts of interest
with respect to the Merger; such interests, together with other relevant
factors, were considered by the Prominet Board in recommending the Merger to the
stockholders of Prominet and approving the Merger Agreement. See "THE
MERGER -- Interests of Certain Persons in the Merger" and "COMPARISON OF THE
RIGHTS OF HOLDERS OF LUCENT COMMON STOCK AND THE RIGHTS OF HOLDERS OF PROMINET
CAPITAL STOCK -- Number, Election, Vacancy and Removal of
Directors -- Prominet."
ABSENCE OF REVIEW OF ADEQUACY OF MERGER CONSIDERATION
The Prominet Board has unanimously determined that the Merger is advisable
and fair to, and in the best interests of, Prominet and its stockholders. The
Board approved the Merger Agreement on December 5, 1997 and December 9, 1997 and
has recommended to the Prominet stockholders that the Merger be approved. In
making its determination, the Prominet Board reviewed various other available
alternatives to the Merger, including the sale of Prominet to other potential
purchasers and continued operation of Prominet as an independent company.
However, no independent financial adviser to Prominet has considered whether the
consideration to be received by holders of Prominet Capital Stock or warrants in
connection with the Merger is fair to such holders from a financial point of
view. See "THE MERGER -- Prominet's Reasons for the Merger."
TAX RISKS ASSOCIATED WITH THE MERGER
The Merger Agreement provides that Acquisition will be merged with and into
Prominet and Prominet will be the Surviving Corporation and a wholly-owned
subsidiary of Lucent. Although the parties intend the Merger to constitute a
tax-free reorganization, neither Lucent nor Prominet has sought or obtained a
ruling from the Internal Revenue Service (the "IRS"). There is therefore a risk
that all the gain or loss realized by a Prominet stockholder as a result of the
Merger will be subject to tax. However, even if the Merger does not constitute a
tax-free reorganization, neither Lucent nor its stockholders, as such, will
realize taxable income or loss in the Merger. See "OTHER RELATED
MATTERS -- Certain Federal Income Tax Consequences."
PROMINET SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
This Proxy Statement/Prospectus is being furnished to Prominet stockholders
in connection with the solicitation of proxies by the Prominet Board for use at
the Prominet Special Meeting to be held on January 21, 1998 at 10:00 a.m., local
time, at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109. At the Prominet Special Meeting, holders of Prominet
Capital Stock will be asked to consider and vote upon a proposal to approve and
adopt the Merger Agreement, a copy of which is attached as Appendix A to this
Proxy Statement/Prospectus, and the Merger of Acquisition with and into Prominet
upon the terms and subject to the conditions of the Merger Agreement. After
giving effect to the Merger, Prominet will continue as the Surviving Corporation
and will be a wholly-owned subsidiary of Lucent. Holders of Prominet Series A
Preferred Stock and Prominet Series B Preferred Stock will also be asked to vote
upon
12
<PAGE> 24
determinations as to whether the Merger will be a liquidation, dissolution or
winding up with respect to the Prominet Series A Preferred Stock and Prominet
Series B Preferred Stock, respectively.
THE PROMINET BOARD HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, PROMINET
STOCKHOLDERS. ACCORDINGLY, THE PROMINET BOARD HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE PROMINET STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. IN
ADDITION, THE PROMINET BOARD UNANIMOUSLY RECOMMENDS THAT (I) THE HOLDERS OF
PROMINET SERIES A PREFERRED STOCK VOTE FOR APPROVAL OF A DETERMINATION THAT THE
MERGER NOT BE DEEMED A LIQUIDATION, DISSOLUTION OR WINDING UP ENTITLING SUCH
HOLDERS TO CASH DISTRIBUTIONS, AND (II) THE HOLDERS OF PROMINET SERIES B
PREFERRED STOCK VOTE FOR APPROVAL OF A DETERMINATION THAT THE MERGER NOT BE
DEEMED A LIQUIDATION, DISSOLUTION OR WINDING UP ENTITLING SUCH HOLDERS TO A
LIQUIDATION PREFERENCE. CERTAIN MEMBERS OF THE PROMINET BOARD MAY BE DEEMED TO
HAVE A CONFLICT OF INTEREST IN RECOMMENDING STOCKHOLDER APPROVAL OF THE MERGER.
SEE "-- SHARE OWNERSHIP OF MANAGEMENT" AND "THE MERGER -- INTERESTS OF CERTAIN
PERSONS IN THE MERGER."
The Lucent Board has unanimously approved the Merger and the issuance of
Lucent Common Stock in connection with the Merger. Lucent, as the sole
stockholder of Acquisition, and the Board of Directors of Acquisition, have each
approved the Merger Agreement and the Merger. No approval by stockholders of
Lucent is required to effect the Merger.
RECORD DATE; VOTING RIGHTS
Only stockholders of record of Prominet Capital Stock at the close of
business on December 16, 1997 will be entitled to notice of, and to vote at, the
Prominet Special Meeting. At the close of business on the Prominet Record Date,
there were issued and outstanding approximately 7,150,772 shares of Prominet
Common Stock, approximately 9,921,067 shares of Prominet Series A Preferred
Stock and 4,028,355 shares of Prominet Series B Preferred Stock, respectively.
Each share of Prominet Common Stock entitles the registered holder thereof to
one vote, each share of Prominet Series A Preferred Stock entitles the
registered holder thereof to one vote and each share of Prominet Series B
Preferred Stock entitles the registered holder thereof to one vote. In addition,
each share of Prominet Series A Preferred Stock and Prominet Series B Preferred
Stock entitles the holder thereof to one vote within its respective class.
VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, Lucent entered
into a Voting Agreement with Carmena Limited Partnership, Brian Ramelson and
Joshua Weiss, beneficial holders of approximately 61% of the issued and
outstanding shares of Prominet Common Stock, Charles River, Matrix, Matrix
Entrepreneurs and Robert Badavas, beneficial holders of approximately 76% (on a
fully diluted basis) of the issued and outstanding Prominet Series A Preferred
Stock and Charles River, Matrix, Matrix Entrepreneurs and Menlo, beneficial
owners of approximately 76% (on a fully diluted basis) of the issued and
outstanding Prominet Series B Preferred Stock, pursuant to which such holders
have agreed to vote in favor of approval of the Merger Agreement and the Merger
and have granted certain officers of Acquisition an irrevocable proxy and power
of attorney to vote their shares in favor of approval of the Merger Agreement
and the Merger.
SHARE OWNERSHIP OF MANAGEMENT
As of the Prominet Record Date, the directors and executive officers of
Prominet beneficially owned approximately 3,912,170 (approximately 54.5%) of the
issued and outstanding shares of Prominet Common Stock, 7,744,353 (approximately
77.3%) (on a fully diluted basis) of the issued and outstanding shares of
Prominet Series A Preferred Stock and 2,244,943 (approximately 55.5%) (on a
fully diluted basis) of the issued and outstanding shares of Prominet Series B
Preferred Stock. See "THE MERGER -- Interests of Certain Persons in the Merger."
13
<PAGE> 25
QUORUM; REQUIRED VOTE
A majority of the shares of Prominet Capital Stock entitled to vote on the
Merger Agreement and on the proposals to each of the holders of Prominet Series
A Preferred Stock and holders of Prominet Series B Preferred Stock, in each
case, represented in person or by proxy at the Prominet Special Meeting, is
required in order for a quorum to be present. In the absence of a quorum, the
Prominet Special Meeting may be adjourned by the vote of a majority of the
shares represented.
Approval and adoption of the Merger Agreement will require the affirmative
vote of (a) a majority of outstanding shares of Prominet Common Stock entitled
to vote thereon (including, for purposes of determining such a majority, the
shares of Prominet Series A Preferred Stock and the shares of Prominet Series B
Preferred Stock, calculated as if such shares had been converted into Prominet
Common Stock at a conversion ratio of one for one for the Prominet Series A
Preferred Stock and one for one for the Prominet Series B Preferred Stock) and
(b) 75% of the outstanding shares of each of the Prominet Series A Preferred
Stock and the Prominet Series B Preferred Stock entitled to vote thereon at the
Prominet Special Meeting, voting as a class, provided that a quorum is present.
See "-- Voting Agreements."
PROXIES
Each of the persons named as a proxy in the proxies is an officer of
Prominet. All shares of Prominet Capital Stock that are entitled to vote and
that are represented at the Prominet Special Meeting either in person or by
properly executed proxies received prior to or at the Prominet Special Meeting
and not duly and timely revoked will be voted at the Prominet Special Meeting in
accordance with the instructions indicated on such proxies. If no such
instructions are indicated, such proxies will be voted for the approval of the
Merger. If the Prominet Special Meeting is postponed or adjourned for any
reason, at any subsequent reconvening of the Prominet Special Meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the Prominet Special Meeting (except for any
proxies that have been effectively revoked or withdrawn).
The Prominet Board knows of no matter other than the adoption of the Merger
Agreement, the approval of the Merger and the proposals to be considered by the
holders of the Prominet Series A Preferred Stock and the Prominet Series B
Preferred Stock that is to be presented at the Prominet Special Meeting. If any
other matter upon which a vote may properly be taken should be presented at the
Prominet Special Meeting, shares represented by all proxies received by the
Prominet Board will be voted with respect thereto in accordance with the
judgment of the persons named as proxies in the proxies.
Execution of a proxy does not in any way affect a stockholder's right to
attend the Prominet Special Meeting and vote in person. Any proxy may be revoked
by a stockholder at any time before it is exercised by delivering a written
revocation or a later-dated proxy to the Secretary of Prominet, or by attending
the Prominet Special Meeting and voting in person. Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to Prominet
Corporation at 400 Nickerson Road, Marlborough, Massachusetts 01752, Attention:
Secretary, or hand-delivered to the Secretary of Prominet, in each case, at or
before the taking of the respective vote at the Prominet Special Meeting.
Every person entitled to vote for directors, or on any other matter, will
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the Secretary of Prominet. A
proxy will be deemed signed if the stockholder's name or other authorization is
placed on the proxy (whether by manual signature, typewriting, telegraphic or
electronic transmission or otherwise) by the stockholder or the stockholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
written notice to Prominet at its principal executive offices that the proxy is
revoked or by executing a subsequent proxy and presenting it to the meeting or
by attendance at such meeting and voting in person, or (ii) written notice of
the death or incapacity of the maker of that proxy is received by Prominet
before the vote pursuant to that proxy is counted; provided that no proxy will
be valid after the expiration of three (3) years from the date thereof, unless
otherwise provided in the proxy. The dates contained on the forms of proxy
presumptively determine the order of execution, regardless of the
14
<PAGE> 26
postmark dates on the envelopes in which they are mailed. The revocability of a
proxy that states on its face that it is irrevocable will be governed by the
provisions of Section 212(e) of the DGCL.
SOLICITATION OF PROXIES; EXPENSES
All costs of solicitation of proxies will be borne by Prominet. Prominet
will solicit proxies via first class U.S. mail to the stockholders of record as
of the Prominet Record Date. In addition, proxies may also be solicited by
certain directors, officers and employees of Prominet personally or by telephone
or facsimile following the original solicitation by mail. Such directors,
officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith.
THE MERGER
This section of the Proxy Statement/Prospectus describes certain aspects of
the proposed Merger. A significant portion of the description included in this
section and under the caption "Terms of the Merger Agreement," relates to the
Merger Agreement, which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. ALL STOCKHOLDERS
OF PROMINET ARE URGED TO READ THE MERGER AGREEMENT, AS WELL AS THE OTHER
APPENDICES, IN THEIR ENTIRETY.
GENERAL
At the Effective Time of the Merger, Acquisition will be merged with and
into Prominet, with Prominet continuing as the Surviving Corporation and as a
wholly-owned subsidiary of Lucent. As a result of the Merger, the separate
corporate existence of Acquisition will cease and Prominet will succeed to all
the rights and be responsible for all the obligations of Acquisition in
accordance with the DGCL. Subject to the terms and conditions of the Merger
Agreement, each share of Prominet Capital Stock outstanding immediately prior to
the Effective Time (other than shares owned directly or indirectly by Lucent or
Prominet which shall be canceled and other than Dissenting Shares) will be
converted (i) in the case of Prominet Common
Stock, into 0.1027, (ii) in the case of Prominet Series A Preferred Stock, into
0.1102, and (iii) in the case of Prominet Series B Preferred Stock, into 0.1027,
of a share of Lucent Common Stock, in each case, together with the corresponding
percentage of a Lucent Right. Each holder of a warrant to purchase Prominet
Capital Stock (except Associated Warrants which, by their terms, will expire at
the Effective Time) has agreed that, at the time the Merger becomes effective,
its warrant shall be converted into the right to receive the number of shares of
Lucent Common Stock (decreased to the nearest full share) equal to the number of
shares of Prominet Capital Stock subject to such warrant immediately prior to
the Effective Time multiplied by (i) in the case of warrants having an exercise
price per share of less than $1.00, 0.1027, and (ii) in the case of warrants
having an exercise price per share equal to or greater than $1.00 but less than
$2.00, 0.0796. Cash will be paid in lieu of any fractional share of Lucent
Common Stock. At the Effective Time, 432,210 shares of Lucent Common Stock
(together with the corresponding Lucent Rights) issued in connection with the
Merger will be deposited in escrow with the Escrow Agent. The escrowed shares
(and Lucent Rights) will be distributed to the holders of Prominet Capital Stock
entitled thereto only if certain conditions are met. At the Effective Time, all
outstanding Stock Options will be assumed by Lucent and will thereafter
represent Substitute Options. Following the Merger, the Substitute Options will
continue to be subject to
the terms and conditions of the 1996 Stock Plan and the applicable option
agreements, including vesting restrictions, if any. The consideration for
Dissenting Shares will be paid in accordance with the provisions of the DGCL.
The Exchange Ratios for Prominet Capital Stock and warrants to purchase Prominet
Capital Stock are subject to adjustment in certain circumstances. See "RISK
FACTORS -- Escrowed Shares," "TERMS OF THE MERGER AGREEMENT -- Conversion of
Shares in the Merger," "-- No Fractional Shares," "-- Adjustment of Exchange
Ratios," "-- Dissenting Shares," "-- Stock Options; Unvested Restricted Stock;
Warrants," "-- Escrow Arrangements" and "APPRAISAL RIGHTS."
15
<PAGE> 27
BACKGROUND OF THE MERGER
Lucent and Prominet had no relationship prior to June 1997. On June 17,
1997, Kevin Oye, Lucent Director of Multimedia Strategy and Business
Development, met with Douglas Ruby, Prominet Vice President of Product
Marketing, and Joshua Weiss, Prominet Vice President of Engineering, for a
presentation of Prominet products under development and to review Prominet's
product development plan.
On August 11, 1997, Mr. Oye and other Lucent representatives met with
Messrs. Weiss and Ruby to discuss Prominet's product architecture.
On August 21, 1997, representatives of Lucent participated in a
demonstration, and undertook a technical review, of Prominet's products under
development.
On August 26, 1997, Carl Pavarini, Lucent Vice President of Multimedia
Systems, and Mr. Oye met with Menachem E. Abraham, President, Chief Executive
Officer and Treasurer of Prominet, to discuss possible business relationships
between Lucent and Prominet.
On September 5, 1997, Mr. Pavarini, Karyn Mashima, Lucent Vice President of
Advanced Multimedia Communications Systems, and Mr. Oye met with Mr. Abraham and
other executives of Prominet to discuss Lucent's plans for its data networking
business and whether a business combination with Prominet would enhance Lucent's
plan for organizational growth in this area.
On September 8, 1997, Prominet retained BancAmerica Robertson Stephens as
its financial advisor for a private placement of equity securities or assistance
with a possible business combination.
On September 9, 1997, Lucent and Prominet entered into a confidentiality
agreement with respect to all information provided to the other.
On October 2, 1997, Mr. Pavarini and Michael Bond, Lucent Director
Corporate Strategy and Development, met with Mr. Abraham and R. Stephen Cheheyl,
a financial adviser to Prominet, to discuss a merger of Prominet into Lucent.
Messrs. Pavarini and Bond presented to Messrs. Abraham and Cheheyl a preliminary
memorandum setting forth a conceptual framework for such merger.
On October 3, 1997, the members of the Prominet Board met by telephone
conference call to discuss the proposed transaction and review Prominet's
operations.
On October 8 and 9, 1997, Messrs. Pavarini and Bond met with Messrs.
Abraham and Cheheyl to discuss the principal terms of the proposed merger.
Throughout October and November 1997, representatives of the parties had
numerous telephone conferences to resolve various business and legal issues
related to the merger.
During October and November 1997, representatives of Lucent and Prominet
also held numerous meetings concerning Prominet's business, operations and
technology and Lucent representatives conducted due diligence on Prominet's
business, products and technology.
During the week of December 1, 1997, the Prominet Board authorized Mr.
Abraham to proceed toward a definitive merger agreement. A series of conference
calls were held by the parties and their respective counsel during the period
from December 1 through December 9, 1997 in which the final terms of the merger
were approved.
On December 5, 1997, the Prominet Board met by telephone conference call.
Mr. Abraham reported on the status of merger discussions. The Prominet Board
unanimously approved the merger (on the terms discussed at the meeting) and
determined that the terms of the merger (as so discussed) were fair to, and in
the best interests of, Prominet's stockholders.
On December 8, 1997, the Acquisition Board of Directors approved the merger
with Prominet. On December 9, 1997, the Prominet Board unanimously approved the
merger and reiterated its view that the terms of the Merger were fair to, and in
the best interests of, Prominet's stockholders.
On December 9, 1997, (i) Lucent, Acquisition and Prominet executed the
Merger Agreement, (ii) Messrs. Abraham, Weiss, Ruby, Lieto and Zubatkin and
certain other employees of Prominet executed
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<PAGE> 28
employment agreements, (iii) Messrs. Abraham and Weiss and certain other
employees of Prominet executed Non-Competition Agreements (as defined below) and
(iv) Messrs. Ramelson, Badavas and Weiss, Carmena Limited Partnership, Charles
River, Matrix, Matrix Entrepreneurs and Menlo executed a Voting Agreement.
The Merger was announced on December 10, 1997.
RECOMMENDATION OF THE PROMINET BOARD
The Prominet Board has unanimously determined that the terms of the Merger
Agreement and the Merger are fair to, and in the best interests of, Prominet
stockholders. Accordingly, the Prominet Board has unanimously approved the
Merger Agreement and unanimously recommends that the Prominet stockholders vote
FOR approval and adoption of the Merger Agreement and approval of the Merger.
See "-- Prominet's Reasons for the Merger." Certain members of the Prominet
Board may be deemed to have a conflict of interest in recommending stockholder
approval of the Merger. See "-- Interests of Certain Persons in the Merger" and
"PROMINET SPECIAL MEETING -- Share Ownership of Management."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Prominet Board with respect to the
approval and adoption of the Merger and Merger Agreement, the Prominet
stockholders should be aware that certain members of the management of Prominet
and the Prominet Board may have certain interests in the Merger that are
different from, or in addition to, the interests of Prominet stockholders
generally.
Stock Ownership. Following the Merger, Prominet will continue as the
Surviving Corporation and as a wholly-owned subsidiary of Lucent. As of the
Prominet Record Date, the directors and executive officers of Prominet
beneficially owned (as determined in accordance with the rules and regulations
of the Commission) approximately (i) 3,912,170 shares of Prominet Common Stock,
7,744,353 shares of Prominet Series A Preferred Stock and 2,244,943 shares of
Prominet Series B Preferred Stock, for which they will receive the same
consideration in connection with the Merger as other holders of Prominet Common
Stock, Prominet Series A Preferred Stock and Prominet Series B Preferred Stock,
respectively, and (ii) Associated Warrants to acquire 66,666 shares of Prominet
Common Stock and unexercised Stock Options to purchase 250,000 shares of
Prominet Common Stock which will be treated as described below in "TERMS OF THE
MERGER AGREEMENT -- Stock Options; Unvested Restricted Stock; Warrants," See
"CERTAIN INFORMATION CONCERNING PROMINET -- Certain Transactions."
Non-competition Agreements. Lucent and Prominet have entered into
non-competition agreements (the "Non-Competition Agreements") with Messrs.
Abraham and Weiss and certain other employees of Prominet. Under the terms of
the Non-Competition Agreements, the foregoing persons have agreed that for a
period of three years, they will not (i) directly or indirectly, participate in
a business or activity that competes in any material manner with the business of
designing, developing, producing, marketing, distributing and providing
maintenance and support for equipment used in high performance networks that
implement wire speed switching and routing on standard ethernet interfaces
(10/100/1,000), or (ii) interfere with such business or with the customers (or
potential customers), clients (or potential clients), suppliers or employees of
such business. If at any time after the first anniversary of the Effective Time,
any of the foregoing persons is not employed for a period of 60 consecutive days
(notwithstanding such person's reasonable good faith efforts) then, upon 30
days' notice, Lucent will either terminate such person's Non-Competition
Agreement or pay such person an amount equal to $100,000 and such person's
Non-Competition Agreements will continue in full force and effect. Messrs.
Abraham and Weiss and the other employees of Prominet who are party to a
Non-Competition Agreement will not receive any consideration for entering into
the Non-Competition Agreements other than the Lucent Common Stock issuable to
them in connection with the Merger.
Employment Contracts. Concurrent with the execution of the Merger
Agreement, Lucent entered into employment agreements with Messrs. Abraham,
Weiss, Ruby, Lieto and Zubatkin and certain other employees of Prominet. Each
employment agreement provides that the party thereto will, after the Effective
Time, initially receive his current base salary and will either have his present
benefit package continue or receive a benefit package that is substantially
equivalent thereto. In addition, each person will be eligible to
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<PAGE> 29
receive significant additional compensation if certain performance criteria
(principally related to the successful delivery of products and achieving
certain levels of revenue and profitability) are satisfied.
Incentive Compensation. Lucent has agreed to provide significant
additional compensation to certain employees of Prominet (including members of
senior management) if certain performance criteria (principally related to
successful delivery of products and achieving certain levels of revenue and
profitability) are satisfied.
1996 Stock Option Plan. On the Prominet Record Date, the Prominet
executive officers and directors held Stock Options to purchase 250,000 shares
of Prominet Common Stock. At the Effective Time, all Stock Options (including
the Stock Options held by Prominet executive officers and directors) will be
assumed by Lucent and will thereafter be Substitute Options. Under the terms of
the agreements covering the Stock Options, at the Effective Time, the vesting of
the Stock Options will be accelerated in accordance with the terms of such
agreements.
Restricted Stock Agreements. Prominet has entered into stock restriction
agreements (each a "Restricted Stock Agreement" and, together with the other
stock restriction agreements to which Prominet is a party, the "Restricted Stock
Agreements") with each of Messrs. Abraham, Weiss, Ruby and Lieto (collectively,
the "Restricted Stock Holders"). Under the terms of their Restricted Stock
Agreements, shares of Prominet Common Stock held by each of the Restricted Stock
Holders are subject to repurchase by Prominet, with certain limited exceptions,
in the event that such Holder's employment with Prominet is terminated. Under
the terms of such Restricted Stock Agreements, the number of shares of Prominet
Common Stock then subject to repurchase by Prominet will be reduced by 20% at
the Effective Time. In addition, under the terms of such Restricted Stock
Agreements, Prominet's repurchase option will terminate if, within 365 days
after the Effective Time, Prominet terminates the Restricted Stock Holder's
employment (other than for cause) or the Restricted Stock Holder terminates his
employment as a result of Good Reason (as defined therein). On the Prominet
Record Date, Messrs. Abraham, Weiss, Ruby and Lieto, together with certain
transferees whose shares of Prominet Common Stock are covered by such Restricted
Stock Agreements, held in the aggregate 4,300,000 shares of Prominet Common
Stock.
Issuance of Notes and Associated Warrants. On December 2, 1997, Prominet
issued Notes in the aggregate principal amount of $4,000,000 to Mr. Abraham,
Charles River, Matrix and Menlo (which stockholders, pursuant to the
Stockholders' Agreement, have the right to appoint or approve the directors of
Prominet) and Matrix Entrepreneurs and Menlo Entrepreneurs. The Notes, which
bear interest at 8.0% per annum, including all interest thereon, are due and
payable at the Effective Time. In connection with the issuance of Notes,
Prominet issued the Associated Warrants to the holders of the Notes which
warrants, as amended, are not exercisable before the earlier of April 1, 1998
and the termination of the Merger Agreement, and will terminate without exercise
if the Effective Time occurs on or before March 31, 1998.
LUCENT'S REASONS FOR THE MERGER
Lucent believes that the Merger will enable it to expand its product
capability in the data networking area. Lucent believes that Prominet's Layer
2/Layer 3 gigabit ethernet switching products currently under development will
enhance Lucent's data networking product line by permitting Lucent to offer high
performance LAN connectivity utilizing ethernet technology.
PROMINET'S REASONS FOR THE MERGER
The Prominet Board believes that the following are reasons the Merger will
be beneficial to Prominet and for its stockholders to vote FOR the Merger.
- The Merger may permit Prominet to utilize Lucent's research and
development capabilities and resources in developing its products and may
thereby enhance Prominet's ability to compete more effectively against
larger competitors in the gigabit ethernet switching market.
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<PAGE> 30
- The addition of Lucent's sales and marketing resources, including its
geographically more expansive distribution channel, and its established
relationships with potential customers may increase the ability of
Prominet to market and sell its products.
- The consideration to be paid to Prominet stockholders in the Merger will
be shares of Lucent Common Stock, which are securities that are publicly
traded on the NYSE and are more readily marketable than shares of
Prominet Capital Stock.
In the course of its deliberations during meetings held on October 3, 1997,
November 18, 1997, November 26, 1997, December 5, 1997 and December 9, 1997, the
Prominet Board reviewed with Prominet management and Prominet's legal and
financial advisors a number of additional factors that the Prominet Board deemed
relevant to the Merger, including, but not limited to: (i) the strategic
importance to Prominet of the proposed Merger; (ii) the consideration to be
received by Prominet stockholders in the Merger; (iii) information concerning
Prominet's and Lucent's respective businesses, prospects, strategic business
plans, financial performance and condition, results of operations, technology
positions, management and competitive positions; (iv) Prominet management's view
as to the financial condition, results of operations and business of Prominet
before and after giving effect to the Merger; (v) Prominet management's view as
to the prospects of Prominet's continuing as an independent company; (vi)
Prominet management's view as to Prominet's ability to gain access to the
necessary capital to meet its strategic business goals in both the near-term and
long-term and the relative costs associated with obtaining such capital; (vii)
current financial conditions and historical market prices, volatility and
trading information with respect to Lucent Common Stock; (viii) Prominet
management's view as to the effect of the Merger on the core business of
Prominet, including its research and development efforts, potential synergy of
Lucent's technologies with Prominet's technologies, Lucent's breadth of product
offerings and sales and marketing infrastructure; (ix) the impact of the Merger
on Prominet's strategic marketing partners and employees; and (x) the
compatibility of the management of Prominet and Lucent.
During the course of its deliberations concerning the Merger, the Prominet
Board also identified and considered a variety of potentially negative factors
that could materialize as a result of the Merger, including, but not limited to:
(i) the risk that the potential benefits sought in the Merger might not be fully
realized; (ii) the possibility that the Merger might not be consummated and the
effect of the public announcement of the Merger on Prominet's distributors,
customers, and employees; (iii) the risks associated with obtaining the
necessary approvals required to complete the Merger; (iv) the effects of the
diversion of management resources necessary to respond to due diligence
inquiries and the negotiation and consummation of the Merger; and (v) the other
risks described under "RISK FACTORS."
The Prominet Board concluded that the risks associated with the Merger were
outweighed by the potential benefits of the Merger and unanimously determined
that the Merger is fair to, and in the best interests of, Prominet and its
stockholders. Certain directors of the Prominet Board may be deemed to have a
conflict of interest in the Board's approval of the Merger and recommending
stockholder approval of the Merger. See "-- Interests of Certain Persons in the
Merger."
In view of the wide variety of factors considered by the Prominet Board,
the directors did not find it practical to, and did not, quantify or otherwise
assign relative weights to the specific factors discussed above.
RESALES OF LUCENT COMMON STOCK
All shares of Lucent Common Stock issued to holders of Prominet Capital
Stock in exchange for Prominet Capital Stock will be freely transferable, except
(i) that shares received by any person who may be deemed to be an "affiliate"
(as used in paragraphs (c) and (d) of Rule 145 under the Securities Act,
including directors and certain executive officers) of Prominet for purposes of
such Rule 145 (each a "Prominet Rule 145 Affiliate") may not be resold except in
transactions permitted by such Rule 145 or as otherwise permitted under the
Securities Act and (ii) for shares issued by Lucent in respect of Unvested
Restricted Stock (as defined below) of Prominet. See "TERMS OF THE MERGER
AGREEMENT -- Conditions to the Merger" and "-- Stock Options; Unvested
Restricted Stock; Warrants."
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<PAGE> 31
Prominet has agreed to prepare and deliver to Lucent a list identifying
each person who may be deemed to be a Prominet Rule 145 Affiliate and to use its
reasonable best efforts to cause each person so identified to deliver to Lucent
on or prior to the Effective Time a written agreement, in the form previously
approved by Lucent and Prominet, providing that such person will not sell,
pledge, transfer or otherwise dispose of, or in any other way reduce such
person's risk relative to, any shares of Prominet Capital Stock or any shares of
Lucent Common Stock issued to such person in connection with the Merger, except
pursuant to an effective registration statement or in compliance with such Rule
145 or another exemption from the registration requirements of the Securities
Act.
At the Effective Time, Lucent will assume certain Restricted Stock
Agreements to which Prominet is a party with respect to restricted shares of
Prominet Capital Stock that are outstanding and unvested ("Unvested Restricted
Stock"). Holders of Unvested Restricted Stock will remain subject to the
restrictions set forth in their respective Restricted Stock Agreements.
TERMS OF THE MERGER AGREEMENT
CONVERSION OF SHARES IN THE MERGER
At the Effective Time, by virtue of the Merger, (a) each issued and
outstanding share of capital stock of Acquisition shall be converted into one
validly issued, fully paid and nonassessable share of Prominet Common Stock, (b)
each share of Prominet Common Stock held in the treasury of Prominet and each
share of Prominet Common Stock owned by Acquisition or Lucent, will be canceled
without any conversion or payment made with respect thereto and (c) each share
of Prominet Capital Stock issued and outstanding immediately prior to the
Effective Time (other than shares canceled in accordance with subparagraph (b)
and other than Dissenting Shares) will be converted (i) in the case of Prominet
Common Stock, into 0.1027, (ii) in the case of Prominet Series A Preferred
Stock, into 0.1102 and (iii) in the case of Prominet Series B Preferred Stock,
into 0.1027, of a share of Lucent Common Stock including the corresponding
percentage of a Lucent Right. Cash will be paid in lieu of any fractional share
of Lucent Common Stock. See "-- No Fractional Shares."
The Exchange Ratios are subject to adjustment under certain circumstances.
See "-- Adjustment of Exchange Ratios."
All shares of Prominet Capital Stock converted as provided in subparagraph
(c) above will automatically be canceled and retired, and each holder of a
certificate representing any such shares will cease to have any rights with
respect thereto other than (i) the right to receive shares of Lucent Common
Stock to be issued in consideration for such Prominet Capital Stock upon the
surrender of such certificate, (ii) certain dividends and other distributions
and (iii) any cash, without interest, to be paid in lieu of any fractional
shares of Lucent Common Stock. See "-- Exchange Agent; Procedures for Exchange
of Certificates."
NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Lucent Common
Stock will be issued upon the surrender for exchange of certificates which
represent outstanding shares of Prominet Capital Stock (the "Certificates") and
such a fractional share will not entitle its record or beneficial owner to vote
or to any other rights of a Lucent stockholder. In lieu of receiving any
fractional share of Lucent Common Stock, each holder of Prominet Capital Stock
who would otherwise have been entitled to a fractional share upon the surrender
of Prominet certificates for exchange will receive cash (without interest) in an
amount rounded to the nearest whole cent, determined by multiplying (a) the per
share closing price of Lucent Common Stock (as reported in the NYSE Composite
Transactions) on the date on which the Effective Time occurs (or, if the Lucent
Common Stock does not trade on the NYSE on such date, the first day of trading
in Lucent Common Stock on the NYSE thereafter) by (b) the fractional share to
which such holder would otherwise be entitled.
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<PAGE> 32
ADJUSTMENT OF EXCHANGE RATIOS
If, prior to the Effective Date, any stock split, combination,
reclassification or stock dividend with respect to the Lucent Common Stock, any
change or conversion of Lucent Common Stock into other securities or any other
dividend or distribution with respect to the Lucent Common Stock (other than
regular quarterly dividends) occurs or, if a record date with respect to any of
the foregoing occurs, appropriate and proportionate adjustments will be made to
the Exchange Ratios.
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES
Lucent will designate The Bank of New York or another commercial bank or
trust company reasonably acceptable to Prominet to act as the exchange agent
(the "Exchange Agent") under the Merger Agreement. As of the Effective Time,
Lucent will deposit with the Exchange Agent for the benefit of the holders of
shares of Prominet Capital Stock, certificates representing shares of the Lucent
Common Stock to be issued pursuant to the Merger in accordance with the Merger
Agreement less the Escrowed Shares.
Promptly after the Effective Time, the Exchange Agent will send to each
person or entity (a "Person") who was, at the Effective Time, a holder of record
of Certificates, the shares represented by which were converted into the right
to receive Lucent Common Stock, a letter of transmittal which (a) will specify
that delivery of Lucent Common Stock will be effected and risk of loss and title
to such Certificates will pass, only upon actual delivery of such Certificates
to the Exchange Agent and (b) will contain instructions for use in effecting the
surrender of the Certificates. Upon surrender to the Exchange Agent of
Certificates for cancellation, together with such letter of transmittal duly
executed, such holder will be entitled to receive in exchange (i) a certificate
representing the number of whole shares of Lucent Common Stock into which the
Prominet Capital Stock represented by the surrendered Certificate was converted
at the Effective Time less such holder's pro rata portion of the Escrowed
Shares, (ii) cash in lieu of any fractional share of Lucent Common Stock and
(iii) certain dividends and distributions described in the next paragraph, and
the Certificates so surrendered will then be canceled. Within 10 business days
after the Effective Time, Lucent shall cause to be distributed to the Escrow
Agent the Escrowed Shares which shall be registered in the name of the Escrow
Agent as nominee for the holders of Certificates which were converted at the
Effective Time. The Escrowed Shares will be beneficially owned by such holders,
will be held in escrow and will be available to compensate Lucent if Product
Delivery does not occur prior to certain specified dates. See "-- Escrow
Arrangements."
No dividends or other distributions declared or made after the Effective
Time with respect to the Lucent Common Stock with a record date after the
Effective Time will be paid to any holder entitled by reason of the Merger to
receive Lucent Common Stock and no cash payment in lieu of a fractional share of
Lucent Common Stock will be paid to any such holder until such holder has
surrendered its Certificates as described above. Subject to applicable law,
following surrender of any such Certificate, such holder will be paid, in each
case, without interest, (a) the amount of any dividends or other distributions
previously paid with respect to the shares of Lucent Common Stock represented by
the Lucent certificate received by such holder and having a record date on or
after the Effective Time and a payment date prior to such surrender and (b) at
the appropriate payment date, or as promptly as practicable thereafter, the
amount of any dividends or other distributions payable with respect to such
shares of Lucent Common Stock and having a record date on or after the Effective
Time but prior to such surrender and a payment date on or after such surrender.
If any certificate representing shares of Lucent Common Stock or any cash
is to be issued or paid to any Person other than the registered holder of the
Certificate surrendered in exchange therefor, it will be a condition to such
exchange that such surrendered Certificate will be properly endorsed and
otherwise in proper form for transfer and such Person either (a) will pay to the
Exchange Agent any transfer or other taxes required as a result of the issuance
of such certificates of Lucent Common Stock and the distribution of such cash
payment to such Person or (b) will establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Lucent or the Exchange
Agent will be entitled to deduct and withhold from the consideration payable
pursuant to the Merger Agreement to any holder of Prominet Capital Stock such
amounts as Lucent or the Exchange Agent is required to deduct and withhold with
respect to the making of
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<PAGE> 33
such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Lucent or the Exchange Agent,
such withheld amounts will be treated for all purposes of the Merger Agreement
as having been paid to the holder of the shares of Prominet Capital Stock in
respect of which such deduction and withholding was made by Lucent or the
Exchange Agent. All amounts in respect of taxes received or withheld by Lucent
will be disposed of by Lucent in accordance with the Code or such state, local
or foreign tax law, as applicable.
At the close of business on the day on which the Effective Time occurs, the
stock transfer books of Prominet will be closed and thereafter there will be no
further registration of transfers of shares of Prominet Capital Stock on the
records of Prominet. From and after the Effective Time, the holders of shares of
Prominet Capital Stock outstanding immediately prior to the Effective Time will
cease to have any rights with respect to such shares except as otherwise
provided herein or by applicable law. After the Effective Time, and until
surrendered for shares of Lucent Common Stock as described above, Certificates
which prior to the Effective Time represented Prominet Capital Stock converted
in the Merger will be deemed for all purposes, other than the right to receive
payments of dividends and distributions and cash in lieu of any fractional share
of Lucent Common Stock, to represent only the right to receive, upon such
surrender, the number of shares of Lucent Common Stock into which such Prominet
Capital Stock was converted.
STOCKHOLDERS OF PROMINET SHOULD NOT FORWARD THEIR CERTIFICATES WITH THE
ENCLOSED PROXY, NOR SHOULD THEY RETURN THEIR PROMINET CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL LETTER.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the time of a filing of a Certificate
of Merger with the Secretary of State of the State of Delaware in accordance
with the provisions of the DGCL, at such date as may be specified in the
Certificate of Merger or such later date as the parties may agree. The parties
intend to make such filing as promptly as practicable following the Prominet
Special Meeting provided that the Merger is approved by the affirmative vote of
a majority of the outstanding shares entitled to vote thereon and any other
conditions precedent to the consummation of the Merger are satisfied or waived.
See "-- Conditions to the Merger." The parties currently anticipate that the
Merger will occur on or before January 31, 1998, although there can be no
assurance as to whether or when the Merger will occur. Lucent and Prominet each
have the right to terminate the Merger Agreement if the Merger has not been
consummated on or before March 31, 1998. See "-- Termination."
DISSENTING SHARES
Shares of Prominet Capital Stock that are outstanding immediately prior to
the Effective Time and which are held by stockholders who have not voted in
favor of or consented in writing to the Merger and who have demanded properly in
writing appraisal for such shares in accordance with the DGCL (collectively, the
"Dissenting Shares") will not be converted into or represent the right to
receive the consideration set forth above. Such stockholders will be entitled to
receive such consideration as is determined to be due with respect to such
Dissenting Shares in accordance with the provisions of the DGCL. See "APPRAISAL
RIGHTS."
ESCROW ARRANGEMENTS
Within 10 business days after the Effective Time, the Escrowed Shares will
be registered in the name of, and be deposited with, the Escrow Agent. If Lucent
and the Stockholders' Representative (as defined below) agree that Product
Delivery has occurred on or before June 30, 1998, then such parties will jointly
execute and deliver a written notice to the Escrow Agent directing the delivery
of the Escrow Fund to the stockholders entitled thereto. If Product Delivery
does not occur by June 30, 1998, Lucent may at any time or from time to time
thereafter deliver one or more notices of such failure (a "Lucent Notice") to
the Escrow Agent (with a copy of such notice to the Stockholders'
Representative). If the Stockholders' Representative agrees with such Lucent
Notice or, within 10 days after receipt of such Lucent Notice, fails to object
by written notice to the Escrow Agent and Lucent, then the Escrow Agent will
deliver to Lucent the number of shares of Lucent
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<PAGE> 34
Common Stock (as such number may be adjusted for stock splits or combinations)
set forth in the table below:
<TABLE>
<CAPTION>
PRODUCT DELIVERY AFTER NUMBER OF SHARES
--------------------------------------------- ----------------
<S> <C>
June 30, 1998................................ 172,884
July 31, 1998................................ 302,547
August 31, 1998.............................. 432,210
</TABLE>
If Product Delivery occurs after June 30, 1998 but prior to August 31, 1998, the
parties will deliver a written notice to the Escrow Agent directing the delivery
of any portion of the Escrow Fund not delivered to Lucent to the stockholders
entitled thereto.
If the Stockholders' Representative objects to a Lucent Notice within the
10-day period following receipt of such Lucent Notice, then Lucent and the
Stockholders' Representative will use their good faith efforts to resolve such
dispute. If Lucent and the Stockholders' Representative resolve such dispute,
the parties will deliver a written notice to the Escrow Agent directing the
delivery of the Escrow Fund. If Lucent and the Stockholders' Representative are
unable to resolve such dispute within 30 days after the Stockholders'
Representative objects to such Lucent Notice, either Lucent or the Stockholders'
Representative may, by written notice to the other, demand arbitration of the
matter before a designated arbitrator who is an expert in the area of
development and production of data networking products. The decision by the
arbitrator as to whether Product Delivery has occurred, will be binding and
conclusive and, notwithstanding any other provisions of the Merger Agreement,
the Escrow Agent will be entitled to distribute the Escrow Fund in accordance
with such decision. The costs of any such arbitration will be borne one-half for
the account of Lucent and one-half by the stockholders. Judgment upon any award
rendered by the arbitrator may be entered in any court of competent
jurisdiction.
Menachem E. Abraham has been appointed as representative ("Stockholders'
Representative") for and on behalf of the Prominet stockholders to take all
actions necessary or appropriate in his judgment for the accomplishment of the
terms of the escrow arrangement. The holders of a majority in interest of the
Escrow Fund may replace the Stockholders' Representative upon not less than 10
days' prior written notice to Lucent. The Stockholders' Representative will
receive no compensation for his services. Notices of communications to or from
the Stockholders' Representative will constitute notice to or from each of the
Prominet stockholders.
The Stockholders' Representative will not be liable for any act done or
omitted in such capacity while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted pursuant to the advise of
counsel will be conclusive evidence of such good faith. The Prominet
stockholders will severally indemnify and hold harmless the Stockholders'
Representative against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Representative and
arising out of or in connection with the acceptance or administration of his
duties under the Merger Agreement.
Any decision, act, consent or instruction of the Stockholders'
Representative will constitute a decision of all Prominet stockholders for whom
shares of Lucent Common Stock otherwise issuable to them are deposited in the
Escrow Fund and will be final, binding and conclusive upon each such Prominet
stockholder, and the Escrow Agent and Lucent may rely upon any decision, act,
consent or instruction of each and every such Prominet stockholder.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Lucent, Prominet and Acquisition relating, among other things, to (a) their
incorporation, existence, good standing, corporate power and similar corporate
matters; (b) their capitalization; (c) their authorization, execution, delivery
and performance and the enforceability of the Merger Agreement and related
matters; (d) the absence of conflicts, violations and defaults under their
corporate charters and by-laws and certain other agreements and documents; (e)
their pending or threatened litigation; and (f) the absence of any occurrence or
event that could reasonably be expected (i) to have a material adverse effect on
the assets, business, financial condition, operations or prospects of Prominet,
Lucent or Acquisition, as applicable, (ii) to materially impair the ability
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of Prominet, Lucent or Acquisition, as applicable, to perform its obligations
under the Merger Agreement or (iii) to prevent or delay the consummation of the
transactions contemplated under the Merger Agreement (each, a "Material Adverse
Effect") .
Prominet has provided certain additional representations and warranties,
relating among other things, to (i) certain of its audited financial statements;
(ii) the absence of undisclosed liabilities; (iii) amendments to certain
warrants issued by Prominent having been made and agreed to by the holders
thereof; (iv) ownership of its properties; (v) the condition of its assets; (vi)
material contracts and no defaults thereunder; (vii) its licenses and permits;
(viii) its Intellectual Property Rights; (ix) tax matters; (x) its employee
benefit plans; (xi) certain employee matters; (xii) environmental matters;
(xiii) capitalization of subsidiaries; (xiv) the accuracy and completeness of
certain information provided to Lucent; and (xv) accuracy and completeness of
information contained in this Proxy Statement/Prospectus.
Lucent and Acquisition have also provided certain additional
representations and warranties as to documents and reports filed by Lucent with
the Commission and the accuracy and completeness thereof.
All representations and warranties of Lucent, Prominet and Acquisition,
except for the representations referred to in "OTHER RELATED MATTERS -- Certain
Federal Income Tax Consequences," expire at the Effective Time.
CONDUCT OF BUSINESS PENDING THE MERGER
Prominet has agreed that during the period from the date of the Merger
Agreement through the Effective Time, it will maintain its existence; maintain
the general character of its business and properties and conduct its business in
the ordinary and usual manner consistent with past practices, except as
expressly permitted by the Merger Agreement; maintain its business and
accounting records consistent with past practices and use its reasonable best
efforts to preserve intact its business, to keep available the services of its
officers and employees and to preserve the goodwill of its suppliers, customers
and others having business relations with Prominet or its subsidiaries. Each of
Lucent and Prominet has agreed to promptly advise the other orally and in
writing of any change or event having, or which would reasonably be expected to
have, a Material Adverse Effect on Lucent or Prominet, as the case may be.
Without limiting the generality of the foregoing, and except as expressly
permitted by the Merger Agreement, Prominet has agreed that it will not, among
other matters, (a) amend or otherwise change the Prominet Certificate or the
Prominet By-laws; (b) issue, sell or authorize for issuance or sale, or grant
any options or make other agreements with respect to, any shares of its capital
stock or any other of its securities, except for arrangements with the Exchange
Agent in furtherance of the Merger Agreement; (c) declare, make or pay any
dividend or other distribution of any kind with respect to any of its capital
stock; (d) reclassify, combine, split, subdivide, redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock; (e) incur or
guarantee any indebtedness or make any loans or advances, except (i) in the
ordinary course of business and consistent with past practice; (ii) extensions
of existing lines of credit; and (iii) other indebtedness in an amount not to
exceed $5,000,000 certified by the Prominet Chief Executive Officer as necessary
to fund operating expenses, as to the financing of which Lucent shall have a
right of first refusal; (f) (i) acquire any corporation, partnership, other
business organization or any division thereof or any material amount of assets;
(ii) enter into any contract or agreement other than in the ordinary course of
business, consistent with past practice; (iii) authorize any capital commitment
which is in excess of $25,000 or capital expenditures which are, in the
aggregate, in excess of $100,000; or (iv) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter set forth in
this subparagraph (f); (g) subject to a lien or security interest, any of its
assets or properties or agree to do so except for certain permitted liens; (h)
(i) increase the compensation payable or to become payable to its officers or
employees, except for increases in accordance with past practices in salaries or
wages of employees of Prominet who are not officers of Prominet; (ii) grant any
severance or termination pay to, or enter into any severance agreement with, any
director, officer or other employee of Prominet; or (iii) establish, adopt,
enter into or amend any employment, termination, benefit or collective
bargaining agreement, or arrangement for the benefit of any director, officer or
employee; (i) assume, guarantee or otherwise become responsible for the
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obligations of any other Person; (j) take any action, other than in the ordinary
course of business and consistent with past practice, with respect to accounting
policies or procedures; (k) enter into or agree to enter into any employment
agreement; (l) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; (m) settle or compromise
any pending or threatened suit, action or claim which is material or which
relates to any of the transactions contemplated by the Merger Agreement; (n)
pay, discharge or satisfy any claim, liability or obligation, other than the
payment, discharge or satisfaction, in the ordinary course of business, of
liabilities reflected or reserved against in Prominet's most recent audited
balance sheet or subsequently incurred in the ordinary course of business and
consistent with past practice; or (o) except in connection with the sale of
Prominet's products in the ordinary course of business and consistent with past
practice, sell, assign, transfer, license, sublicense, pledge or otherwise
encumber any of its Intellectual Property Rights.
REORGANIZATION
Each of Lucent and Prominet has agreed to use its best efforts to cause the
business combination to be effected by the Merger to be qualified as a
"reorganization" described in Section 368(a) of the Code and Lucent has agreed
that, after the Effective Date, it will not take any action that would have the
effect of causing the Merger to fail to so qualify.
NO SOLICITATION
Prominet has agreed that, from and after the date of the Merger Agreement,
it will not authorize or permit any of its affiliates or any officer, director,
employee or representative of Prominet, (a) to solicit, initiate, or encourage
the submission of, any Acquisition Proposal (as defined below), (b) to enter
into any agreement with respect to any Acquisition Proposal or (c) to take any
action to facilitate any inquiries or the making of, any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal.
Prominet has agreed to advise Lucent promptly of any Acquisition Proposal and
inquiries with respect to any Acquisition Proposal. As used in this Proxy
Statement/Prospectus, "Acquisition Proposal" means any proposal for a merger or
other business combination involving Prominet or any of its affiliates or any
proposal or offer to acquire in any manner, directly or indirectly, an equity
interest in Prominet or any of its affiliates, any voting securities of Prominet
or any of its affiliates or a substantial portion of the assets of Prominet
(other than sales of Prominet's products and services in the ordinary course of
business consistent with past practice).
CONDITIONS TO THE MERGER
The respective obligations of Lucent, Prominet and Acquisition to effect
the Merger are subject, among other things, to the satisfaction of the following
conditions on or prior to the Closing (as defined below): (a) approval and
adoption of the Merger Agreement by the requisite vote of the stockholders of
Prominet (and, in the case of the Prominet Series A Preferred Stock and the
Prominet Series B Preferred Stock, by holders of more than 80% of each such
Series, voting as a class, that the Merger will not be deemed a liquidation,
dissolution or winding up with respect to such Series entitling such holders to
cash distributions); (b) the listing on the NYSE, upon official notice, of the
shares of Lucent Common Stock to be issued in exchange for the shares of
Prominet Capital Stock; (c) the obtaining of all authorizations, consents,
orders, declarations or approvals of, or the making of all filings with, or
termination or expiration of all waiting periods imposed by, any governmental or
regulatory authority, which the failure to obtain, make or occur would have the
effect of making the Merger or any of the transactions contemplated under the
Merger Agreement illegal or would have a Material Adverse Effect on Lucent or
Prominet assuming the Merger had taken place; (d) the Registration Statement of
which this Proxy Statement/Prospectus is a part will have become effective in
accordance with the provisions of the Securities Act and no stop order or
proceedings for that purpose will have been initiated or, threatened by the
Commission; (e) receipt of all necessary state securities authorizations; (f)
receipt by each of Lucent and Prominet of a letter of representation from the
other party (and, in the case of Prominet, from certain of its stockholders)
relating to certain tax matters; (g) receipt by each of Lucent and Prominet of a
letter from each of the Prominet stockholders approving the appointment of the
Stockholders' Representative; (h) no court or other body will have issued a
temporary restraining order,
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preliminary or permanent injunction or other legal restraint or prohibition
preventing the consummation of the Merger or any of the transactions
contemplated by the Merger Agreement; and (i) Lucent, Acquisition, Prominet, the
Escrow Agent and the Stockholders' Representative having entered into an Escrow
Agreement with respect to the Escrowed Shares.
The respective obligations of Lucent and Acquisition to effect the Merger
are also subject to the fulfillment of certain additional conditions including:
(i) Prominet having performed and complied in all material respects with all
agreements and conditions contained in the Merger Agreement that are required to
be performed or complied with by it prior to or at the closing of the
transactions contemplated by the Merger Agreement (the "Closing"); (ii) each of
Prominet's representations and warranties contained in the Merger Agreement to
the extent it is qualified by Material Adverse Effect and the representations of
Prominet relating to Intellectual Property Rights will be true and correct and
each of Prominet's representations and warranties to the extent it is not so
qualified by Material Adverse Effect will be true and correct in all material
respects, in each case, on and as of the Closing with the same effect as though
such representations and warranties were made on and as of the Closing, except
for changes permitted by the Merger Agreement and except to the extent that such
representations and warranties expressly relate to an earlier date, in which
case such representations and warranties are as of such earlier date; (iii)
receipt by Lucent and Acquisition of a favorable written opinion of Hale and
Dorr LLP, counsel to Prominet, in form satisfactory to Lucent and Acquisition;
(iv) receipt by Lucent of the written resignation of each director and officer
of Prominet as requested by Lucent; (v) no material adverse change in the
assets, business, financial condition, operations or prospects of Prominet and
no event or events will have occurred that could reasonably be expected to have
a Material Adverse Effect (other than (A) conditions affecting the data
networking industry generally or (B) resulting from the announcement of the
Merger) on Prominet; (vi) Prominet having received all necessary consents, in
form and substance satisfactory to Lucent and Acquisition, from the other
parties (x) to certain scheduled consents and (y) to all other contracts, leases
or other agreements to which Prominet is a party, except where the failure to
receive such consent would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on Prominet; (vii) certain persons
having entered into employment agreements with Lucent; (viii) certain persons
having entered into a Non-Competition Agreement with Lucent and the Surviving
Corporation; and (ix) Lucent having received written agreements from each
Prominet Rule 145 Affiliate.
The obligation of Prominet to effect the Merger is also subject to the
fulfillment of the following additional conditions: (a) Acquisition and Lucent
having performed and complied in all material respects with all agreements and
conditions contained in the Merger Agreement that are required to be performed
or complied with by them prior to or at the Closing, each of the representations
and warranties of Acquisition and Lucent contained in the Merger Agreement to
the extent it is qualified by Material Adverse Effect will be true and correct
and each of the representations and warranties of Acquisition and Lucent to the
extent it is not so qualified by Material Adverse Effect will be true and
correct in all material respects in each case, on and as of the Closing with the
same effect as though such representations and warranties were made on and as of
the Closing except for changes permitted by the Merger Agreement and except to
the extent that such representations and warranties expressly relate to an
earlier date, in which case such representations and warranties are as of such
earlier date; (b) Prominet having received the favorable written opinions of
Sidley & Austin, special counsel to Acquisition and Lucent, and internal counsel
to Acquisition and Lucent, each in form satisfactory to Prominet; and (c) no
material adverse change in the assets, business, financial condition, operations
or prospects of Lucent and no event or events will have occurred that could
reasonably be expected to have a Material Adverse Effect (other than (i)
conditions affecting the data networking industry generally or (ii) resulting
from the announcement of this transaction) on Lucent.
STOCK OPTIONS; UNVESTED RESTRICTED STOCK; WARRANTS
Concurrent with the Effective Time, each Stock Option which is outstanding
immediately prior to the Effective Time pursuant to the 1996 Stock Plan will be
assumed by Lucent and become and represent a Substitute Option to purchase the
number of shares of Lucent Common Stock (decreased to the nearest full share)
determined by multiplying (a) the number of shares of Prominet Common Stock
subject to such Stock
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Option immediately prior to the Effective Time by (b) the Common Stock Exchange
Ratio. The exercise price of each Substitute Option will be proportionately
adjusted to reflect the Common Stock Exchange Ratio. After the Effective Time,
except as provided herein, each Substitute Option will be exercisable upon the
same terms and conditions as were applicable under the related Stock Option
immediately prior to the Effective Time. Prominet has agreed that it will not
grant any stock appreciation rights or limited stock appreciation rights and
will not permit cash payments to holders of Stock Options in lieu of the
substitution therefor of Substitute Options. Lucent will pay cash to each holder
of Stock Options in lieu of issuing a fractional share of Lucent Common Stock
upon the exercise of Substitute Options for shares of Lucent Common Stock.
At the Effective Time, certain Restricted Stock Agreements will be assumed
by Lucent and each share of Unvested Restricted Stock which is outstanding and
unvested thereunder immediately prior to the Effective Time will become the
right to 0.1027 of a share of Lucent Common Stock subject to the same
restrictions and vesting as set forth in such Restricted Stock Agreement (the
"Substitute Restricted Stock"). As soon as practicable after the date on which
all Substitute Restricted Stock under such stockholder's Restricted Stock
Agreement shall vest, Lucent will pay to each holder of shares of Unvested
Restricted Stock in lieu of issuing fractional shares of Lucent Common Stock
cash in an amount rounded to the nearest whole cent, determined by multiplying
(i) the per share closing price on the NYSE of Lucent Common Stock on the day of
such vesting by (ii) the fractional shares to which such holder would otherwise
be entitled.
No later than 60 days after the Effective Time, Lucent will prepare and
file with the Commission a registration statement on Form S-8 (or another
appropriate form) registering a number of shares of Lucent Common Stock equal to
the number of shares subject to the Substitute Options. Such registration
statement will be kept effective (and the current status of the prospectus
required thereby will be maintained in accordance with the relevant requirements
of the Securities Act and the Exchange Act) at least for so long as any
Substitute Options remain outstanding.
Each holder of a warrant to purchase Prominet Capital Stock (other than
Associated Warrants which, by their terms, will terminate at the Effective Time)
has agreed that, at the time the Merger becomes effective, its warrant shall be
converted into the right to receive the number of shares of Lucent Common Stock
(decreased to the nearest full share) equal to the number of shares of Prominet
Capital Stock subject to such warrant immediately prior to the Effective Time
multiplied by (i) in the case of warrants having an exercise price per share of
less than $1.00, 0.1027, (ii) in the case of warrants having an exercise price
per share equal to or greater than $1.00 but less than $2.00, 0.0796.
INDEMNIFICATION
Lucent will fulfill the obligations of Prominet to indemnify each person
who is or was a director or an officer (an "Indemnified Party") of Prominet
pursuant to the Prominet Certificate or the Prominet Bylaws as each is in effect
on the date of the Merger Agreement. All rights to such indemnification in favor
of any Indemnified Party, as provided in the Prominet Certificate and the
Prominet Bylaws in effect on the date of the Merger Agreement will survive the
Merger and will continue in full force and effect, without amendment thereto,
for a period of six years from the Effective Time.
TERMINATION
The Merger Agreement may be terminated, and the Merger may be abandoned at
any time prior to the Effective Time whether before or after the approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the stockholders of Prominet or the stockholders of Acquisition: (a) by the
mutual agreement of the Board of Directors of Prominet and Acquisition and the
appropriate corporate authority of Lucent; (b) by Lucent, Acquisition or
Prominet if (i) the Effective Time will not have occurred by March 31, 1998;
provided that the right to so terminate will not be available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the cause
of, or resulted in, the failure of the Effective Time to occur on or before such
date; or (ii) any court of competent jurisdiction or other governmental
authority will have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action will have become
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final and nonappealable; (c) by Prominet, in the event Lucent or Acquisition
materially breaches its obligations under the Merger Agreement, unless such
breach is cured within 15 days after notice to Lucent by Prominet; or (d) by
Lucent or Acquisition, in the event Prominet materially breaches its obligations
under the Merger Agreement, unless such breach is cured within 15 days after
notice by Lucent or Acquisition.
FEES AND EXPENSES
Except for printing expenses and filing fees, which will be shared equally,
Lucent and Prominet will each pay its own costs and expenses in connection with
the Merger Agreement and the transactions contemplated thereby, whether or not
the Merger is consummated.
AMENDMENT
The Merger Agreement may be amended, modified or supplemented at any time
prior to the Effective Time by the respective Boards of Directors of the parties
thereto notwithstanding the approval of the Merger Agreement by the stockholders
of Prominet or Acquisition, except as provided under the DGCL.
WAIVER
At any time prior to the Effective Time, the Merger Agreement permits a
party by appropriate action, to extend the time for compliance by or waive
performance of any representation, warranty, agreement, condition or obligation
of any other party.
OTHER RELATED MATTERS
ESCROW AGREEMENT
Pursuant to the Merger Agreement and in furtherance of the escrow
arrangements described under the caption "TERMS OF THE MERGER
AGREEMENT -- Escrow Arrangements," Lucent will deposit in escrow with the Escrow
Agent, within 10 business days of the Effective Time, a stock certificate or
certificates representing the Escrowed Shares which will be registered in the
name of the Escrow Agent as nominee for the beneficial owners of such shares.
The Escrow Fund will be held and distributed by the Escrow Agent in accordance
with the terms and conditions of the Merger Agreement and the Escrow Agreement.
The Escrow Fund will be voted by the Escrow Agent on behalf of the
stockholders in accordance with the instructions received by the Escrow Agent
from the Stockholders' Representative. In the absence of such instructions, the
Escrow Agent need not vote such shares.
The escrow will terminate on the earlier of (a) the date on which the
parties have delivered a written notice to the Escrow Agent directing the
delivery of the Escrow Fund to the persons entitled thereto; and (b) the date on
which a decision is rendered by an arbitrator selected pursuant to the Merger
Agreement as to the disposition of the Escrow Fund.
Promptly following termination of the escrow, the Escrow Agent will deliver
to the stock transfer agent for Lucent Common Stock for delivery to the Prominet
stockholders entitled thereto, the number of shares remaining in the Escrow Fund
after satisfying the obligation to deliver shares to Lucent as provided in the
Merger Agreement.
All dividends on the Escrow Fund delivered to the Escrow Agent before
delivery to the Escrow Agent of a Lucent Notice will be distributed to the
stockholders entitled thereto pro rata with their portion of the Escrow Fund.
Lucent will pay the fees of the Escrow Agent.
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NON-COMPETITION AGREEMENTS
Lucent and Prominet have entered into Non-Competition Agreements with
Messrs. Abraham and Weiss and certain other employees of Prominet. Under the
terms of the Non-Competition Agreements, the foregoing persons have agreed that,
for a period of three years, they will not (i) directly or indirectly
participate in any business or activity that competes in any material manner
with the business of designing, developing, producing, marketing, distributing
and providing maintenance and support for equipment used in high performance
networks that implement wire speed switching and routing on standard ethernet
interfaces (10/100/1,000), or (ii) interfere with such business or with the
customers (or potential customers), clients (or potential clients), suppliers or
employees of such business. If at any time after the first anniversary of the
Effective Time, any of the foregoing persons is not employed for a period of 60
consecutive days (notwithstanding such person's reasonable good faith efforts)
then, upon 30 days' notice, Lucent will either terminate such person's
Non-Competition Agreement or pay such person an amount equal to $100,000 and
such person's Non-Competition Agreement will continue in full force and effect.
Messrs. Abraham and Weiss and the other employees of Prominet who are party to a
Non-Competition Agreement will not receive any consideration for entering into
the Non-Competition Agreements other than the Lucent Common Stock issuable to
them in connection with the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted
accounting principles. In connection with the Merger, it is anticipated that
Lucent will take a one-time charge associated with acquired in-process research
and development. Such charge is expected to be approximately $150 million and
will be taken in the fiscal quarter in which the Merger is consummated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the conversion of shares of Prominet Capital Stock
into Lucent Common Stock pursuant to the Merger and to the exercise of appraisal
rights that are generally applicable to holders of Prominet Capital Stock. This
discussion is based on currently existing provisions of the Code, existing and
proposed Treasury Regulations thereunder and current administrative rulings and
court decisions, which are all subject to change. Any such change, which may or
may not be retroactive, could alter the tax consequences to Lucent, Acquisition,
Prominet or Prominet's stockholders as described herein. Further, this
discussion assumes that certain factual representations to be made by Lucent,
Acquisition, Prominet, and certain Prominet stockholders with respect to the
requirements to qualify the Merger as a "reorganization" for federal income tax
purposes are correct.
Prominet stockholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to certain
Prominet stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are subject to the alternative
minimum tax provision of the Code, who are foreign persons, who do not hold
their Prominet Common Stock as capital assets, who acquired their shares in
connection with stock option or other compensatory transactions. In addition,
the following discussion does not address the tax consequences of the Merger
under foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the Merger (whether or
not any such transactions are undertaken in connection with the Merger),
including without limitation any transaction in which shares of Prominet Capital
Stock are acquired or shares of Lucent Common Stock are disposed of, or the tax
consequences of the assumption by Lucent of the Stock Options and Unvested
Restricted Stock or the conversion of warrants to purchase Prominet Capital
Stock into the right to receive Lucent Common Stock. ACCORDINGLY, PROMINET
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES.
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The Merger is intended to constitute a "reorganization" within the meaning
of Section 368(a) of the Code, in which case, subject to the limitations and
qualifications referred to herein, the Merger will generally result in the
following federal income tax consequences:
(a) No gain or loss will be recognized by Lucent, Acquisition, or
Prominet as a result of the Merger;
(b) No gain or loss will be recognized by the stockholders of Prominet
upon the exchange of Prominet Capital Stock solely for shares of Lucent
Common Stock in the Merger;
(c) Cash received by the stockholders of Prominet in lieu of
fractional shares of Lucent Common Stock will be treated as received as a
distribution in redemption of such fractional shares, subject to the
provisions of Section 302 of the Code, as if such fractional shares had
been issued in the Merger and then redeemed by Lucent. The receipt of such
cash should cause the recipient to recognize capital gain or loss, provided
that the shares of Prominet Capital Stock surrendered for such fractional
share interests were held as capital assets at the Effective Time, equal to
the difference between the amount of cash received and the portion of such
holder's adjusted tax basis in the shares of Prominet Capital Stock
allocable to the fractional share interests.
(d) The tax basis of the shares of Lucent Common Stock received by the
stockholders of Prominet in the Merger will be equal to the tax basis of
the shares of Prominet Capital Stock exchanged therefor in the Merger,
reduced by any basis allocable to a fractional share of Lucent Common Stock
treated as sold or exchanged under Section 302 of the Code;
(e) The holding period for the shares of Lucent Common Stock received
by the stockholders of Prominet will include the holding period for the
shares of Prominet Capital Stock exchanged therefor in the Merger, provided
that the shares of Prominet Capital Stock are held as capital assets at the
Effective Time; and
(f) Any Prominet stockholder who effectively dissents from the Merger
and receives cash for his or her shares of Prominet Capital Stock will
recognize income or loss as if such shares were redeemed by Lucent in full
payment and exchange therefor. The amount of income or loss will be treated
as ordinary income or loss, long-term capital gain or loss or short-term
capital gain or loss depending on the length of time the shares are held by
such dissenting stockholder, whether the shares are held as a capital
asset, and whether the dissenting stockholder is deemed to own shares of
Prominet stock pursuant to the attribution rules of Section 318 of the
Code. In certain circumstances, a dissenting stockholder can be deemed for
tax purposes to own shares that are actually owned by a non-dissenting
stockholder that is related to the dissenting stockholder, with the
possible result that the cash received in the exercise of the dissenting
stockholders' rights could be treated as a dividend received pursuant to a
corporate distribution, rather than an amount received pursuant to a sale
or exchange of stock.
The parties are not requesting a ruling from the IRS in connection with the
Merger. This discussion reflects the opinion of Hale and Dorr LLP, attached as
Exhibit 8.1 to the Registration Statement of which this Proxy
Statement/Prospectus is a part. This opinion will neither bind the IRS nor
preclude the IRS from adopting a contrary position. In addition, the opinion
will be subject to certain assumptions and qualifications and will be based on
the truth and accuracy of the representations made by the parties, and their
respective managements. Of particular importance are those assumptions and
representations relating to the "continuity of interest" requirement for a
"reorganization."
To satisfy the continuity of interest requirement, Prominet stockholders
must not, pursuant to a plan or intent existing at or prior to the Effective
Time, dispose of or transfer so much of either (i) their Prominet Capital Stock
in anticipation of the Merger or (ii) the Lucent Common Stock to be received in
the Merger (collectively, "Planned Dispositions"), such that Prominet
stockholders, as a group, would no longer have a significant equity interest in
the Prominet business being conducted after the Merger. Prominet stockholders
will generally be regarded as having a significant equity interest as long as
the number of shares of Lucent Common Stock received in the Merger less the
number of shares subject to Planned Dispositions (if any)
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represents, in the aggregate, a substantial portion of the entire consideration
received by the Prominet stockholders in the Merger. No assurance can be made
that the continuity of interest requirement will be satisfied, and if such
requirement is not satisfied, that the Merger would be treated as a
"reorganization."
A successful IRS challenge to the reorganization status of the Merger (as a
result of a failure to satisfy the continuity of interest requirement or
otherwise) would result in Prominet stockholders recognizing taxable gain or
loss with respect to each share of Prominet Capital Stock surrendered equal to
the difference between each stockholder's basis in such share and the fair
market value, as of the Effective Time, of the Lucent Common Stock received in
exchange therefor. In such event, a Prominet stockholder's aggregate basis in
the Lucent Common Stock so received would equal its fair market value, and the
stockholder's holding period for such stock would begin the day after the
Effective Time.
STOCK EXCHANGE LISTING
Lucent has agreed to apply to list on the NYSE, subject to official notice
of issuance, the shares of Lucent Common Stock issuable in connection with the
Merger.
DESCRIPTION OF LUCENT CAPITAL STOCK
The statements set forth under this heading with respect to the Lucent
Certificate, the Lucent Bylaws and the Rights Agreement are brief summaries
thereof and do not purport to be complete; such statements are subject to the
detailed provisions of the Lucent Certificate, the Lucent Bylaws and the Rights
Agreement. See "INCORPORATION BY REFERENCE."
The total authorized shares of capital stock of Lucent consists of (a)
3,000,000,000 shares of Lucent Common Stock and (b) 250,000,000 shares of Lucent
Junior Preferred Stock. At the close of business on September 30, 1997,
642,070,130 shares of Lucent Common Stock were issued and outstanding and no
shares of Lucent Junior Preferred Stock were issued and outstanding.
The Lucent Board is authorized to provide for the issue from time to time
of Lucent Junior Preferred Stock in series and, as to each series, to fix the
designation, the dividend rate (and whether cumulative) and the preferences, if
any, which dividends on such series will have with respect to any other class or
series of capital stock of Lucent, the voting rights, if any, the voluntary and
involuntary liquidation prices, the conversion or exchange privileges, if any,
applicable thereto and the redemption price or prices and the other terms of
redemption, if any, applicable thereto. Cumulative dividends, dividend
preferences and conversion, exchange and redemption provisions, to the extent
that some or all of these features may be present when shares of Lucent Junior
Preferred Stock are issued, could have an adverse effect on the availability of
earnings for distribution to the holders of Lucent Common Stock or for other
corporate purposes.
APPRAISAL RIGHTS
RIGHTS OF DISSENTING STOCKHOLDERS
CERTAIN HOLDERS OF PROMINET CAPITAL STOCK ARE ENTITLED TO APPRAISAL RIGHTS
WITH RESPECT TO THE MERGER. If the Merger is consummated, a holder of record of
Prominet Capital Stock on the date of making a demand for appraisal, as
described below, who (i) continues to hold those shares through the Effective
Time; (ii) strictly complies with the procedures set forth under Section 262 of
the DGCL; and, (iii) has not voted in favor of the Merger, will be entitled to
have those shares appraised by the Delaware Court of Chancery under Section 262
and to receive payment for the "fair value" of these shares in lieu of the
consideration provided for in the Merger Agreement. This Proxy Statement/
Prospectus is being sent to all holders of record of Prominet Capital Stock on
the record date for the Prominet Special Meeting and constitutes notice of the
appraisal rights available to those holders under Section 262. THE STATUTORY
RIGHT OF APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE
PROCEDURES SET FORTH IN SECTION 262. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES
MAY RESULT IN A TERMINATION OR WAIVER OF
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DISSENTERS' RIGHTS UNDER SECTION 262. The following is a summary of the
principal provisions of Section 262. The following summary does not purport to
be a complete statement of, and is qualified in its entirety by reference to,
Section 262 of the DGCL which, together with any amendments to the law as may be
adopted after the date of this Proxy Statement/Prospectus, is incorporated
herein by reference. A copy of Section 262 is attached as Appendix B to this
Proxy Statement/Prospectus.
A holder of Prominet Capital Stock electing to exercise appraisal rights
under Section 262 must deliver a written demand for appraisal of such
stockholder's shares to Prominet prior to the vote on the Merger. The written
demand must identify the stockholder of record and state the stockholder's
intention to demand appraisal of his shares. All demands should be delivered to
Prominet, Attention: Secretary, 400 Nickerson Road, Marlborough, Massachusetts
01752.
Only a holder of shares of Prominet Capital Stock on the date of making a
written demand for appraisal who continuously holds those shares through the
Effective Time is entitled to seek appraisal. Demand for appraisal must be
executed by or for the holder of record, fully and correctly, as that holder's
name appears on the holder's stock certificates representing shares of Prominet
Capital Stock. If Prominet Capital Stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, the demand should be made
in that capacity, and if Prominet Capital Stock is owned of record by more than
one person, as in a joint tenancy or tenancy in common, the demand should be
made by or for all owners of record. An authorized agent, including one or more
joint owners, may execute the demand for appraisal for a holder of record; that
agent, however, must identify the record owner or owners and expressly disclose
in the demand that the agent is acting as agent for the record owner or owners
of the shares.
A record holder such as a broker who holds shares of Prominet Capital Stock
as a nominee for beneficial owners, some of whom desire to demand appraisal,
must exercise appraisal rights on behalf of those beneficial owners with respect
to the shares of Prominet Common Stock, Prominet Series A Preferred Stock and
Prominet Series B Preferred Stock, as applicable, held for those beneficial
owners. In that case, the written demand for appraisal should set forth the
number of shares of Prominet Capital Stock covered by it. Unless a demand for
appraisal specifies a number of shares, the demand will be presumed to cover all
shares of Prominet Capital Stock held in the name of the record owner.
BENEFICIAL OWNERS WHO ARE NOT RECORD OWNERS AND WHO INTEND TO EXERCISE
APPRAISAL RIGHTS SHOULD INSTRUCT THE RECORD OWNER TO COMPLY WITH THE STATUTORY
REQUIREMENTS WITH RESPECT TO THE EXERCISE OF APPRAISAL RIGHTS BEFORE THE DATE OF
THE PROMINET SPECIAL MEETING.
Within 10 days after the Effective Time, the Surviving Corporation is
required to send notice of the effectiveness of the Merger to each stockholder
who prior to the Effective Time complies with the requirements of Section 262.
Within 120 days after the Effective Time, the Surviving Corporation or any
stockholder who has complied with the requirements of Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of the shares of Prominet Capital Stock held by all stockholders seeking
appraisal. A dissenting stockholder must serve a copy of the petition on the
Surviving Corporation. If no petition is filed by either the Surviving
Corporation or any dissenting stockholder within the 120-day period, the rights
of all dissenting stockholders to appraisal will cease. Stockholders seeking to
exercise appraisal rights should not assume that the Surviving Corporation will
file a petition with respect to the appraisal of the fair value of their shares
or that the Surviving Corporation will initiate any negotiations with respect to
the fair value of those shares. The Surviving Corporation is under no obligation
to and has no present intention to take any action in this regard. Accordingly,
stockholders who wish to seek appraisal of their shares should initiate all
necessary action with respect to the perfection of their appraisal rights within
the time periods and in the manner prescribed in Section 262. FAILURE TO FILE
THE PETITION ON A TIMELY BASIS WILL CAUSE THE STOCKHOLDER'S RIGHT TO AN
APPRAISAL TO CEASE.
Within 120 days after the Effective Time, any stockholder who has complied
with subsections (a) and (d) of Section 262 is entitled, upon written request,
to receive from the Surviving Corporation a statement
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setting forth the aggregate number of shares of Prominet Capital Stock not voted
in favor of the Merger with respect to which demands for appraisal have been
received by Prominet and the number of holders of those shares. The statement
must be mailed within 10 days after the written request has been received by
Prominet or within 10 days after expiration of the time for delivery of demands
for appraisal under subsection (d) of Section 262, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on the petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the shares of
Prominet Capital Stock owned by those stockholders, determining the fair value
of those shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, to be paid, if any, upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined under Section 262 could be more than, the same
as, or less than, the value of the consideration provided for in the Merger
Agreement without the exercise of appraisal rights. The cost of the appraisal
proceeding may be determined by the Court of Chancery and assessed against the
parties as the Court deems equitable in the circumstances. Upon application of a
dissenting stockholder, the Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the appraisal
proceeding (including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts) be charged pro rata against the value of all
shares of Prominet Capital Stock entitled to appraisal. In the absence of such a
determination or assessment, each party bears its own expenses.
Any stockholder who has demanded appraisal in compliance with Section 262
will not, after the Effective Time, be entitled to vote such stock for any
purpose or receive payment of dividends or other distributions, if any, on the
Prominet Capital Stock, except for dividends or distributions, if any, payable
to stockholders of record at a date prior to the Effective Time.
A stockholder may withdraw a demand for appraisal and accept the Lucent
Common Stock at any time within 60 days after the Effective Time, or thereafter
may withdraw such a demand with the written approval of the Surviving
Corporation. If an appraisal proceeding is properly instituted, such proceeding
may not be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and any such approval may be conditioned on the Court of
Chancery's deeming the terms to be just. If, after the Effective Time, a holder
of Prominet Capital Stock who had demanded appraisal for the holder's shares
fails to perfect or loses his right to appraisal, those shares will be treated
under the Merger Agreement as if they had been converted as of the Effective
Time into Lucent Common Stock.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY PROMINET
STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD CONSULT A
LEGAL ADVISOR.
For a discussion of the federal income tax consequences applicable to
Prominet stockholders who dissent from the Merger, see "OTHER RELATED
MATTERS -- Certain Federal Income Tax Consequences."
COMPARISON OF THE RIGHTS OF HOLDERS OF LUCENT COMMON STOCK
AND THE RIGHTS OF HOLDERS OF PROMINET CAPITAL STOCK
Lucent and Prominet are incorporated under the laws of the State of
Delaware. Stockholders whose rights as stockholders are currently governed by
the Prominet Certificate, the Prominet Bylaws and, with respect to certain
stockholders, the Stockholders' Agreement, will, in the event that such
stockholders receive Lucent Common Stock as full or partial consideration in the
Merger, become stockholders of Lucent, and their rights as such will be governed
by the Lucent Certificate and Lucent Bylaws. Certain differences between the
rights of holders of shares of Lucent Common Stock and shares of Prominet Common
Stock are summarized below.
The following summary does not purport to be a complete statement of the
rights of Prominet stockholders under the Prominet Certificate, the Prominet
Bylaws and the Stockholders' Agreement as
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compared with the rights of Lucent stockholders under the Lucent Certificate and
Lucent Bylaws or a complete description of the specific provisions referred to
herein. The identification of specific differences is not meant to indicate that
other equally or more significant differences do not exist. The summary is
qualified in its entirety by reference to the governing corporate instruments of
Lucent and Prominet, to which such stockholders are referred.
CAPITALIZATION
Lucent. The total authorized shares of capital stock of Lucent consists of
(a) 3,000,000,000 shares of Lucent Common Stock and (b) 250,000,000 shares of
Lucent Junior Preferred Stock. At the close of business on September 30, 1997,
642,070,130 shares of Lucent Common Stock were issued and outstanding and no
shares of Lucent Junior Preferred Stock were issued and outstanding.
The Lucent Board is authorized to provide for the issue from time to time
of Lucent Junior Preferred Stock in series and, as to each series, to fix the
designation, the dividend rate (and whether cumulative) and the preferences, if
any, which dividends on such series will have with respect to any other class or
series of capital stock of Lucent, the voting rights, if any, the voluntary and
involuntary liquidation prices, the conversion or exchange privileges, if any,
applicable thereto and the redemption price or prices and the other terms of
redemption, if any, applicable thereto. Cumulative dividends, dividend
preferences and conversion, exchange and redemption provisions, to the extent
that some or all of these features may be present when shares of Lucent Junior
Preferred Stock are issued, could have an adverse effect on the availability of
earnings for distribution to the holders of Lucent Common Stock or for other
corporate purposes.
Prominet. The authorized capital stock of Prominet consists of (a)
25,000,000 shares of Prominet Common Stock; (b) 15,000,000 shares of Prominet
Preferred Stock of which (i) 10,185,000 shares have been designated as Prominet
Series A Preferred Stock and (ii) 4,076,484 shares have been designated as
Prominet Series B Preferred Stock. As of December 16, 1997, there were 7,150,772
shares of Prominet Common Stock issued and outstanding, 9,921,067 shares of
Prominet Series A Preferred Stock issued and outstanding and 4,028,355 shares of
Prominet Series B Preferred Stock issued and outstanding.
VOTING RIGHTS
Lucent. Each holder of Lucent Common Stock is entitled to one vote for
each share held of record and may not cumulate votes for the election of
directors.
Prominet. Each holder of Prominet Common Stock is entitled to one vote for
each share held of record and may not cumulate votes for the election of
directors. The holder of each share of Prominet Series A Preferred Stock or
Prominet Series B Preferred Stock, as the case may be, is entitled to the number
of votes equal to the number of shares of Prominet Common Stock into which each
share of Prominet Series A Preferred Stock or Prominet Series B Preferred Stock,
as the case may be, could be converted on the record date for the applicable
vote or written consent of stockholders (on the Prominet Record Date, one and
one, respectively), and except as otherwise required by law, shall have voting
rights and powers equal to the voting rights and powers of holders of Prominet
Common Stock.
NUMBER, ELECTION, VACANCY AND REMOVAL OF DIRECTORS
Lucent. The number of persons constituting the Lucent Board is nine. The
Lucent Certificate provides that the Lucent Board will consist of a number of
directors to be fixed from time to time exclusively pursuant to a resolution
adopted by a majority of the total number of directors which Lucent would have
if there were no vacancies (the "Whole Board"), but shall in any event be not
less than three. The Lucent Certificate provides that the Lucent Board consists
of three classes. The directors in each class serve on the Lucent Board for
approximately three years each. Notwithstanding the foregoing, the directors who
currently serve in class one will serve through the 2000 Lucent stockholders'
meeting, the directors who currently serve in class two will serve through the
1998 Lucent stockholders' meeting and the directors who currently serve in class
three will serve thought the 1999 Lucent stockholders' meeting.
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The Lucent Certificate provides that if there is a vacancy on the Lucent
Board or if the number of directors is increased, such vacancies will be filled
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum, and not by the stockholders. A director elected
to fill a vacancy or newly created directorship will serve for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been duly elected and qualified. No decrease in the number of directors shall
shorten the term of any incumbent director.
Under the Lucent Certificate, any director may be removed from office only
for cause by the affirmative vote of the holders of at least a majority of the
voting power of all shares of Lucent entitled to vote generally in the election
of directors (the "Voting Stock") then outstanding, voting together as a single
class.
Prominet. The Prominet Certificate provides that the Prominet Board will
consist of such number of directors as shall be determined from time to time by
resolution of the stockholders or the Board of Directors, but in no event shall
be less than one. However, so long as any shares of the Prominet Series A
Preferred Stock or Prominet Series B Preferred Stock are outstanding, Prominet
shall not, without obtaining the approval of the holders of not less than 75% of
the outstanding shares of the Prominet Series A Preferred Stock or Prominet
Series B Preferred Stock, as the case may be, take any action to increase the
number of directors on the Prominet Board to more than five. Pursuant to the
Stockholders' Agreement, the stockholders party thereto have agreed to fix the
number of directors at five and to cause the election of the following
designees: the chief executive officer of Prominet, one person designated by
each of Charles River and Matrix and two persons who are not employees of
Prominet and are reasonably acceptable to the chief executive officer of
Prominet, Charles River, Matrix and Menlo. The current number of directors is
five.
The Prominet Bylaws provide that any vacancy on the Prominet Board may be
filled by the majority vote of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
will serve for the unexpired term of his or her predecessor in office and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next annual meeting of stockholders and
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
Under the Prominet Bylaws, any Prominet director may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
AMENDMENTS TO CERTIFICATES OF INCORPORATION
Lucent. Lucent's Certificate provides that the affirmative vote of the
holders of at least 80% of the Voting Stock then outstanding, voting together as
a single class, will be required to alter, amend, adopt any provision
inconsistent with or repeal Articles V, VII and VIII (relating to stockholder
action, the board of directors and the Lucent Bylaws, respectively) of the
Lucent Certificate.
Prominet. Prominet's Certificate may be amended in any manner provided for
by law, however, so long as any shares of the Prominet Series A Preferred Stock
or Prominet Series B Preferred Stock are outstanding, Prominet shall not,
without obtaining the approval of the holders of not less than 75% of the
outstanding shares of the Prominet Series A Preferred Stock or Prominet Series B
Preferred Stock, as the case may be, take any action to (a) materially and
adversely alter or change the rights, preferences or privileges of the Prominet
Series A Preferred Stock or the Prominet Series B Preferred Stock, as the case
may be; (b) create any new class or series of shares pari passu with, or having
preferences over, the outstanding shares of the Prominet Series A Preferred
Stock or the Prominet Series B Preferred Stock, as the case may be, as to
dividends, voting, redemption or assets in liquidation, or authorize or issues
shares of stock of any such class or series; or (c) reclassify any class or
series of any Prominet Common Stock into shares having any preference or
priority as to dividends, voting, redemption or assets in liquidation superior
to or on a parity with any such preference or priority of Prominet Series A
Preferred Stock or the Prominet Series B Preferred Stock, as the case may be.
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AMENDMENTS TO BYLAWS
Lucent. The Lucent Certificate and the Lucent Bylaws provide that the
Lucent Bylaws may be altered or repealed and new bylaws may be adopted (i) at
any annual or special meeting of stockholders, by the affirmative vote of the
holders of a majority of the voting power of the stock issued and outstanding
and entitled to vote at such meeting, provided, that any proposed alteration or
repeal of, or the adoption of any Bylaw inconsistent with Sections 2.2, 2.7 or
2.10 of Article II of the Lucent Bylaws (relating to special meetings of
stockholders, notice of stockholder business and nominations and actions by
written consent of stockholders, respectively) or with Sections 3.2, 3.9 or 3.11
of Article III of the Lucent Bylaws (relating to the number and tenure of the
directors, vacancies on the board of directors and removal of directors,
respectively) by the stockholders requires the affirmative vote of the holders
of a least 80% of the Voting Stock then outstanding, voting together as a single
class or (ii) by the majority of the Whole Board.
Prominet. Prominet's Bylaws may be altered, amended or repealed or new
bylaws may be adopted by the affirmative vote of a majority of the directors or
the majority of shares of capital stock of the corporation issued and
outstanding entitled to vote at any regular or special meeting of the Prominet
Board or the stockholders, as applicable.
STOCKHOLDER ACTION
Lucent. The Lucent Certificate provides that any action required or
permitted to be taken by the Lucent stockholders must be effected at a duly
called annual or special meeting and may not be effected by written consent.
Prominet. Because the Prominet Certificate of Incorporation does not
prohibit or limit stockholder actions by written consent, Prominet stockholders
may act by written consent without a meeting or by vote at a meeting.
NOTICE OF CERTAIN STOCKHOLDER ACTIONS
Lucent. The Lucent Certificate of Incorporation provides that a
stockholder must give advance notice of stockholder nominations for election of
directors and in order to properly bring business before an annual meeting of
stockholders. Under the Lucent Bylaws, in either case, a stockholder's written
notice must be delivered to the Secretary of Lucent at the principal executive
offices of Lucent not later than the close of business on the 90th calendar day
nor earlier than the close of business on the 120th calendar day prior to the
first anniversary of the preceding year's annual meeting; provided that if the
date of the annual meeting is more than 30 calendar days before or more than 60
calendar days after such anniversary date, notice must be so delivered not
earlier than the close of business on the 120th calendar day prior to such
annual meeting or the 10th calendar day following the calendar day on which
Lucent first publicly announces the date of such meeting. Notwithstanding the
foregoing, if the number of directors to be elected to the Lucent Board is
increased and there is no public announcement by Lucent naming all the nominees
for director or specifying the size of the increased board at least 100 calendar
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice will also be considered timely if it is delivered not later
than the close of business on the 10th calendar day following the day on which
such public announcement is first made by Lucent.
In the event Lucent calls a special meeting of stockholders for the purpose
of electing one or more directors to the Lucent Board, written notice must be
delivered not earlier than the close of business on the 120th calendar day prior
to such special meeting and not later than the close of business on the later of
the 90th calendar day prior to such special meeting or the 10th calendar day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Lucent Board to be elected
at such meeting.
Prominet. The Prominet Certificate of Incorporation does not require
advance notice of stockholder nominations for election of directors or of
business to be brought by stockholders before any meeting of stockholders.
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SPECIAL STOCKHOLDER MEETINGS
Lucent. The Lucent Certificate provides that special meetings of the
stockholders of Lucent may be called only by the Lucent Board pursuant to a
resolution stating the purposes thereof approved by a majority of the Whole
Board or by the Chairman of the Lucent Board. Any power of the stockholders to
call a special meeting is specifically denied in the Lucent Certificate.
Prominet. The Prominet Bylaws provide that special meetings of
stockholders may be called for any purpose by the president of Prominet or the
Prominet Board.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The DGCL provides that a corporation's certificate of incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
violation of Section 174 of the DGCL regarding unlawful payment of dividends or
unlawful stock purchases or redemptions, (iv) any transaction from which the
director derived an improper personal benefit or (v) any act or omission prior
to the adoption of such a provision in the certificate of incorporation.
Lucent. The Lucent Certificate of Incorporation provides that no director
shall be personally liable to Lucent or to its stockholders for monetary damages
for breach of fiduciary duty as a director, except, if required by law, for
liability (i) for any breach of the director's duty of loyalty to Lucent or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL or (iv) for any transaction from which the director derived an improper
personal benefit.
Prominet. The Prominet Certificate of Incorporation provides that except
to the extent that the DGCL prohibits the elimination or limitation of liability
of directors for breaches of fiduciary duty, no director shall be personally
liable to Prominet or to its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability.
DIVIDENDS
Lucent. The Lucent Bylaws provide that the Lucent Board may from time to
time declare, and Lucent may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and in the Lucent
Certificate.
Prominet. The Prominet Certificate of Incorporation provides that
dividends may be declared and paid on the Prominet Common Stock from funds
lawfully available therefor as and when determined by the Prominet Board subject
to any preferential dividend rights of any then outstanding Prominet Preferred
Stock. The holders of Prominet Series A Preferred Stock and Prominet Series B
Preferred Stock are entitled to participate, pari passu with the other and with
the holders of Prominet Common Stock, in any dividends paid or set aside for
payment (other than dividends payable solely in shares of Prominet Common Stock)
so that holders of Prominet Series A Preferred Stock and Prominet Series B
Preferred Stock, as the case may be, will receive with respect to each share of
Prominet Series A Preferred Stock or Prominet Series B Preferred Stock, as the
case may be, an amount equal to (x) the dividend payable with respect to each
share of Prominet Common Stock multiplied by (y) the number of shares of
Prominet Common Stock into which such share of Prominet Series A Preferred Stock
or Prominet Series B Preferred Stock, as the case may be, is convertible as of
the record date for such dividend.
CONVERSION
Lucent. Holders of Lucent Common Stock and of Lucent Junior Preferred
Stock have no rights to convert their shares into any other securities.
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Prominet. Holders of Prominet Common Stock have no rights to convert their
shares of Common Stock into any other securities. Holders of Prominet Series A
Preferred Stock and holders of Prominet Series B Preferred Stock have the right
to convert their Preferred Stock into Prominet Common Stock, at the option of
such holder, at any time after the date of issuance of such shares. Each share
of Prominet Series A Preferred Stock is convertible into the number of shares of
Prominet Common Stock at the "Series A Conversion Rate," which is the number
which results from dividing the "Series A Conversion Price" per share in effect
at the time of conversion into the "Series A Conversion Value" per share. Each
of the Series A Conversion Price and the Series A Conversion Value initially in
effect was $0.61 per share and was $0.61 on the date of this Proxy
Statement/Prospectus. Each share of Prominet Series B Preferred Stock is
convertible into the number of shares of Prominet Common Stock at the "Series B
Conversion Rate," which is the number which results from dividing the "Series B
Conversion Price" per share in effect at the time of conversion into the "Series
B Conversion Value" per share. Each of the Series B Conversion Price and the
Series B Conversion Value initially in effect was $1.87 per share and was $1.87
on the date of this Proxy Statement/Prospectus. Each share of Prominet Series A
Preferred Stock and Prominet Series B Preferred Stock will automatically be
converted into shares of Prominet Common Stock at its then effective Series A
Conversion Rate or Series B Conversion Rate, as the case may be, immediately
upon the closing of a public offering pursuant to an effective registration
statement under the Securities Act of 1933 covering any of Prominet's securities
with aggregate proceeds to Prominet and the selling stockholders of at least
$15,000,000 and an equivalent public offering price per share of Prominet Common
Stock of at least $3.00.
CERTAIN INFORMATION CONCERNING LUCENT
Lucent is one of the world's leading designers, developers and
manufacturers of telecommunications systems, software and products. These
integrated systems and software applications enable network operators and
business enterprises to connect, route, manage and store information between and
within locations. Lucent is a global leader in the sale of public
telecommunications systems, and is a supplier of systems or software to most of
the world's largest networks. Lucent is also a global leader in the sale of
business communications systems and microelectronic components for
communications systems and computer manufacturers. Lucent was formed from the
systems and technology units that were formerly part of AT&T, including the
research and development capability of Bell Laboratories.
Lucent was incorporated in Delaware in November 1995. Lucent was a
wholly-owned subsidiary of AT&T prior to its initial public offering on April
10, 1996 and became completely separate from AT&T when the remaining shares of
Lucent Common Stock held by AT&T were distributed to AT&T's stockholders on
September 30, 1996. See "INFORMATION INCORPORATED BY REFERENCE."
CERTAIN INFORMATION CONCERNING PROMINET
Prominet was founded in February 1996 to develop a family of high-capacity,
high-density, multilayer-capable ethernet switching and routing systems designed
for gigabit-scaled campus networking. Prominet's products are designed to
provide (i) 45.76 gigabits of switching capacity, (ii) Layer 2 switching and
Layer 3 routing performance at 33 and 18 million pps, respectively, (iii)
bandwidth management, (iv) advanced applications such as quality of service
(QoS), class of service and IP multicasting, and (v) a competitive cost of
megabit per port pricing.
Prominet recently began shipping its P550(TM) Cajun(TM) Switch, a
high-capacity, multilayer switch that provides 10/100/1,000 megabits per second
of capacity in a compact, fault tolerant 7-slot chassis. The Switch's 45.76 Gbps
of total backplane capacity permits network managers to deliver more than 33
million pps of system throughput.
Prominet currently has under development the P550(TM) Cajun(TM) Switch with
Integrated Routing, which is designed to enable scalable, packet-by-packet, IP
and IPX routing at wire speed with the Layer 2 switching capabilities of the
initial P550(TM) Cajun(TM) Switch in the same 7-slot chassis. This technology is
intended to perform many of the same Layer 3 functions as legacy software-based
routers, but at multi-gigabit speeds and
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at a lower cost. The silicon-based implementation is designed to enable full
multi-level quality of service (QoS) capabilities, including the ability to make
routing and prioritization decisions based on Layer 3 application information,
at 10/100/1,000 wire speeds.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Prominet was founded in February 1996 to develop a family of high-capacity,
high-density, multilayer-capable ethernet switching and routing systems designed
for gigabit-scaled campus networking. In the third quarter of 1997 Prominet
began to ship its P550(TM) Cajun(TM) Switch which is a high capacity, multilayer
switch that provides 10/100/1,000 megabits per second of capacity. Prominet
research and development is currently focused on continuing development of the
P550(TM) Cajun(TM) Switch with Integrated Routing, which is designed to provide
scalable, packet-by-packet, IP and IPX routing at wire speed and with the Layer
2 switching capabilities of the P550(TM) Cajun(TM) Switch.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO PERIOD FROM INCEPTION
(FEBRUARY 2, 1996) THROUGH SEPTEMBER 30, 1996
REVENUE. Revenue for the nine months ended September 30, 1997 was
$111,540. Prominet began shipping its first product, the P550(TM) Cajun(TM)
Switch and related modules, during the three-month period ended September 30,
1997. Accordingly, Prominet recognized no revenue in the period from inception
through September 30, 1996.
GROSS PROFIT/(LOSS). Gross profit/(loss) for the nine months ended
September 30, 1997 was $(888,046). The loss was attributable to high start-up
manufacturing costs relative to the small quantity of units produced and costs
for materials during the period in addition to costs associated with the
expedited acquisition of materials. In the period from inception through
September 30, 1996, manufacturing operations had not commenced.
RESEARCH AND DEVELOPMENT. Research and development costs increased by
$4,018,596 from $990,634 to $5,009,230 for the nine months ended September 30,
1997 as compared to the period from inception through September 30, 1996. The
increase in research and development expenses was due to increased engineering
staffing for new product development and increased expenses for materials used
in the design and development of Prominet's P550(TM) Cajun(TM) Switch product
and because the period ended September 30, 1996 represented only eight months of
operations. During the nine months ended September 30, 1997, Prominet focused
primarily on final testing of its P550(TM) Cajun(TM) Switch product.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
by $1,958,324 from $312,245 to $2,270,569 for the nine months ended September
30, 1997 as compared to the period from inception through September 30, 1996.
This increase was due to the increased hiring of personnel for its sales,
marketing and finance and administration organizations to support Prominet's
growth and product introduction and because the period ended September 30, 1996
represented only eight months of operations. Product marketing expenses in the
nine-month period ended September 30, 1997, included expenses related to
introduction of Prominet's P550(TM) Cajun(TM) Switch product, including
development of marketing and sales literature and participation at various trade
shows.
OTHER INCOME (EXPENSE), NET. Interest income, net increased by $46,456
from $118,860 to $165,316 for the nine months ended September 30, 1997 as
compared to the period from inception through September 30, 1996. Interest
expense of $92,999 for the nine-month period ended September 30, 1997 resulted
from interest on capital lease obligations. Interest expense was not material
during the period from inception through September 30, 1996.
INCOME TAXES. Prominet has generated taxable losses from operations since
inception and, accordingly, has no taxable income available to offset the
carryback of net operating losses. Based upon the weight of all
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<PAGE> 51
available evidence, Prominet has provided a full valuation allowance for its
deferred tax assets since, in the opinion of management, realization of these
future benefits is not sufficiently assured.
PERIOD FROM INCEPTION (FEBRUARY 2, 1996) THROUGH DECEMBER 31, 1996
RESEARCH AND DEVELOPMENT. Research and development expenses were
$2,234,168 for the period from inception (February 2, 1996) through December 31,
1996. Research and development expenses related to the hiring of personnel and
the development of Prominet's initial product, the P550(TM) Cajun(TM) Switch,
and the P550(TM) Cajun(TM) Switch with Integrated Routing which is currently
under development.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses were
$516,229 in the aggregate for the period from inception (February 2, 1996)
through December 31, 1996. Such efforts during this period reflected Prominet's
organization of its product development, sales and marketing and finance and
administration organizations.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, Prominet had $1,263,908 of cash and cash
equivalents. Prominet's net working capital position at September 30, 1997 was
$1,640,605. Prominet's principal sources of cash have been sales of equity and
debt securities, capital equipment leasing and a line of credit facility with a
bank. In April 1997, Prominet sold shares of Series B Preferred Stock for
approximately $7.5 million. During the nine months ended September 30, 1997,
Prominet borrowed $400,000 under an equipment line of credit from a bank. The
equipment line of credit bears interest at 1.5% above the prime rate and is
payable in 24 equal monthly installments. The equipment line of credit contains
certain financial covenants relating to financial reporting requirements and
minimum balance requirements. In October 1997, Prominet entered into a $2.0
million revolving line of credit with a bank. See "-- Subsequent Events."
Prominet used its cash balances in 1997 to fund Prominet's operating losses, net
capital expenditures of $922,958 and to fund working capital requirements,
including the build up of inventory for expected sales.
Prominet has an equipment lease agreement providing for a line of credit of
$2.0 million with a third party, of which approximately $683,000 was available
for future leases at September 30, 1997. The term for each lease under the
agreement ranges from forty-two to forty-eight months and bears interest at
rates ranging from 7.43% to 9.12%, depending upon the type of equipment leased.
Prominet expects to continue to make capital equipment investments in
manufacturing test equipment in 1997 and 1998. Prominet intends to finance such
investments and its working capital requirements through proceeds from the sale
of the Notes in an aggregate principal amount of $4,000,000 and the incurrence
of additional indebtedness. See "-- Subsequent Events."
Prominet's current business plan indicates that Prominet will require
additional financing in 1998 in order to fund its planned capital expenditures,
continue its development efforts and continue to build the infrastructure
necessary to support Prominet's planned growth. If Prominet does not obtain
additional financing during 1998 it would have a material adverse effect on the
Prominet's operations.
SUBSEQUENT EVENTS
On October 8, 1997, Prominet entered into a $2.0 million revolving line of
credit (the "Revolving Credit Agreement") with a bank. The Revolving Credit
Agreement bears interest at one half of one percentage point (0.50%) above the
prime rate on the average daily balance outstanding and matures at December 31,
1997. The Revolving Credit Agreement contains certain financial covenants
relating to financial reporting requirements and financial covenants. At
December 4, 1997, Prominet had borrowed $2.0 million under the Revolving Credit
Agreement to be used for working capital.
On December 2, 1997, Prominet sold an aggregate principal amount of $4.0
million of the Notes, and issued Associated Warrants to purchase 88,888 shares
of Prominet Common Stock. As amended and restated, the Associated Warrants will
be terminated if the Effective Time occurs on or before March 31, 1998 and will
not be exercisable until the earlier of the termination of the Merger and April
1, 1998. See "CERTAIN
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<PAGE> 52
INFORMATION CONCERNING PROMINET -- Certain Transactions." The Notes are payable
on May 31, 1998 and are subject to acceleration in certain events, including
completion of the Merger. The proceeds of the Subordinated Notes are being used
to fund working capital requirements.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
Prominet will implement SFAS No. 128 as required and, at this time, the future
adoption is not expected to have a material adverse effect on net loss per
share. Had Prominet computed net loss per share for the periods ended December
31, 1996 and the nine months ended September 30, 1997 in accordance with SFAS
No. 128 the net loss per share would not have been different.
MANAGEMENT OF PROMINET
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive management and directors of Prominet:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------
<S> <C> <C>
Menachem E. Abraham................ 49 President, Chief Executive Officer, Treasurer and
Director
Timothy Lieto...................... 39 Vice President, Sales and Marketing
Douglas Ruby....................... 46 Vice President, Product Marketing
Joshua Weiss....................... 42 Vice President, Engineering
Allen D. Zubatkin.................. 48 Vice President, Operations
Robert P. Badavas.................. 44 Director
Gary Bowen......................... 50 Director
Richard M. Burnes.................. 55 Director
Andrew Marcuvitz................... 48 Director
</TABLE>
Mr. Abraham, a co-founder of Prominet, has been President, Chief Executive
Officer, Treasurer and a director of Prominet since its inception in February
1996. Prior to co-founding Prominet, Mr. Abraham was senior vice president,
product development and chief technology officer at Chipcom Corporation, a
manufacturer of computer network intelligent switching systems. From 1980 to
1984, he was with Digital Equipment Corporation's Networks and Communications
Division, advancing from senior engineer to principal and consulting engineer.
Mr. Lieto has served as the Vice President, Sales and Marketing since
joining Prominet in June 1996. He had been vice president, North American sales
at 3Com Corporation following 3Com's acquisition of Chipcom in October 1995.
Prior to that, he was vice president of North and South American operations at
Chipcom Corporation.
Mr. Ruby joined Prominet in May 1996 as Vice President, Product Marketing.
He held the position of director of strategic accounts at Whitetree, Inc. Mr.
Ruby also spent nine years at Chipcom Corporation in several capacities,
including MIS network manager.
Mr. Weiss, a co-founder of Prominet, is Vice President, Engineering of
Prominet. Before co-founding Prominet, he served as director of software
engineer and switching at 3Com Corporation following 3Com Corporation's
acquisition of Chipcom in October 1995. Prior to Chipcom, Mr. Weiss spent 11
years at Data General Corporation where his last position was development
manager for LAN/WAN products.
Mr. Zubatkin joined Prominet in May 1997 as Vice President, Operations.
Prior to joining Prominet, Mr. Zubatkin held the position of vice president,
manufacturing at Mercury Computer Systems from 1986. Earlier in his career, he
worked at Raytheon Company.
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<PAGE> 53
Mr. Badavas has served on the Board of Directors of Prominet since February
1996. Mr. Badavas has been President and Chief Executive Officer of Cerulean
Technology, Inc., a provider of mobile information systems applications, from
December 1995. From October 1986 through October 1995, Mr. Badavas was employed
by Chipcom Corporation, where he served as Senior Vice President, Finance, from
July 1994 to October 1995, Vice President, Finance, from October 1986 to July
1994 and Chief Financial Officer and Treasurer from October 1986 to October
1995.
Mr. Bowen has served on the Board of Directors of Prominet since December
1996. Mr. Bowen has served as the Chairman of New Oak Communications, a
privately held data communications company, since 1996. From 1994 to 1996, Mr.
Bowen was Executive Vice President of Marketing and Worldwide Field Operations
for Bay Networks, Inc. From 1990 to 1994, Mr. Bowen was Senior Vice President,
Marketing and Field Operations of Wellfleet Communications, Incorporated. Mr.
Bowen is a Director of Xircom Corporation and Geotel Communications Corporation,
both publicly traded companies. He also serves on the boards of several
privately held companies.
Mr. Burnes has served on the Board of Directors of Prominet since April
1996. Since 1970, he has been a General Partner of The Charles River
Partnerships, a group of venture capital funds based in Waltham, Massachusetts.
Mr. Burnes is also a director of CellCall, Inc., LANart Corporation, Concord
Communications and Passport Corporation. He also serves on the boards of
directors of several privately held companies.
Mr. Marcuvitz has served on the Board of Directors of Prominet since April
1996. Since 1990, Mr. Marcuvitz has been a general partner of Matrix Partners.
Prior to joining Matrix Partners, Mr. Marcuvitz was the Vice President of
Research and Development at Apollo Computer Corporation, a company which he
helped found. Mr. Marcuvitz is also a director of a number of privately held
companies including Wildfire Communications, Vivo Software, FASTech Integration,
NetCore and Novera Software.
Each executive officer of Prominet serves at the discretion of the Board of
Directors. There are no family relationships among any of the directors and
executive officers of Prominet.
DIRECTOR COMPENSATION
Directors receive no cash compensation for services provided in that
capacity but are reimbursed for out-of-pocket expenses incurred in connection
with attendance at each meeting of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation received in the
fiscal year ended December 31, 1996 by Prominet's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS AND RESTRICTED
NAME AND PRINCIPAL POSITION SALARY STOCK AWARDS
- ---------------------------------------------------- ------------------- ----------------------
<S> <C> <C>
Menachem E. Abraham
President, Chief Executive
Officer and Treasurer............................... $89,374 2,325,000(1)
</TABLE>
- ---------------
(1) See "-- Restricted Stock Agreements."
There were no grants of stock options to Prominet's Chief Executive Officer
during the fiscal year ended December 31, 1996.
There were no stock option exercises by Prominet's Chief Executive Officer
during the fiscal year ended December 31, 1996.
42
<PAGE> 54
1996 STOCK OPTION PLAN
Prominet's 1996 Stock Plan was adopted by the Prominet Board and approved
by the stockholders of Prominet in February 1996. Up to 3,000,000 shares of
Prominet Common Stock (subject to adjustment in the event of stock splits and
other similar events) may be issued pursuant to awards granted under the 1996
Stock Plan. As of November 30, 1997, options to purchase 2,062,198 shares of
Prominet Common Stock were outstanding under the 1996 Stock Plan.
The 1996 Stock Plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Code and nonstatutory stock
options. Officers, employees, directors, consultants and advisors of Prominet
and its subsidiaries are eligible to be granted options under the 1996 Stock
Plan. Under present law, however, incentive stock options may only be granted to
employees.
Optionees may receive the right to purchase a specified number of shares of
Prominet Common Stock at a specified option price and subject to such other
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Prominet Common Stock on the date of grant. Under
present law, incentive stock options may not be granted at an exercise price
less than the fair market value of the Prominet Common Stock on the date of
grant (or less than 110% of the fair market value in the case of incentive stock
options granted to optionees holding more than 10% of the voting power of
Prominet). The 1996 Stock Plan permits the Prominet Board to determine the
manner of payment of the exercise price of options, including through payment by
cash, check, surrender to Prominet of shares of Prominet Common Stock, delivery
to Prominet of a promissory note, or by any combination of the permitted forms
of payment.
The 1996 Stock Plan is administered by the Prominet Board. The Prominet
Board has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the 1996 Stock Plan and to interpret the
provisions thereof. Pursuant to the terms of the 1996 Stock Plan, the Prominet
Board may delegate authority under the 1996 Stock Plan to one or more committees
of the Prominet Board. Subject to any applicable limitations contained in the
1996 Stock Plan, the Prominet Board or any committee to which the Prominet Board
delegates authority, as the case may be, selects the recipients of options, may
amend, modify or terminate any outstanding option and determines (i) the number
of shares of Prominet Common Stock covered by options and the dates upon which
such options become exercisable, (ii) the exercise price of options and (iii)
the duration of options.
No option may be granted under the 1996 Stock Plan after February 23, 2006,
but options previously granted may extend beyond that date. The Prominet Board
may at any time amend, suspend or terminate the 1996 Stock Plan.
Upon the consummation of the Merger, each option to purchase Prominet
Common Stock outstanding under the 1996 Stock Plan will be assumed by Lucent and
shall become and represent an option to purchase a certain number of shares of
Lucent Common Stock, determined in accordance with the provisions of the Merger
Agreement.
As of November 30, 1997, Robert P. Badavas and Gary Bowen, directors of
Prominet, each held vested and unvested options to purchase an aggregate of
20,000 shares of Prominet Common Stock.
As of November 30, 1997, Douglas Ruby, Vice President, Product Marketing of
Prominet, held vested and unvested options to purchase an aggregate of 100,000
shares of Prominet Common Stock.
As of November 30, 1997, Allen Zubatkin, Vice President, Operations of
Prominet, held vested and unvested options to purchase an aggregate of 110,000
shares of Prominet Common Stock.
RESTRICTED STOCK AGREEMENTS
On February 2, 1996, Menachem E. Abraham purchased 2,325,000 shares of
Prominet Common Stock at a purchase price of $.01 per share, representing the
fair market value of the Prominet Common Stock on such date, pursuant to a
Restricted Stock Agreement which provides, among other things, that Prominet
shall have the right and option to repurchase a certain percentage of such
shares in the event that Mr. Abraham
43
<PAGE> 55
ceases to be employed by Prominet for any reason or no reason, with or without
cause, prior to August 2, 2000. In addition, upon the consummation of the
Merger, the number of shares then subject to the repurchase option shall be
reduced by 20%, and shall be reduced to zero in the event that Mr. Abraham
ceases to be President and Chief Executive Officer of Prominet within 365 days
of the consummation of the Merger, unless such termination was for Cause (as
defined in his Restricted Stock Agreement) or other than for Good Reason (as
defined in his Restricted Stock Agreement). There are no restrictions on the
payment of dividends on the shares of Prominet Common Stock contained in his
Restricted Stock Agreement. See "THE MERGER -- Interests of Certain Persons in
the Merger."
On March 18, 1996, Joshua Weiss purchased 1,325,000 shares of Prominet
Common Stock at a purchase price of $.01 per share, representing the fair market
value of the Prominet Common Stock on such date, pursuant to a Restricted Stock
Agreement which provides, among other things, that Prominet shall have the right
and option to repurchase a certain percentage of such shares in the event that
Mr. Weiss ceases to be employed by Prominet for any reason or no reason, with or
without cause, prior to September 18, 2000. In addition, upon the consummation
of the Merger, the number of shares then subject to the repurchase option shall
be reduced by 20%, and shall be reduced to zero in the event that Mr. Weiss
ceases to be Vice President, Engineering of Prominet within 365 days of the
consummation of the Merger, unless such termination was for Cause (as defined in
his Restricted Stock Agreement) or other than for Good Reason (as defined in his
Restricted Stock Agreement). See "THE MERGER -- Interests of Certain Persons in
the Merger."
On May 7, 1996, Douglas Ruby purchased 250,000 shares of Prominet Common
Stock at a purchase price of $.06 per share, representing the fair market value
of the Prominet Common Stock on such date, pursuant to a Restricted Stock
Agreement which provides, among other things, that Prominet shall have the right
and option to repurchase a certain percentage of such shares in the event that
Mr. Ruby ceases to be employed by Prominet for any reason or no reason, with or
without cause, prior to May 7, 2001. In addition, upon the consummation of the
Merger, the number of shares then subject to the repurchase option shall be
reduced by 20%, and shall be reduced to zero in the event that Mr. Ruby ceases
to be Vice President, Product Marketing of Prominet within 365 days of the
consummation of the Merger, unless such termination was for Cause (as defined in
his Restricted Stock Agreement) or other than for Good Reason (as defined in his
Restricted Stock Agreement). See "THE MERGER -- Interests of Certain Persons in
the Merger."
On June 21, 1996, Timothy Lieto purchased 400,000 shares of Prominet Common
Stock at a purchase price of $.06 per share, representing the fair market value
of the Prominet Common Stock on such date, pursuant to a Restricted Stock
Agreement which provides, among other things, that Prominet shall have the right
and option to repurchase a certain percentage of such shares in the event that
Mr. Lieto ceases to be employed by Prominet for any reason or no reason, with or
without cause, prior to July 31, 2001. In addition, upon the consummation of the
Merger, the number of shares then subject to the repurchase option shall be
reduced by 20%, and shall be reduced to zero in the event that Mr. Lieto ceases
to be Vice President, Sales and Marketing of Prominet within 365 days of the
consummation of the Merger, unless such termination was for Cause (as defined in
his Restricted Stock Agreement) or other than for Good Reason (as defined in his
Restricted Stock Agreement). See "THE MERGER -- Interests of Certain Persons in
the Merger."
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<PAGE> 56
PROMINET STOCK INFORMATION
The following table sets forth information known to Prominet with respect
to the beneficial ownership of its shares of Prominet Common Stock as of
November 30, 1997 (assuming the conversion on a one-for-one basis of all the
then outstanding shares of Prominet Series A Preferred Stock and Prominet Series
B Preferred Stock into Prominet Common Stock) for (i) each person who is known
by Prominet to own beneficially more than five percent of the Prominet Common
Stock, (ii) each of Prominet's directors, (iii) the Chief Executive Officer and
(iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT OF CLASS(2)
- -------------------------------------------------------- --------------------- -------------------
<S> <C> <C>
Charles River Partnership VII........................... 4,663,540 22.1%
A Limited Partnership
1000 Winter Street, Suite 3300
Waltham, MA 02154
Richard M. Burnes(3).................................... 4,663,540 22.1%
c/o Charles River Partnership VII,
A Limited Partnership
1000 Winter Street, Suite 3300
Waltham, MA 02154
Matrix Partners IV, L.P.(4)............................. 4,663,540 22.1%
1000 Winter Street, Suite 4500
Waltham, MA 02154
Andrew Marcuvitz(5)..................................... 4,663,540 22.1%
c/o Matrix Partners IV, L.P.
1000 Winter Street, Suite 4500
Waltham, MA 02154
Menlo Ventures VI, L.P.(6).............................. 2,978,917 14.1%
3000 Sand Hill Road
Building Four, Suite 100
Menlo Park, CA 94025
Carmena Limited Partnership............................. 2,452,379 11.6%
c/o Menachem E. Abraham
Prominet Corporation
400 Nickerson Road
Marlborough, MA 01752
Menachem E. Abraham(7).................................. 2,452,379 11.6%
Steven E. Horowitz(8)................................... 1,175,000 5.6%
c/o Prominet Corporation
400 Nickerson Road
Marlborough, MA 01752
Brian Ramelson.......................................... 1,130,000 5.1%
c/o Prominet Corporation
400 Nickerson Road
Marlborough, MA 01752
Joshua Weiss............................................ 1,071,737 5.1%
Robert P. Badavas(9).................................... 177,474 *
Gary Bowen(10).......................................... 196,285 *
All executive officers and directors, as a group (9
persons)(11).......................................... 13,899,049 65.8%
</TABLE>
45
<PAGE> 57
- ---------------
* Less than 1% of outstanding Common Stock.
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Commission, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and also any
shares which the individual has the right to acquire within 60 days of
November 30, 1997 through the exercise of any stock option, warrant or
other right. The inclusion herein of such shares, however, does not
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of such shares.
(2) Based on 21,100,194 shares outstanding as of November 30, 1997.
(3) Mr. Burnes, a general partner of Charles River VII GP Limited Partnership
("Charles River GP"), the general partner of Charles River Partnership VII,
A Limited Partnership, is a director of Prominet. Mr. Burnes, together with
the other general partners of Charles River GP, shares voting and
investment power with respect to the shares owned by Charles River GP. Mr.
Burnes does not own any shares of Prominet in his individual capacity and
disclaims beneficial ownership of shares owned by Charles River GP, except
to the extent of his pecuniary interest therein. See "-- Certain
Transactions."
(4) Includes 233,177 shares held by Matrix Entrepreneurs. See "-- Certain
Transactions."
(5) Mr. Marcuvitz, a general partner of Matrix IV Management Co. L.P. ("Matrix
Management"), the general partner of Matrix and the general partner of
Matrix Entrepreneurs, is a director of Prominet. Mr. Marcuvitz, together
with the other general partners of Matrix Management, shares voting and
investment power with respect to the shares owned by Matrix Management. Mr.
Marcuvitz does not own any shares of Prominet in his individual capacity
and disclaims beneficial ownership of shares owned by Matrix Management,
except to the extent of his pecuniary interest therein. See "-- Certain
Transactions."
(6) Includes 44,024 shares held by Menlo Entrepreneurs. See "-- Certain
Transactions."
(7) Mr. Abraham is a general partner of Carmena Limited Partnership and has
voting and investment power with respect to the shares owned by Carmena
Limited Partnership. See "-- Certain Transactions."
(8) Includes 100,000 shares held by Mr. Horowitz's wife and an aggregate of
300,000 shares held by Mr. Horowitz's wife in her capacity as custodian for
each of C. Daniel Horowitz, S. Taylor Horowitz and Fletcher T. Horowitz.
(9) Includes 6,672 shares of Prominet Common Stock subject to outstanding stock
options which are exercisable within 60 days of November 30, 1997 and an
aggregate of 15,000 shares held by Mr. Badavas in his capacity as custodian
for each of Peter Badavas and Stephanie Badavas.
(10) Includes 4,334 shares of Prominet Common Stock subject to outstanding stock
options which are exercisable within 60 days of November 30, 1997.
(11) Includes an aggregate of 29,753 shares of Prominet Common Stock subject to
outstanding stock options which are exercisable within 60 days of November
30, 1997.
CERTAIN TRANSACTIONS
On February 23, 1996, Steven E. Horowitz purchased 1,175,000 shares of
Prominet Common Stock at a purchase price of $.01 per share, representing the
fair market value of the Prominet Common Stock on such date, pursuant to a Stock
Restriction Agreement which provides, among other things, that Prominet will
have the right and option to repurchase a certain percentage of such shares in
the event that Mr. Horowitz ceases to be employed by Prominet for any reason or
no reason, with or without cause, prior to August 23, 2000. In addition, upon
the consummation of the Merger, the number of shares then subject to the
repurchase option shall be reduced by 20%, and shall be reduced to zero in the
event that Mr. Horowitz ceases to be Consulting Engineer-Software of Prominet
within 365 days of the consummation of the Merger, unless such termination
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<PAGE> 58
was for Cause (as defined in the Stock Restriction Agreement) or other than for
Good Reason (as defined in the Stock Restriction Agreement).
On March 5, 1996, Brian Ramelson purchased 1,175,000 shares of Prominet
Common Stock at a purchase price of $.01 per share, representing the fair market
value of the Prominet Common Stock on such date, pursuant to a Stock Restriction
Agreement which provides, among other things, that Prominet shall have the right
and option to repurchase a certain percentage of such shares in the event that
Mr. Ramelson ceases to be employed by Prominet for any reason or no reason, with
or without cause, prior to September 5, 2000. In addition, upon the consummation
of the Merger, the number of shares then subject to the repurchase option shall
be reduced by 20%, and shall be reduced to zero in the event that Mr. Ramelson
ceases to be Consulting Engineer-Hardware of Prominet within 365 days of the
consummation of the Merger, unless such termination was for Cause (as defined in
the Stock Restriction Agreement) or other than for Good Reason (as defined in
the Stock Restriction Agreement).
On April 5, 1996, Prominet issued and sold an aggregate of 9,921,067 shares
of Series A Prominet Preferred Stock at a price of $.61 per share. Of these
shares, Charles River purchased 3,770,492 shares, Matrix and Matrix
Entrepreneurs purchased an aggregate of 3,770,492 shares, and Menlo and Menlo
Entrepreneurs purchased an aggregate of 1,639,345 shares.
On January 22, 1997, Gary Bowen purchased 85,000 shares of Prominet Series
A Preferred Stock at a price of $.61 per share.
On April 25, 1997, Prominet issued and sold an aggregate of 4,028,355
shares of Prominet Series B Preferred Stock at a price of $1.87 per share. Of
these shares, Charles River purchased 893,048 shares, Matrix and Matrix
Entrepreneurs purchased an aggregate of 893,048 shares, Menlo and Menlo
Entrepreneurs purchased an aggregate of 1,339,572 shares, Menachem E. Abraham
purchased 267,379 shares, Gary Bowen purchased 106,951 shares, Robert P. Badavas
purchased an aggregate of 52,433 shares individually and as custodian, and
Joshua Weiss purchased 26,737 shares.
Prominet is a party to the Stockholders' Agreement, providing, among other
things, for the election as directors of Prominet of representatives of Charles
River and Matrix.
Prominet is a party to a Registration Rights Agreement with certain
Prominet stockholders, initially dated as of April 5, 1996 and as amended and
restated as of April 25, 1997, providing, among other things, for certain rights
with respect to registration under the Securities Act of 1933, of certain
shares, including the shares of Prominet Series A Preferred Stock and Prominet
Series B Preferred Stock described above.
On December 2, 1997, Prominet issued the Notes and Associated Warrants to
certain stockholders of Prominet in exchange for an aggregate of $4,000,000.
Prominet issued a Note in the amount of $1,000,000 and an Associated Warrant to
purchase 22,222 shares of Prominet Common Stock to each of Menachem E. Abraham
and Charles River and Notes in the aggregate amount of $1,000,000 and Associated
Warrants to purchase an aggregate of 22,222 shares of Prominet Common Stock to
each of Matrix and Matrix Entrepreneurs and to Menlo and Menlo Entrepreneurs.
Pursuant to each Note, Prominet promises to pay to the holder the principal sum
plus interest at the rate of 8% per annum. The entire unpaid principal and
interest then accrued on the Notes shall become due and payable upon the
consummation of the Merger. The Associated Warrants entitle the holder to
purchase shares of Prominet Common Stock at a purchase price of $4.50 per share.
The Associated Warrants were amended and restated on December 9, 1997 to provide
that (i) the Associated Warrants will terminate if the Effective Time occurs on
or before March 31, 1998 and (ii) will not be exercisable until the earlier of
the termination of the Merger Agreement and April 1, 1998.
In connection with the transactions contemplated by the Merger Agreement,
Prominet has received the financial advisory services of BancAmerica Robertson
Stephens and R. Stephen Cheheyl. In connection with such services, Prominet has
agreed to pay BancAmerica Robertson Stephens $500,000 plus expenses, plus
contingent consideration equal to 2% of the aggregate Merger valuation over $240
million, and has agreed to pay R. Stephen Cheheyl $75,000 plus expenses, plus
$225,000 upon the closing of the Merger.
47
<PAGE> 59
For a description of the Stock Restriction Agreements between Prominet and
its executive officers, see "-- Stock Restriction Agreements."
For a description of stock options held by certain directors and executive
officers of Prominet, see "-- 1996 Stock Option Plan."
LEGAL MATTERS
The legality of the Lucent Common Stock offered by this Proxy
Statement/Prospectus will be passed upon for Lucent by Pamela F. Craven, Vice
President -- Law. As of November 30, 1997, Pamela F. Craven owned 274 shares of
Lucent Common Stock and options and stock units for 86,784 shares of Lucent
Common Stock.
Certain federal income tax consequences of the Merger for Prominet and its
stockholders will be passed upon for Prominet by its counsel Hale and Dorr LLP.
Peter B. Tarr, a Senior Partner of Hale and Dorr LLP, is Secretary of Prominet.
EXPERTS
The consolidated balance sheets as of September 30, 1996 and December 31,
1995 and the consolidated statements of income, changes in shareowners' equity,
and cash flows for the nine-month period ended September 30, 1996 and the years
ended December 31, 1995 and 1994, incorporated by reference in this prospectus,
have been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The financial statements of Prominet as of December 31, 1996 and for the
period from inception (February 2, 1996) through December 31, 1996 included in
this Proxy Statement/Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
48
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-2
Balance Sheet as of December 31, 1996 and September 30, 1997 (unaudited)............. F-3
Statement of Operations for the period from inception (February 2, 1996) through
December 31, 1996 and September 30, 1996 (unaudited) and for the nine months ended
September 30, 1997 (unaudited)..................................................... F-4
Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit) for the period from inception (February 2, 1996) through December
31, 1996 and for the nine months ended September 30, 1997 (unaudited).............. F-5
Statement of Cash Flows for the period from inception (February 2, 1996) through
December 31, 1996 and September 30, 1996 (unaudited) and for the nine months ended
September 30, 1997 (unaudited)..................................................... F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Prominet Corporation
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in redeemable convertible preferred stock and
stockholders' equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of Prominet Corporation (a development stage
enterprise) at December 31, 1996, and the results of its operations and its cash
flows for the period from inception (February 2, 1996) through December 31, 1996
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
April 25, 1997, except as to Note 10,
which is as of December 9, 1997
F-2
<PAGE> 62
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 2,554,428 $ 1,263,908
Marketable securities................................................... 999,375 --
Accounts and other receivables.......................................... -- 230,627
Inventories............................................................. -- 1,434,486
Restricted cash......................................................... 22,180 --
Prepaid expenses and other current assets............................... 106,850 276,615
---------- ------------
Total current assets............................................ 3,682,833 3,205,636
Property and equipment, net............................................... 1,131,876 2,029,831
Other assets.............................................................. 26,250 418,736
---------- ------------
$ 4,840,959 $ 5,654,203
========== ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of capital lease obligations and note payable........... $ 164,718 $ 616,373
Accounts payable........................................................ 227,259 845,494
Accrued engineering expenses............................................ 94,800 --
Accrued expenses........................................................ 26,091 103,164
---------- ------------
Total current liabilities....................................... 512,868 1,565,031
---------- ------------
Long term liabilities:
Note payable............................................................ -- 149,852
Capital lease obligations............................................... 810,681 949,638
---------- ------------
Total long term liabilities..................................... 810,681 1,099,490
---------- ------------
Series A redeemable convertible preferred stock, $.01 par value;
10,100,000 and 10,185,000 shares authorized at December 31, 1996 and
September 30, 1997 (unaudited), respectively; 9,836,067 and 9,921,067
issued and outstanding at December 31, 1996 and September 30, 1997
(unaudited), respectively............................................... 6,000,000 6,051,850
---------- ------------
Series B redeemable convertible preferred stock, $.01 par value; 0 and
4,076,484 shares authorized at December 31, 1996 and September 30, 1997
(unaudited), respectively; 0 and 4,028,355 issued and outstanding at
December 31, 1996 and September 30, 1997 (unaudited), respectively...... -- 7,533,024
---------- ------------
Stockholders' deficit:
Undesignated preferred stock, $.01 par value; 0 and 786,645 shares
authorized at December 31, 1996 and September 30, 1997 (unaudited),
respectively, none issued or outstanding at December 31, 1996 and
September 30, 1997 (unaudited), respectively......................... -- --
Common stock, $.01 par value; 19,300,000 and 25,000,000 shares
authorized at December 31, 1996 and September 30, 1997 (unaudited),
respectively; 7,070,000 and 7,139,600 shares issued and outstanding
at December 31, 1996 and September 30, 1997 (unaudited),
respectively......................................................... 70,700 71,396
Additional paid-in capital.............................................. 32,500 34,198
Deficit accumulated during the development stage........................ (2,585,790) (10,700,786)
---------- ------------
Total stockholders' deficit..................................... (2,482,590) (10,595,192)
---------- ------------
Commitments (Notes 9 & 10)................................................
---------- ------------
$ 4,840,959 $ 5,654,203
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 63
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
INCEPTION INCEPTION INCEPTION
(FEBRUARY 2, (FEBRUARY 2, (FEBRUARY 2,
1996) 1996) NINE MONTHS 1996)
THROUGH THROUGH ENDED THROUGH
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997 1997
------------ ------------- ------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue....................................... $ -- $ -- $ 111,540 $ 111,540
Cost of revenue............................... -- -- 999,586 999,586
----------- ----------- -----------
-- -- (888,046) (888,046)
Costs and expenses:
Research and development.................... 2,234,168 990,634 5,009,230 7,243,398
Sales and marketing......................... 217,212 106,808 1,789,056 2,006,268
General and administrative.................. 299,017 205,437 481,513 780,530
----------- ----------- -----------
2,750,397 1,302,879 7,279,799 10,030,196
----------- ----------- -----------
Loss from operations..................... (2,750,397) (1,302,879) (8,167,845) (10,918,242)
Interest income............................... 181,266 119,306 165,419 346,685
Interest expense.............................. (16,659) (986) (92,999) (109,658)
----------- ----------- -----------
Net loss.................................... $ (2,585,790) $ (1,184,559) $ (8,095,425) $ (10,681,215)
=========== =========== ===========
Pro forma net loss per share (unaudited)...... (.18) (.42)
----------- -----------
Pro forma weighted average common and common
equivalent shares outstanding (unaudited)... 14,233,198 19,338,613
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 64
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------------
DEFICIT
REDEEMABLE CONVERTIBLE ACCUMULATED TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE STOCKHOLDERS'
------------------------ --------------------- PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT SHARES PAR VALUE CAPITAL STAGE (DEFICIT)
---------- ----------- --------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock........... $ 7,070,000 $70,700 $ 32,500 $ $ 103,200
Issuance of Series A redeemable
convertible preferred stock...... 9,836,067 6,000,000
Net loss........................... (2,585,790) (2,585,790)
---------- ---------- --------- ------- ------- ------------ ------------
Balance at December 31, 1996....... 9,836,067 6,000,000 7,070,000 70,700 32,500 (2,585,790) (2,482,590)
Issuance of Series A redeemable
convertible preferred stock,
issuance costs of $19,571
(unaudited)...................... 85,000 51,850
Issuance of Series B redeemable
convertible preferred stock
(unaudited)...................... 4,028,355 7,533,024 (19,571) (19,571)
Issuance of common stock upon
exercise of stock options
(unaudited)...................... 69,600 696 1,698 2,394
Net loss (unaudited)............... (8,095,425) (8,095,425)
---------- ---------- --------- ------- ------- ------------ ------------
Balance at September 30, 1997
(unaudited)...................... 13,864,422 $13,584,874 7,139,600 $71,396 $ 34,198 $(10,700,786) $(10,595,192)
========== ========== ========= ======= ======= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 65
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PERIOD FROM PERIOD FROM
(FEBRUARY 2, INCEPTION INCEPTION
1996) (FEBRUARY 2, 1996) NINE MONTHS (FEBRUARY 2, 1996)
THROUGH THROUGH ENDED THROUGH
DECEMBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
----------------- ------------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss................................ $(2,585,790) $ (1,184,559) $ (8,095,425) $(10,681,215)
Adjustment to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 211,558 116,651 480,359 691,917
Increase in accounts and other
receivables......................... -- (81,924) (230,627) (230,627)
Increase in inventories............... -- -- (1,434,486) (1,434,486)
Increase in prepaid expenses and other
current assets...................... (106,850) (82,416) (169,765) (276,615)
Increase in other assets.............. (26,250) -- (392,486) (418,736)
Increase in accounts payable.......... 227,259 45,276 618,235 845,494
Increase (decrease) in accrued
expenses............................ 120,891 24,316 (17,727) 103,164
----------- ----------- ----------- -----------
Net cash used in operating
activities..................... (2,159,182) (1,162,656) (9,241,922) (11,401,104)
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchases of marketable securities...... (999,375) (999,375) (4,913,000) (5,912,375)
Proceeds from sale of marketable
securities............................ -- -- 5,912,375 5,912,375
Increase (decrease) in restricted
cash.................................. (22,180) (22,180) 22,180 --
Cash paid for property and equipment.... (344,891) (283,008) (922,958) (1,267,849)
----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities........... (1,366,446) (1,304,563) 98,597 (1,267,849)
----------- ----------- ----------- -----------
Cash flows from financing activities
Principal payments of capital lease
obligations........................... (23,144) (23,144) (114,497) (137,641)
Proceeds from notes payable............. -- -- 399,605 399,605
Proceeds from issuance of redeemable
convertible preferred stock, net of
issuance costs........................ 6,000,000 6,000,000 7,565,303 13,565,303
Proceeds from issuance of common stock
and exercise of stock options......... 103,200 103,200 2,394 105,594
----------- ----------- ----------- -----------
Net cash provided by financing
activities..................... 6,080,056 6,080,056 7,852,805 13,932,861
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................... 2,554,428 3,612,837 (1,290,520) 1,263,908
Cash and cash equivalents, beginning of
period................................ -- -- 2,554,428 --
----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period................................ $ 2,554,428 $ 3,612,837 $ 1,263,908 $ 1,263,908
=========== =========== =========== ===========
Supplemental disclosure of non-cash
financing activities:
Assets acquired under capital lease..... $ 998,543 $ 690,303 $ 455,356 $ 1,453,899
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest.............................. 17,000 -- 92,999 109,999
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 66
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Prominet Corporation (the "Company"), a Delaware Corporation, was
incorporated on February 2, 1996. The Company is engaged in the development and
marketing of multi gigabit ethernet switches, a medium for connecting high speed
computers and servers.
Basis of Presentation
Since its inception, the Company has devoted substantially all of its
efforts to research and development, business and financial planning, raising
capital and recruiting new employees. Accordingly, the Company is considered a
development stage enterprise as defined in Statement of Financial Accounting
Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage
Enterprises."
At December 31, 1996, the Company had an accumulated deficit of $2.6
million. In addition, the Company incurred a substantial loss for the nine
months ended September 30, 1997 of approximately $8 million (unaudited) which
was in accordance with the Company's plan. The Company's current business plan
indicates that the Company will require additional financing in 1998 in order to
fund its planned capital expenditures, continue its development efforts and
continue to build the infrastructure necessary to support the Company's planned
growth. If the Company does not obtain additional financing during 1998 it would
have a material adverse effect on the Company's operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of these
financial statements are as follows:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents, Marketable Securities and Restricted Cash
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests excess cash primarily in U.S. government debt securities which have
strong credit ratings. These investments are subject to minimal credit and
market risks. At December 31, 1996, the Company has classified its cash
equivalent and marketable securities investments, totaling $2,554,428, and
$999,375, respectively, as available-for-sale. Marketable securities classified
as available-for-sale have contractual maturities of less than one year. These
investments are carried at amortized cost, which approximates fair market value.
Restricted cash represents time deposits held at a financial institution as
collateral on the Company's facility lease agreement.
Revenue Recognition
Revenue is recognized upon shipment, when all subsequent contractual
obligations have been satisfied and collection of the related receivable is
probable.
F-7
<PAGE> 67
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at lower of cost or market, cost being determined
using the first-in, first-out method.
Research and Development and Software Development Costs
Costs incurred in the research and development of the Company's products
are expensed as incurred. Costs associated with the development of computer
software are expensed prior to establishing technological feasibility.
Capitalization of software development costs begins upon the establishment of
technological feasibility as defined by SFAS No. 86, "Accounting for the Cost of
Computer Software to Be Sold, Leased, or Otherwise Marketed" and continues until
the product is released for sale. To date, costs incurred by the Company for
software development that are eligible for capitalization have been immaterial.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Assets under capital
leases are amortized over the shorter of their estimated useful lives or the
term of the respective leases by use of the straight-line method. Maintenance
and repair costs are expensed as incurred.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to its employees using the
intrinsic value based method as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations and has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", through disclosure only (Note 7).
Unaudited Pro Forma Net Loss Per Share
Unaudited pro forma net loss per share is determined by dividing net loss
by the weighted average number of common shares and common share equivalents
outstanding during the period. Common share equivalents, comprised of common
stock options and warrants and convertible preferred stock, have been excluded
from the calculation as their effect is anti-dilutive.
As described in Note 5, the preferred stock is convertible, at the option
of the holder at any time after the date of issuance into common stock of the
Company based upon a formula which currently would result in a 1-for-1 exchange.
The unaudited pro forma net loss per share information included in the
accompanying statement of operations for the year ended December 31, 1996 and
for the nine months ended September 30, 1997 reflects the impact on unaudited
pro forma net loss per share of such conversion as of the beginning of each
period or date of issuance, if later, using the if-converted method.
Historical net loss per share has not been presented on the basis that it
is irrelevant due to the significant change in the Company's capital structure
and resultant loss per share which will result upon conversion of the redeemable
convertible preferred stock.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." The
Company will implement SFAS No. 128 as required and, at this time, the future
adoption is not expected to have a material effect on net loss per share. Had
the Company computed net loss per share for the periods ended December 31, 1996
and the nine months ended September 30, 1997 in accordance with SFAS No. 128 the
net loss per share would not have been different.
F-8
<PAGE> 68
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Data (Unaudited)
The interim financial data at and for the periods ended September 30, 1996
and 1997 included in the accompanying financial statements are unaudited;
however, in the opinion of the Company, the interim financial data include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods. The interim financial
data are not necessarily indicative of the results of operation for a full
fiscal year.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE
(YEARS) DECEMBER 31, 1996 SEPTEMBER 30, 1997
--------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software................... 3 $ 1,109,362 $2,025,293
Electronic equipment.............................. 4 137,026 448,105
Office equipment.................................. 4 97,046 248,350
---------- ----------
1,343,434 2,721,748
---------- ----------
Less -- Accumulated depreciation and amortization............ 211,558 691,917
---------- ----------
$ 1,131,876 $2,029,831
========== ==========
</TABLE>
Depreciation and amortization expense for the year ended December 31, 1996
and the period ended September 30, 1997 was $211,558 and $480,359 (unaudited),
respectively. Included in the computer equipment and software and office
equipment balances at December 31, 1996 is $932,279 and $66,264, respectively,
of equipment held under capital leases. Included in the computer equipment and
software and office equipment balances at September 30, 1997 is $1,230,760
(unaudited) and $223,873 (unaudited), respectively, of equipment held under
capital leases. Accumulated amortization and amortization expense related to
equipment held under capital leases was $199,952 at December 31, 1996.
Accumulated amortization and amortization expense related to equipment held
under capital leases was $548,969 (unaudited) and $349,017 (unaudited),
respectively at September 30, 1997.
4. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
(UNAUDITED)
-------------------
<S> <C>
Raw materials........................................... $ 1,037,054
Work in process......................................... 252,720
Finished goods.......................................... 144,712
----------
Total inventories..................................... $ 1,434,486
==========
</TABLE>
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On April 5, 1996, the Company sold 9,836,067 shares of its Series A
redeemable convertible preferred stock ("Series A") at a purchase price of $.61
per share. Proceeds as a result of the sale totaled $6,000,000. On January 25,
1997, the Company sold an additional 85,000 shares of Series A preferred stock
at a purchase price of $.61 per share.
F-9
<PAGE> 69
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On April 23, 1997, the stockholders approved an amendment to the Company's
Articles of Incorporation to increase the number of authorized preferred shares
from 10,100,000 to 15,000,000. Of the 4,900,000 increase, 85,000 have been
designated Series A and 4,028,355 have been designated Series B. The remaining
786,645 preferred shares have not been designated.
On April 25, 1997, the Company sold 4,028,355 shares of its Series B
redeemable convertible preferred stock ("Series B") at a purchase price of $1.87
per share. Proceeds as a result of the sale totaled approximately $7,500,000.
The Series A and Series B redeemable convertible preferred stock (the
"Preferred Stock") have the following characteristics:
Conversion Rights
The Preferred Stock is convertible, at the option of the holder at any time
after the date of issuance, into common stock of the Company based upon a
formula which currently would result in a 1-for-1 exchange. The Preferred Stock
will automatically convert into common stock upon the closing of an initial
public offering, from which net proceeds equal or exceed $15,000,000 at a price
per share equal to or greater than $3.00 per share.
Dividend Rights
The holders of shares of Preferred Stock shall receive dividends, when and
if declared by the Board of Directors. In the event of a declaration and payment
of dividends on common stock, dividends on the Preferred Stock (determined by
the number of common shares into which the preferred shares are convertible) are
payable in an amount equal to the per share amount of the dividend to common
stockholders.
Voting Rights
Holders of the Preferred Stock are entitled to vote upon any matter
submitted to the stockholders for a vote. Each share of Preferred Stock shall
have one vote for each full share of common stock into which the respective
share of Preferred Stock would be convertible on the record date of the vote.
Liquidation Rights
In the event of any liquidation, dissolution or winding up of the affairs
of the Company (which includes a change in control as defined in the Company's
Articles of Incorporation), the holders of the Series A and Series B preferred
stock are entitled to receive, prior to and in preference to the holders of
common stock, an amount equal to $.61 per share and $1.87 per share,
respectively, plus any declared but unpaid dividends. In the event that the
valuation of the Company, as determined in good faith by the Board of Directors,
immediately prior to the liquidation, dissolution or winding up of the Company,
is equal to or greater than $60,000,000, then the holders of Series B preferred
stock shall not be entitled to any preferential amounts or remaining assets of
the Company.
Redemption Rights
Each holder of shares of Series A and Series B preferred stock shall have
the right to cause the Company to redeem the then outstanding Series A and
Series B preferred stock on or after January 1, 2004, at a price currently equal
to $.61 per share and $1.87 per share, respectively, plus any declared but
unpaid dividends.
F-10
<PAGE> 70
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Protection of Preferred Stock
The Company must first obtain approval of the majority of preferred
stockholders to amend the Articles of Incorporation of the Company if such
amendment would adversely affect any of the rights, preferences or privileges of
shares of Preferred Stock.
6. COMMON STOCK
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends, if any, as may be declared by the Board of
Directors, subject to any preferential dividend rights of the preferred
stockholders.
At December 31, 1996, the Company has 13,032,790 shares of its common stock
reserved for issuance upon conversion of the preferred stock and exercise of
warrants and options.
On April 23, 1997, the stockholders approved an amendment to the Company's
Certificate of Incorporation to increase the number of authorized common shares
from 19,300,000 to 25,000,000.
Restricted Stock Agreements
The Company has executed stock restriction agreements with certain common
stockholders. Pursuant to these agreements, the Company has an option to
purchase a certain number of shares of common stock at the original purchase
price per share in the event of termination of the stockholders employment by
the Company. Shares subject to this agreement vest monthly generally over a five
year period. At December 31, 1996, the aggregate number of unvested common
shares is 4,823,011.
7. 1996 STOCK OPTION PLAN
During 1996, the Board of Directors adopted and the stockholders approved
the 1996 Stock Option Plan (the "Plan"). The Plan provides for the grant of
incentive (ISOs) and nonqualified stock options. The Board of Directors
administers the Plan and has sole discretion to grant options to purchase shares
of the Company's common stock. The Board of Directors determines the term of
each option, option price, number of shares for which each option is granted,
whether restrictions will be imposed on the shares subject to options, and the
rate at which each option is exercisable. The exercise price for options granted
will be determined by the Board of Directors, except that for ISOs the exercise
price shall not be less than the fair market value per share of the underlying
common stock on the date granted (110% of fair market value for ISOs granted to
holders of more than 10% of the voting stock of the Company). The term of the
options shall be set forth in the applicable option agreement, except that in
the case of ISOs the option term shall not exceed ten years (five years for ISOs
granted to holders of more than 10% of the voting stock of the Company). A
maximum of 3,000,000 shares of common stock have been reserved for issuance in
accordance with the Plan.
Activity for the period from adoption of the Plan through December 31, 1996
was as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Granted.................................................. 824,500 $.05
Exercised................................................ --
----------
Outstanding at December 31, 1996......................... 824,500 .05
----------
Exercisable at December 31, 1996......................... --
----------
Available for future grant............................... 2,175,500
----------
Weighted average fair value of options granted during the
period................................................. $ .01
==========
</TABLE>
F-11
<PAGE> 71
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about employee stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------
NUMBER WEIGHTED
OUTSTANDING AT AVERAGE REMAINING
RANGE OF EXERCISE PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE
---------------------------------------------------- ----------------- -----------------
<S> <C> <C>
$.01........................................... 176,000 9.2
$.06........................................... 648,500 9.7
-------
824,500
=======
</TABLE>
For the period ended December 31, 1996, there was no compensation expense
recorded in the Company's statement of operations related to stock-based
employee compensation awards. Had compensation expense for the Company's plan
been based on the fair value of the options at the grant date, as prescribed by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation", the Company's net loss for the period from inception (February 2,
1996) through December 31, 1996 would not have been materially different.
The fair value of each option grant was estimated on the date of grant
using the Minimum Value Method based upon the following assumptions: dividend
yield -- 0.0%; risk-free interest rate -- 6.0%; and weighted average expected
option term -- 5 years.
Because options vest over several years and additional option grants are
expected to be made in future years, the pro forma impact of applying the
provisions of FAS 123 may be material for future years.
8. INCOME TAXES
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Deferred tax assets:
Pre-operating costs capitalized for tax purposes........................... $ 13,000
Net operating loss carryforwards........................................... 1,094,000
Tax credit carryforwards................................................... 74,000
-----------
Total deferred tax assets.......................................... 1,181,000
Deferred tax liabilities:
Property and equipment..................................................... (71,000)
-----------
Net deferred tax asset....................................................... 1,110,000
Deferred tax asset valuation allowance....................................... (1,110,000)
-----------
$ --
===========
</TABLE>
The Company has generated taxable losses from operations since inception
and, accordingly, has no taxable income available to offset the carryback of net
operating losses.
The Company has provided a full valuation allowance for the net deferred
tax asset as the realization of these future benefits is not sufficiently
assured (defined as a likelihood of slightly more than 50 percent) as of
December 31, 1996. If the Company achieves profitability, the deferred tax asset
will be available to offset future income tax liabilities.
At December 31, 1996, the Company has federal net operating loss
carryforwards of approximately $2,743,000 and research and development tax
credit carryforwards of approximately $38,000 available to
F-12
<PAGE> 72
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reduce future tax liabilities, which expire in the year 2011. Under the Internal
Revenue Code, certain substantial changes in the Company's ownership could
result in an annual limitation on the amount of net operating loss and tax
credit carryforwards which can be utilized in future years to offset future
taxable income.
9. COMMITMENTS
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases. During February 1997, the Company entered into a
noncancelable operating lease for additional office space. The future minimum
lease commitments under these leases are as follows at December 31, 1996:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
1997................................................................ $ 190,265 $ 243,677
1998................................................................ 226,695 369,513
1999................................................................ 226,695 369,513
2000................................................................ 226,695 163,126
2001................................................................ 226,695 --
Thereafter.......................................................... 66,119 --
---------- ----------
Total minimum lease payments........................................ $1,163,164 1,145,829
==========
Less -- amount representing interest................................ 170,430
----------
Present value of minimum lease payments............................. $ 975,399
==========
</TABLE>
Rent expense under noncancellable operating leases was approximately
$72,790 for the period ended December 31, 1996.
The Company has a lease line agreement (the "agreement") with an
unaffiliated third party (the "Lessor") for $2,000,000, of which approximately
$1,000,000 was available for future leases at December 31, 1996. The term for
each lease under the agreement ranges from forty-two to forty-eight months and
bears interest at rates ranging from 7.43% to 9.12%, depending on the type of
equipment leased.
In connection with the agreement and the initial $1,000,000 of borrowings
under the agreement, the Company issued warrants to purchase 98,361 shares of
the Company's $.01 par value Series A preferred stock (Note 5). The warrants are
exercisable at $.61 per share. The warrants are currently exercisable and expire
on the earlier of ten years from the date of issuance or five years from the
effective date of an initial public offering. The value of the warrants was not
material and accordingly, no value was ascribed to them. The terms of the
agreement also require the Company to issue additional warrants to purchase up
to an additional 49,181 shares of Series A preferred stock for each $500,000
increment of leases entered into under the $2,000,000 line (Note 10).
10. SUBSEQUENT EVENTS
Equipment Line of Credit
During January 1997, the Company received a $400,000 equipment line of
credit (the "Equipment Line") from a bank. The Equipment Line is payable in 24
equal monthly installments of principal plus interest which is payable at a rate
of prime plus 1.5%. The Equipment Line agreement contains certain financial
covenants relating to financial reporting requirements and minimum balance
requirements to be held at the bank.
F-13
<PAGE> 73
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revolving Line of Credit
On October 8, 1997, the Company secured a $2.0 million revolving line of
credit (the "Revolving Line") from a bank, maturing December 31, 1997. Interest
is payable monthly at one half of one percentage point (0.50%) above the prime
rate on the average daily balance outstanding. The Revolving Line contains
certain covenants relating to financial reporting requirements and financial
covenants, the most restrictive of which require the Company to maintain certain
minimum financial ratios. At December 4, 1997, the Company had borrowed the
entire $2.0 million against the credit agreements to be used for working
capital.
Subordinated Notes Payable
On December 2, 1997 and as amended at December 9, 1997, the Company sold an
aggregate principal amount of $4.0 million of senior subordinated secured notes
bearing an annual interest rate of 8% with both principal and interest payable
on the earlier of a merger or consolidation on the sale of all or substantially
all of the Company's assets, closing of a preferred stock financing or May 31,
1998. The notes were issued with warrants to purchase 88,888 shares of common
stock at $4.50 per share. The warrants are exercisable at the earlier of
December 2, 2002, or upon merger or consolidation or sale of all or
substantially all assets of the Company except that if a merger closes on or
before March 31, 1998, the warrants will be terminated without exercise. The
proceeds of the notes are being used for working capital.
Facility Lease
In October 1997, the Company entered into a five year lease for a new
headquarters facility. The Company has a $250,000 letter of credit with a bank
which secures the Company's security deposit for this lease. At September 30,
1997, other assets includes $250,000 of restricted cash which is collateral for
the letter of credit.
Series B Preferred Stock Warrant
In June 1997, as a result of additional borrowing on the lease line
agreement (Note 9), the Company issued warrants to purchase 16,043 shares of
Series B preferred stock at an exercise price of $1.87. The warrants are
currently exercisable and expire on the earlier of ten years from the date of
issuance or the effective date of an initial public offering. The terms of the
agreement also require the Company to issue additional warrants to purchase up
to an additional 16,043 shares of Series B preferred stock if the remaining
$500,000, or any portion thereof, of available borrowings are advanced to the
Company.
F-14
<PAGE> 74
PROMINET CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LUCENT TECHNOLOGIES INC.
PRANCER ACQUISITION, INC.
AND
PROMINET CORPORATION
DATED AS OF DECEMBER 9, 1997
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
AGREEMENT AND PLAN OF MERGER............................................................ 1
BACKGROUND.............................................................................. 1
1. The Merger....................................................................... 1
1.1 General................................................................... 1
1.2 Certificate of Incorporation.............................................. 2
1.3 By-Laws................................................................... 2
1.4 Directors and Officers.................................................... 2
1.5 Conversion of Securities.................................................. 2
1.6 Adjustment of the Exchange Ratios......................................... 3
1.7 Dissenting Shares......................................................... 3
1.8 Exchange Procedures; Distributions with Respect to Unexchanged Shares;
Stock Transfer Books...................................................... 3
1.9 No Fractional Shares...................................................... 5
1.10 Return of Exchange Fund................................................... 5
1.11 No Further Ownership Rights in Company Capital Stock...................... 5
1.12 Further Assurances........................................................ 5
2. Approval by Stockholders......................................................... 5
2.1 Approval by Stockholders.................................................. 5
3. Representations and Warranties of the Company.................................... 6
3.1 Organization.............................................................. 6
3.2 Capitalization; Options and Other Rights.................................. 6
3.3 Authority................................................................. 6
3.4 Charter Documents......................................................... 7
3.5 Financial Statements...................................................... 7
3.6 Absence of Undisclosed Liabilities........................................ 7
3.7 Operations and Obligations................................................ 8
3.8 Properties................................................................ 9
3.9 Leases.................................................................... 9
3.10 Assets.................................................................... 9
3.11 Accounts Receivable; Inventory............................................ 9
3.12 Contracts................................................................. 9
3.13 Absence of Default........................................................ 10
3.14 Insurance................................................................. 10
3.15 Financial Projections..................................................... 11
3.16 Litigation................................................................ 11
3.17 Compliance with Law....................................................... 11
3.18 Intellectual Property..................................................... 11
3.19 Tax Matters............................................................... 12
3.20 Employee Benefit Plans.................................................... 13
3.21 Executive Employees....................................................... 14
3.22 Employees................................................................. 14
3.23 Environmental Laws........................................................ 14
3.24 Bank Accounts, Letters of Credit and Powers of Attorney................... 15
3.25 Subsidiaries.............................................................. 15
3.26 Disclosure................................................................ 15
3.27 Information in Registration Statement..................................... 15
4. Representations and Warranties of Acquisition and Lucent......................... 16
4.1 Organization.............................................................. 16
4.2 Authority................................................................. 16
</TABLE>
i
<PAGE> 76
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
4.3 Capitalization............................................................ 16
4.4 Litigation................................................................ 17
4.5 SEC Filings; Lucent Financial Statements.................................. 17
4.6 Operations and Obligations................................................ 17
5. Conduct Pending Closing.......................................................... 18
5.1 Conduct of Business Pending Closing....................................... 18
5.2 Prohibited Actions Pending Closing........................................ 18
5.3 Access; Documents; Supplemental Information............................... 19
5.4 No Solicitation........................................................... 20
5.5 Registration; Other Actions............................................... 20
5.6 Comfort Letters........................................................... 21
5.7 Stock Exchange Listing.................................................... 21
5.8 Company Stock Options..................................................... 21
5.9 Warrants.................................................................. 22
5.10 Affiliates................................................................ 22
5.11 Notification of Certain Matters........................................... 22
5.12 Reorganization............................................................ 22
5.13 Indemnification........................................................... 22
5.14 Actions by the Parties.................................................... 23
6. Conditions Precedent............................................................. 23
6.1 Conditions Precedent to Each Party's Obligation to Effect the Merger...... 23
6.2 Conditions Precedent to Obligations of Acquisition and Lucent............. 24
6.3 Conditions Precedent to the Company's Obligations......................... 25
7. Non-Survival of Representation and Warranties.................................... 25
7.1 Representations and Warranties............................................ 25
8. Escrow........................................................................... 25
8.1 Escrow Fund............................................................... 25
8.2 Timely Product Delivery................................................... 26
8.3 Untimely Product Delivery................................................. 26
8.4 Objections to Claims...................................................... 26
8.5 Stockholders' Representative.............................................. 26
9. Brokers' and Finders' Fees....................................................... 27
9.1 Company................................................................... 27
9.2 Acquisition and Lucent.................................................... 27
10. Expenses......................................................................... 27
11. Press Releases................................................................... 27
12. Contents of Agreement; Parties in Interest; etc.................................. 27
13. Assignment and Binding Effect.................................................... 28
14. Termination...................................................................... 28
15. Definitions...................................................................... 28
16. Notices.......................................................................... 29
17. Amendment........................................................................ 30
18. Governing Law.................................................................... 30
19. No Benefit to Others............................................................. 30
20. Severability..................................................................... 30
21. Section Headings................................................................. 31
22. Schedules and Exhibits........................................................... 31
23. Extensions....................................................................... 31
24. Counterparts..................................................................... 31
GLOSSARY OF DEFINED TERMS............................................................... i
</TABLE>
ii
<PAGE> 77
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 9, 1997 by and among
LUCENT TECHNOLOGIES INC., a Delaware corporation ("Lucent"), PRANCER
ACQUISITION, INC., a Delaware corporation ("Acquisition"), and PROMINET,
CORPORATION, a Delaware corporation (the "Company").
BACKGROUND
A. The Company is engaged principally in the design, development,
production, marketing, distribution, maintenance and support of equipment used
in high performance networks that implement wire speed switching and routing on
standard ethernet interfaces (10/100/1,000).
B. Acquisition is a wholly-owned subsidiary of Lucent and was formed to
merge with and into the Company so that as a result of the merger the Company
will survive and become a wholly-owned subsidiary of Lucent.
C. The Board of Directors of each of Acquisition and the Company has
determined that the merger of Acquisition with and into the Company (hereinafter
referred to as the "Merger") in accordance with the provisions of the Delaware
General Corporation Law, as amended (the "DGCL"), and subject to the terms and
conditions of this Agreement and Plan of Merger (the "Agreement"), is in the
best interests of Acquisition and the Company and their respective stockholders.
D. The Boards of Directors of Acquisition and the Company have approved
this Agreement by resolutions dated December 8, 1997 (in the case of
Acquisition) and December 5, 1997 and December 9, 1997 (in the case of the
Company).
E. The Company is a Delaware corporation with its registered office
located at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
and has authorized 25,000,000 shares of common stock, par value $.01 per share
("Company Common Stock"), and 15,000,000 shares of preferred shares, $.01 par
value per share, of which 10,185,000 shares have been designated Series A
Preferred Stock ("Series A Preferred Stock") and 4,076,484 shares have been
designated Series B Preferred Stock ("Series B Preferred Stock"; the Series A
Preferred Stock and Series B Preferred Stock are referred to as the "Company
Preferred Stock" and the Company Common Stock and the Company Preferred Stock
are referred to as the "Company Capital Stock").
F. Acquisition is a Delaware corporation with its registered office
located at 1013 Centre Road, Wilmington, Delaware, and has authorized an
aggregate of 1,000 shares of common stock, no par value per share ("Acquisition
Common Stock").
G. Lucent is a Delaware corporation with its registered office located at
1013 Centre Road, Wilmington, Delaware.
H. The parties intend that, for federal income tax purposes, the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Code and that this Agreement shall constitute a "Plan of Reorganization".
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound do hereby agree
as follows:
1. The Merger
1.1 General.
(a) Subject to the terms and conditions of this Agreement and in accordance
with the DGCL, at the Effective Time, (i) Acquisition shall be merged with and
into the Company, (ii) the separate corporate
<PAGE> 78
existence of Acquisition shall cease and (iii) the Company shall be the
surviving corporation (the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of Delaware.
(b) The Merger shall become effective at the time of filing of a
Certificate of Merger, substantially in the form of Exhibit A attached hereto
(the "Certificate of Merger"), with the Secretary of State of the State of
Delaware in accordance with the provisions of Section 251 of the DGCL, at such
later time as may be stated in the Certificate of Merger or such later date as
the parties may mutually agree (the "Effective Time"). Subject to the terms and
conditions of this Agreement, the Company and Acquisition shall duly execute and
file the Certificate of Merger with the Secretary of State of the State of
Delaware at the time of the Closing. The closing of the Merger (the "Closing")
shall take place at the offices of Sidley & Austin, 875 Third Avenue, New York,
N.Y. at 10:00 A.M., two business days after the date on which the last of the
conditions set forth in Section 6 shall have been satisfied or waived, or on
such other date, time and place as the parties may mutually agree (the "Closing
Date").
(c) At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Acquisition shall vest in
the Surviving Corporation, and all debts, liabilities, obligations,
restrictions, disabilities and duties of the Company and Acquisition shall
become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.
1.2 Certificate of Incorporation. The Certificate of Incorporation of
Acquisition, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided therein and by law.
1.3 By-Laws. The By-laws of Acquisition, as in effect immediately prior
to the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided therein and by law.
1.4 Directors and Officers. From and after the Effective Time, (a) the
directors of Acquisition at the Effective Time shall be the initial directors of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation, and (b)
the officers of Acquisition at the Effective Time shall be the initial officers
of the Surviving Corporation, in each case, until their respective successors
are duly elected or appointed and qualified.
1.5 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Acquisition, the Company or the
holders of any of the following securities:
(a) Each issued and outstanding share of common stock of Acquisition
shall be converted into one validly issued, fully paid and nonassessable
share of Common Stock, no par value per share, of the Surviving
Corporation;
(b) Each share of Company Capital Stock held in the treasury of the
Company and each share of Company Capital Stock owned by Acquisition or
Lucent shall be canceled without any conversion thereof and no payment or
distribution shall be made with respect thereto; and
(c) Subject to the provisions of Sections 1.6 and 1.9, each share of
Company Capital Stock issued and outstanding immediately prior to the
Effective Time (other than (i) shares canceled in accordance with Section
1.5(b) and (ii) Dissenting Shares) shall be converted into (A) in the case
of each share of Common Stock, 0.1027 (such number as adjusted in
accordance with Section 1.6 (the "Common Stock Exchange Ratio")), (B) in
the case of each share of Series A Preferred Stock, 0.1102 (such number as
adjusted in accordance with Section 1.6 (the "Series A Exchange Ratio")),
and (C) in the case of each share of Series B Preferred Stock, 0.1027 (such
number as adjusted in accordance with Section 1.6 (the "Series B Exchange
Ratio"); each of the Common Stock Exchange Ratio, the Series A Exchange
Ratio and the Series B Exchange Ratio is referred to as a "Capital Stock
Exchange Ratio" and together with the Warrant Exchange Ratios are
collectively referred to as the "Exchange Ratios") of a validly issued,
fully paid and nonassessable share of Lucent Common Stock including the
corresponding percentage right (the "Right") to purchase shares of junior
preferred stock, par value $1.00 per share, pursuant to
2
<PAGE> 79
the Rights Agreement dated as of April 4, 1996 between Lucent and First
Chicago Trust Company of New York, as Rights Agent. All references in this
Agreement to Lucent Common Stock to be received in accordance with the
Merger shall be deemed, from and after the Effective Time, to include the
Rights. All such shares of Company Capital Stock shall no longer be
outstanding and shall automatically be canceled and retired, and each
holder of a certificate representing any such shares shall cease to have
any rights with respect thereto other than (i) the right to receive shares
of Common Stock of Lucent to be issued in consideration therefor upon the
surrender of such certificate, (ii) any dividends and other distributions
in accordance with Section 1.8(c) and (iii) any cash, without interest, to
be paid in lieu of any fractional share of Lucent Common Stock in
accordance with Section 1.9.
1.6 Adjustment of the Exchange Ratios. In the event that, prior to the
Effective Date, any stock split, combination, reclassification or stock dividend
with respect to the Lucent Common Stock, any change or conversion of Lucent
Common Stock into other securities or any other dividend or distribution with
respect to the Lucent Common Stock (other than regular quarterly dividends)
should occur or, if a record date with respect to any of the foregoing should
occur, appropriate and proportionate adjustments shall be made to each Exchange
Ratio, and thereafter all references to an Exchange Ratio shall be deemed to be
to such Exchange Ratio as so adjusted.
1.7 Dissenting Shares. (a) Notwithstanding any provision of this
Agreement to the contrary, shares of Company Capital Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall not have voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL (collectively, the "Dissenting Shares")
shall not be converted into or represent the right to receive the consideration
set forth in Section 1.5(c). Such stockholders shall be entitled to receive such
consideration as is determined to be due with respect to such Dissenting Shares
in accordance with the provisions of Section 262, except that all Dissenting
Shares held by stockholders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to appraisal of such shares under
Section 262 shall thereupon be deemed to have been converted into and to have
become exchangeable for, as of the Effective Time, the right to receive the
shares of Lucent Common Stock specified in Section 1.5(c), without any interest
thereon, upon surrender, in the manner provided in Section 1.8, of the
certificate or certificates that formerly evidenced by such Dissenting Shares
less the number of shares of Lucent Common Stock allocable to such stockholder
that have been deposited in the Escrow Fund in respect of Company Capital Stock
pursuant to Sections 1.8(b) and 8.1.
(b) The Company shall give Lucent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the DGCL. The Company shall not, except with the prior
written consent of Lucent, make any payment with respect to any demands for
appraisal or offer to settle or settle any such demands.
1.8 Exchange Procedures; Distributions with Respect to Unexchanged Shares;
Stock Transfer Books. (a) As of the Effective Time, Lucent shall deposit with
the Exchange Agent for the benefit of the holders of shares of Company Capital
Stock, certificates representing shares of the Lucent Common Stock to be issued
pursuant to Section 1.5(c) in exchange for the shares of Company Capital Stock
less the number of shares of Lucent Common Stock to be deposited in the Escrow
Fund pursuant to Section 8.1. (Such shares of Lucent Common Stock, together with
any dividends or distributions with respect thereto pursuant to Sections 1.8(c)
and 1.9, are referred to herein as the "Exchange Fund").
(b) As soon as practicable after the Effective Time, Lucent shall use its
reasonable efforts to cause the Exchange Agent to send to each Person who was,
at the Effective Time, a holder of record of certificates which represented
outstanding Company Capital Stock (the "Certificates") which shares were
converted into the right to receive Lucent Common Stock pursuant to Section
1.5(c), a letter of transmittal which (i) shall specify that delivery shall be
effected and risk of loss and title to such Certificates shall pass, only upon
actual delivery thereof to the Exchange Agent and (ii) shall contain
instructions for use in effecting the surrender of the Certificates. Upon
surrender to the Exchange Agent of Certificates for cancellation, together with
such
3
<PAGE> 80
letter of transmittal duly executed, such holder shall be entitled to receive in
exchange therefor (A) a certificate representing the number of whole shares of
Lucent Common Stock into which the Company Capital Stock represented by the
surrendered Certificate shall have been converted at the Effective Time less
such holder's pro rata portion of the number of shares of Lucent Common Stock to
be deposited in the Escrow Fund on such holder's behalf pursuant to Section 8,
(B) cash in lieu of any fractional share of Lucent Common Stock in accordance
with Section 1.9 and (C) certain dividends and distributions in accordance with
Section 1.8(c), and the Certificates so surrendered shall then be canceled.
Subject to Section 1.8(c) and Section 1.9, until surrendered as contemplated by
this Section 1.8(b), each Certificate, from and after the Effective Time, shall
be deemed to represent only the right to receive, upon such surrender, the
number of shares of Lucent Common Stock into which such Company Capital Stock
shall have been converted. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Section 8, Lucent shall
cause to be distributed to the Escrow Agent certificates representing 432,210
shares of Lucent Common Stock which shall be registered in the name of the
Escrow Agent as nominee for the holders of Certificates canceled pursuant to
this Section 1.8. Such shares shall be beneficially owned by such holders, shall
be held in escrow and shall be available to compensate Lucent as provided in
Section 8. To the extent not used for such purpose, such shares shall be
released, as provided in Section 8.
(c) No dividends or other distribution declared or made after the Effective
Time with respect to the Lucent Common Stock with a record date after the
Effective Time shall be paid to any holder entitled by reason of the Merger to
receive certificates representing Lucent Common Stock and no cash payment in
lieu of a fractional share of Lucent Common Stock shall be paid to any such
holder pursuant to Section 1.9 until such holder shall have surrendered its
Certificates pursuant to this Section 1.8. Subject to applicable law, following
surrender of any such Certificate, such holder shall be paid, in each case,
without interest, (i) the amount of any dividends or other distributions
theretofore paid with respect to the shares of Lucent Common Stock represented
by the certificate received by such holder and having a record date on or after
the Effective Time and a payment date prior to such surrender and (ii) at the
appropriate payment date or as promptly as practicable thereafter, the amount of
any dividends or other distributions payable with respect to such shares of
Lucent Common Stock and having a record date on or after the Effective Time but
prior to such surrender and a payment date on or after such surrender.
(d) If any certificate representing shares of Lucent Common Stock or any
cash is to be issued or paid to any Person other than the registered holder of
the Certificate surrendered in exchange therefor, it shall be a condition to
such exchange that such surrendered Certificate shall be properly endorsed and
otherwise in proper form for transfer and such Person either (i) shall pay to
the Exchange Agent any transfer or other taxes required as a result of the
issuance of such certificates of Lucent Common Stock and the distribution of
such cash payment to such Person or (ii) shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable. Lucent or
the Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Capital Stock such amounts as Lucent or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by Lucent or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of Company Capital Stock in respect of which such
deduction and withholding was made by Lucent or the Exchange Agent. All amounts
in respect of taxes received or withheld by Lucent shall be disposed of by
Lucent in accordance with the Code or such state, local or foreign tax law, as
applicable.
(e) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and subject to such other conditions as the Board
of Directors of the Surviving Corporation may impose, the Surviving Corporation
shall issue in exchange for such lost, stolen or destroyed Certificate the
shares of Lucent Common Stock as determined under Section 1.5(c) and pay any
cash, dividends and distributions as determined in accordance with Section
1.8(c) and Section 1.9 in respect of such Certificate. When authorizing such
issue of shares of Lucent Common Stock (and payment of any such cash, dividends
and distribution) in exchange for such Certificate, the Board of Directors of
the Surviving Corporation (or any authorized officer thereof) may, in its
reasonable
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discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificate to give the Surviving
Corporation a bond in such sum as the Board of Directors may direct as indemnity
against any claim that may be made against the Surviving Corporation with
respect to the Certificate alleged to have been lost, stolen or destroyed.
(f) At the close of business on the day on which the Effective Time occurs,
the stock transfer books of the Company shall be closed and thereafter there
shall be no further registration of transfers of shares of Company Capital Stock
on the records of the Company. From and after the Effective Time, the holders of
shares of Company Capital Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such shares except as
otherwise provided herein or by applicable law.
1.9 No Fractional Shares. No certificates or scrip representing
fractional shares of Lucent Common Stock shall be issued upon the surrender for
exchange of Certificates and such a fractional share shall not entitle the
record or beneficial owner thereof to vote or to any other rights as a
stockholder of Lucent. In lieu of receiving any such fractional share, each
holder of Company Capital Stock who would otherwise have been entitled thereto
upon the surrender of Certificates for exchange will receive cash (without
interest) in an amount rounded to the nearest whole cent, determined by
multiplying (i) the per share closing price on the New York Stock Exchange, Inc.
(the "NYSE") of Lucent Common Stock (as reported in the NYSE Composite
Transactions) on the date on which the Effective Time shall occur (or, if the
Lucent Common Stock shall not trade on the NYSE on such date, the first day of
trading in Lucent Common Stock on the NYSE thereafter) by (ii) the fractional
share to which such holder would otherwise be entitled. Lucent shall make
available to the Exchange Agent the cash necessary for this purpose.
1.10 Return of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former holders of Company Capital Stock for six
months after the Effective Time shall be delivered to Lucent, upon its request,
and any such former holders who have not theretofore surrendered to the Exchange
Agent their Certificates in compliance herewith shall thereafter look only to
Lucent for payment of their claim for shares of Lucent Common Stock, any cash in
lieu of fractional shares of Lucent Common Stock and any dividends or
distributions with respect to such shares of Lucent Common Stock. Neither Lucent
nor the Company shall be liable to any former holder of Company Capital Stock
for any such shares of Lucent Common Stock held in the Exchange Fund (and any
cash, dividends and distributions payable in respect thereof) which is delivered
to a public official pursuant to an official request under any applicable
abandoned property, escheat or similar law.
1.11 No Further Ownership Rights in Company Capital Stock. All
certificates representing shares of Lucent Common Stock delivered upon the
surrender for exchange of any Certificate in accordance with the terms hereof
(including any cash paid pursuant to Section 1.8 or Section 1.10) shall be
deemed to have been delivered (and paid) in full satisfaction of all rights
pertaining to the Company Stock previously represented by such Certificate.
1.12 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either the
Company or Acquisition or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either the Company or Acquisition, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of the Company or
Acquisition, all such other acts and things necessary, desirable or proper to
vest, perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of the Company or
Acquisition, as applicable, and otherwise to carry out the purposes of this
Agreement.
2. Approval by Stockholders
2.1 Approval by Stockholders. Each of Acquisition and the Company either
(a) shall call a meeting of its respective stockholders to be held as promptly
as practicable after the date hereof for purposes of voting
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upon this Agreement or (b) shall solicit written consents of its respective
stockholders in lieu thereof. Each of the Company and Acquisition will, through
their respective boards of directors, recommend to their respective stockholders
approval of this Agreement. The Company, Acquisition and Lucent each agree to
execute and deliver such further documents and instruments and to do such other
acts and things as may be required to complete all requisite corporate action in
connection with the transactions contemplated by this Agreement.
3. Representations and Warranties of the Company. The Company represents and
warrants to Acquisition and Lucent as follows:
3.1 Organization. Each of the Company and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite power and
authority and all necessary governmental approval to carry on its business as it
has been and is now being conducted. Each of the Company and its Subsidiaries is
duly qualified or licensed as a foreign corporation to do business and is in
good standing in each jurisdiction where the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed and
in good standing, would not (a) have a material adverse effect on the assets,
business, financial condition, operations or prospects of the Company and its
Subsidiaries, (b) materially impair the ability of the Company to perform its
obligations under this Agreement or (c) prevent or delay the consummation of
transactions contemplated under this Agreement (each of the foregoing being a
"Material Adverse Effect").
3.2 Capitalization; Options and Other Rights. (a) The total authorized
shares of capital stock of the Company consists of (i) 25,000,000 shares of
Company Common Stock, of which 7,150,772 shares are issued and outstanding; (ii)
15,000,000 shares of Company Preferred Stock of which (A) 10,185,000 shares have
been designated as Series A Preferred Stock and 9,921,067 shares are issued and
outstanding and (B) 4,076,484 shares have been designated as Series B Preferred
Stock and 4,028,355 shares are issued and outstanding (collectively, the
"Shares"). All the Shares have been duly and validly authorized and issued and
are fully paid and nonassessable. None of the Shares has been issued in
violation of the preemptive rights of any stockholder of the Company. The Shares
were issued in compliance in all material respects with all applicable Federal
and state securities laws and regulations.
(b) Except as set forth in Schedule 3.2, there are no existing agreements,
subscriptions, options, warrants, calls, commitments, trusts (voting or
otherwise), or rights of any kind whatsoever between the Company and any Person,
and, to the best knowledge of the Company, except as set forth on Schedule 3.2,
none of the foregoing exist granting to any Person any interest in or the right
to purchase or otherwise acquire from the Company or granting to the Company any
interest in or the right to purchase or otherwise acquire from any Person, at
any time, or upon the occurrence of any stated event, any securities of the
Company, whether or not presently issued or outstanding, nor are there any
outstanding securities of the Company or any other entity which are convertible
into or exchangeable for other securities of the Company, nor are there any
agreements, subscriptions, options, warrants, calls, commitments or rights of
any kind granting to any Person any interest in or the right to purchase or
otherwise acquire from the Company or, to the best knowledge of the Company, any
other Person any securities so convertible or exchangeable, nor, to the best
knowledge of the Company, are there any proxies, agreements or understandings
with respect to the voting of the Shares.
(c) The warrants of the Company, each dated as of December 2, 1997,
representing in the aggregate the right of the holders thereof to acquire 88,888
shares of Company Common Stock at a purchase price of $4.50 per share have been
amended and restated to provide that (i) such warrants may not be exercised
prior to the earlier of (A) the termination of this Agreement pursuant to
Section 14 and (B) April 1, 1998 and (ii) such warrants will be terminated
without exercise if the Effective Time occurs on or prior to March 31, 1998 and
each holder of such warrants has agreed to such amendment and restatement.
3.3 Authority. (a) The Company has full power and authority to execute,
deliver and perform this Agreement. The execution, delivery and performance of
this Agreement by the Company has been duly authorized and approved by the
Company's Board of Directors and, except for (i) the approval of this Agreement
by the stockholders of the Company and (ii) the filing of appropriate merger
documents as required by the DGCL, no other corporate proceedings on the part of
the Company are necessary to authorize
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this Agreement and the transactions contemplated hereby. This Agreement has been
duly authorized, executed and delivered by the Company and is the legal, valid
and binding obligation of the Company enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(b) The execution, delivery and performance by the Company of this
Agreement and the consummation of the Merger do not, and will not, (i) violate
or conflict with any provision of the Certificate of Incorporation or By-laws of
the Company or any of its Subsidiaries, (ii) violate any law, rule, regulation,
order, writ, injunction, judgment or decree of any court, governmental authority
or regulatory agency, except for violations which, individually or in the
aggregate, will not have a Material Adverse Effect, or (iii) result in a
violation or 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 note, bond, indenture, lien, mortgage, lease,
permit, guaranty or other agreement, instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which any of its properties
may be bound, except (A) as set forth on Schedule 3.13 and (B) for violations,
breaches or defaults which, individually or in the aggregate, will not have a
Material Adverse Effect.
(c) The execution and delivery of this Agreement by the Company does not,
and the performance by the Company of this Agreement will not, require any
consent, approval, authorization or permission of, or filing with or
notification to any governmental or regulatory authority, domestic or foreign,
except (i) the filing and recordation of appropriate merger documents as
required by the DGCL and (ii) any such consent, approval, authorization,
permission, notice or filing which if not obtained or made would not have a
Material Adverse Effect.
3.4 Charter Documents. The Company has previously furnished to Lucent a
true, complete and correct copy of the Certificate of Incorporation and the
By-laws of each of the Company and its Subsidiaries and each such Certificate of
Incorporation and By-laws is in full force and effect. Neither the Company nor
any of its Subsidiaries in violation of any provision of its Certificate of
Incorporation or any material violation of its By-laws.
3.5 Financial Statements. (a) The Company has previously furnished to
Lucent true and complete copies of the following financial statements of the
Company (the "Financial Statements"):
(i) audited balance sheet of the Company as of December 31, 1996 (the
"Balance Sheet"), certified by Price Waterhouse LLP;
(ii) audited statements of operations, cash flows and changes in
redeemable preferred stock and stockholders' equity of the Company for the
period from February 2, 1996 through December 31, 1996 each certified by
Price Waterhouse LLP;
(iii) unaudited balance sheet of the Company as of October 31, 1997;
and
(iv) unaudited statements of operations and cash flows of the Company
for the 10-month period ended October 31, 1997.
(b) The Financial Statements were prepared in accordance with GAAP. The
Financial Statements were prepared on the basis of the books and records of the
Company and present fairly, in all material respects, the financial position of
the Company as of the dates thereof and the results of its operations, cash flow
and changes in redeemable preferred stock and stockholders' equity for the
period then ended in conformity with GAAP.
3.6 Absence of Undisclosed Liabilities. Except as disclosed on Schedule
3.6 or as set forth in the notes to the Financial Statements, neither the
Company nor any of its Subsidiaries has any liability or obligation of any
nature (whether absolute, accrued or contingent or otherwise) which is in excess
of amounts shown or reserved therefor in the Financial Statements other than (a)
liabilities or obligations not required under GAAP on a basis consistent with
that of preceding accounting periods to be reported on such Financial
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Statements and (b) liabilities or obligations incurred after the date of the
Balance Sheet reasonably incurred in the ordinary course of business and
consistent with past practice.
3.7 Operations and Obligations. (a) Except as set forth in Schedule 3.7,
since December 31, 1996,
(i) there has been no event or condition that has had or reasonably
could be expected to have a Material Adverse Effect (other than as a result
of business and economic conditions generally affecting the data networking
industry or as a result of the announcement of this transaction); and
(ii) there has been no impairment, damage, destruction, loss or claim,
whether or not covered by insurance, or condemnation or other taking
adversely affecting in any material respect any of the Company's assets.
(b) Except as set forth in Schedule 3.7, since December 31, 1996, each of
the Company and its Subsidiaries has conducted its business only in the ordinary
course and in conformity with past practice. Without limiting the generality of
the foregoing, since December 31, 1996, except as set forth in such Schedule,
neither the Company nor any of its Subsidiaries has:
(i) issued, delivered or agreed (conditionally or unconditionally) to
issue or deliver, or granted any option, warrant or other right to
purchase, any of its capital stock or other equity interest or any security
convertible into its capital stock or other equity interest;
(ii) issued, delivered or agreed (conditionally or unconditionally) to
issue or deliver any bonds, notes or other debt securities, or borrowed or
agreed to borrow any funds, other than in the ordinary course of business
consistent with past practice or entered into any lease the obligations of
which, in accordance with generally accepted accounting principles, would
be capitalized;
(iii) paid any obligation or liability (absolute or contingent) other
than current liabilities reflected on the Balance Sheet and current
liabilities incurred since December 31, 1996 in the ordinary course of
business consistent with past practice;
(iv) declared or made, or agreed to declare or make, any payment of
dividends or distributions to its stockholders or purchased or redeemed, or
agreed to purchase or redeem, any Company Capital Stock or any equity
interest in any of its Subsidiaries;
(v) except in the ordinary course of business consistent with past
practice, made or permitted any material amendment or termination of any
agreement to which the Company or any of its Subsidiaries is a party and is
or should be set forth on Schedule 3.12;
(vi) undertaken or committed to undertake capital expenditures
exceeding $50,000 for any single project or related series of projects;
(vii) sold, leased (as lessor), transferred or otherwise disposed of,
mortgaged or pledged, or imposed or suffered to be imposed any Lien on, any
of the assets reflected on the Balance Sheet or any assets acquired by the
Company or any of its Subsidiaries after December 31, 1996, except for
inventory and personal property sold or otherwise disposed of for fair
value in the ordinary course of its business consistent with past practice
and except for Permitted Liens;
(viii) canceled any debts owed to or claims held by the Company or any
of its Subsidiaries (including the settlement of any claims or litigation)
other than in the ordinary course of its business consistent with past
practice;
(ix) accelerated or delayed collection of accounts receivable in
advance of or beyond their regular due dates or the dates when the same
would have been collected in the ordinary course of its business consistent
with past practice;
(x) delayed or accelerated payment of any account payable or other
liability beyond or in advance of its due date or the date when such
liability would have been paid in the ordinary course of its business
consistent with past practice;
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(xi) entered into or become committed to enter into any other material
transaction except in the ordinary course of business;
(xii) maintained the levels of supplies or other materials included in
the inventory of the Company or any of its Subsidiaries in accordance with
past practice;
(xiii) except for increases in the ordinary course of business
consistent with past practice, instituted any increase in any compensation
payable to any employee of the Company or any of its Subsidiaries or in any
profit-sharing, bonus, incentive, deferred compensation, insurance,
pension, retirement, medical, hospital, disability, welfare or other
benefits made available to any such employees; or
(xiv) made any change in the accounting principles or made any
material change in accounting practices used by the Company, in each case,
from those applied in the preparation of the Financial Statements.
3.8 Properties. (a) Each of the Company and its Subsidiaries has good and
valid title to all its properties and assets reflected on the Balance Sheet or
acquired after the date thereof except for (i) properties and assets sold or
otherwise disposed of in the ordinary course of business since the date of such
Balance Sheet, (ii) leasehold interests, in which event the Company or such
Subsidiary has a valid leasehold interest and (iii) properties and assets which
individually or in the aggregate are not material.
(b) Neither the Company nor any or its Subsidiaries owns any real property.
3.9 Leases. Schedule 3.9 lists all outstanding leases, both capital and
operating, or licenses, pursuant to which the Company or any of its Subsidiaries
has (i) obtained the right to use or occupy any real or personal property under
arrangements where the remaining obligation is more than $50,000, or (ii)
granted to any other Person the right to use any property described on Schedule
3.8 or 3.10.
3.10 Assets. (a) Schedule 3.10 lists each material item of machinery,
equipment, furniture, vehicles or other personal property owned by the Company
or any of its Subsidiaries having an original cost of $25,000 or more.
(b) Except as set forth in Schedule 3.10, the assets and properties owned
or leased by the Company or any of its Subsidiaries constitute all the material
assets and properties used by the Company or such Subsidiary in the operation of
its business (including all books, records, computers and computer programs and
data processing systems but excluding Intellectual Property Rights) and are in
good and serviceable condition (subject, in each case, to normal wear and tear
and obsolescence and except for assets the book value of which does not exceed
$25,000 in the aggregate) and are suitable for the uses for which intended.
3.11 Accounts Receivable; Inventory. (a) All accounts receivable of the
Company and its Subsidiaries have arisen from bona fide transactions by the
Company or such Subsidiary in the ordinary course of its business.
(b) The inventories (and any reserves established with respect thereto) of
the Company and its Subsidiaries as of November 30, 1997 are described in
Schedule 3.11. All such inventories (net of any such reserves) are of such
quality as to be useable and saleable in the ordinary course of business
(subject in the case of work-in-process inventory to completion in the ordinary
course of business) and are reflected in the books and records of the Company or
such Subsidiary at the lower of cost (determined under the first-in, first-out
method) or market value. Such inventories are located at the locations set forth
in Schedule 3.11.
3.12 Contracts. Schedule 3.12 lists any of the following not otherwise
listed on any other Schedule:
(a) each written contract or commitment which creates an obligation on
the part of the Company or any of its Subsidiaries in excess of $50,000;
(b) each written debt instrument, including, without limitation, any
loan agreement, line of credit, promissory note, security agreement or
other evidence of indebtedness, where the Company or any of its
Subsidiaries is a lender, borrower or guarantor, in a principal amount in
excess of $50,000;
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(c) each written contract or commitment restricting the Company or any
of its Subsidiaries from engaging in any line of business;
(d) each written contract or commitment in excess of $10,000 to which
the Company or any of its Subsidiaries is a party for any charitable
contribution;
(e) each written joint venture or partnership agreement to which the
Company or any of its Subsidiaries is a party;
(f) each written agreement in excess of $10,000 to which the Company
or any of its Subsidiaries is a party with respect to any assignment,
discounting or reduction of any receivables of the Company or such
Subsidiary;
(g) each written distributorship, sales agency, sales representative,
reseller or marketing agreement to which the Company or any of its
Subsidiaries is a party;
(h) each agreement, option or commitment or right with, or held by,
any third party to acquire any assets or properties, or any interest
therein, of the Company or any of its Subsidiaries, having a value in
excess of $50,000, except for contracts for the sale of inventory,
machinery or equipment in the ordinary course of business;
(i) each written employment contract entered into by the Company or
any of its Subsidiaries; and
(j) each supply agreement to which the Company or any of its
Subsidiaries is a party that the Company or such Subsidiary could not
readily replace without a Material Adverse Effect.
Except as set forth on Schedule 3.12, (i) there are no oral contracts or
commitments of the types described in this Section 3.12 which create an
obligation on the part of the Company or any of its Subsidiaries in excess of
$25,000 and (ii) there are no contracts or commitments between the Company or
any of its Subsidiaries and any Affiliate.
3.13 Absence of Default. Except as set forth in Schedule 3.13, each of
the leases, contracts and other agreements listed or required to be listed in
Schedules 3.9, 3.12, 3.18 and 3.21 that create obligations on any Person in
excess of $50,000 constitutes a valid and binding obligation of the parties
thereto and is in full force and effect and will continue in full force and
effect after the Effective Time, in each case, without breaching the terms
thereof or resulting in the forfeiture or impairment of any rights thereunder
and without the consent, approval or act of, or the making of any filing with,
any other Person. Each of the Company and its Subsidiaries has fulfilled and
performed in all material respects its obligations under each such lease,
contract or other agreement to which it is a party to the extent such
obligations are required by the terms thereof to have been fulfilled or
performed through the date hereof (except for any such lease, contract or other
agreement which, by its terms, will expire prior to the Effective Time) and
neither the Company nor any such Subsidiary is, and, except as set forth in
Schedule 3.13, neither the Company nor any such Subsidiary is alleged in writing
to be, in breach or default under, nor, except as set forth in Schedule 3.13, is
there or is there alleged in writing to be any basis for termination of, any
such lease, contract or other agreement. To the best knowledge of the Company,
no other party to any such lease, contract or other agreement has breached or
defaulted thereunder. No event has occurred and no condition or state of facts
exists which, with the passage of time or the giving of notice or both, would
constitute such a default or breach by the Company or, to the best knowledge of
the Company, by any such other party. The Company is not currently renegotiating
any such lease, contract or other agreement or paying liquidated damages in lieu
of performance thereunder. Complete and correct copies of each such lease,
contract or other agreement and any amendments thereto have heretofore been
delivered to Lucent.
3.14 Insurance. Schedule 3.14 sets forth a list and brief description
(including nature of coverage, limits, deductibles, premiums and the loss
experience since the inception of the Company with respect to each type of
coverage) of all policies of insurance maintained, owned or held by the Company
or any of its Subsidiaries during the period from inception up to and including
the date hereof. The Company shall use all commercially reasonable efforts to
keep such insurance or comparable insurance in full force and effect through the
Effective Date. Each of the Company and its Subsidiaries has complied in all
material respects
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with each such insurance policy to which it is a party and has not failed to
give any notice or present any claim thereunder in a due and timely manner.
Except as disclosed in Schedule 3.14, the full policy limits (subject to
deductibles provided in such policies) are available and unimpaired under each
such policy and, to the best knowledge of the Company, no insurer under any of
such policies has a basis to void such policy on grounds of non-disclosure on
the part of the Company or any such Subsidiary thereunder. Each such policy is
in full force and effect and will not in any way be affected by or terminate or
lapse by reason of the transactions contemplated by this Agreement. As used in
this Section 3.14, the term "best knowledge of the Company" shall mean the
actual knowledge and constructive knowledge (to the extent such knowledge would
have been obtained by the reasonable exercise of diligence in the ordinary
course of business) of the Designated Group and each other person presently
employed by the Company and charged by the Company with responsibility for
insurance matters.
3.15 Financial Projections. The Company has made available to Lucent
certain financial projections with respect to the business of the Company and
its Subsidiaries which projections were prepared by the Company for internal use
only and based upon the assumptions reflected therein. The Company makes no
representation or warranty regarding the accuracy of such projections or as to
whether such projections will be achieved or otherwise, except that the Company
represents and warrants that such projections were prepared in good faith and
are based on assumptions believed by it to be reasonable.
3.16 Litigation. (a) Except as set forth in Schedule 3.16, as of the date
hereof: (i) there are no actions, suits, arbitrations, legal or administrative
proceedings or investigations pending or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries; and (ii) neither the
Company nor any such Subsidiary nor any assets, properties or business of the
Company or such Subsidiary, is subject to any judgment, order, writ, injunction
or decree of any court, governmental agency or arbitration tribunal. Except as
set forth in Schedule 3.16, neither the Company nor any such Subsidiary is the
plaintiff in any such proceeding and neither the Company nor any such Subsidiary
is contemplating commencing legal action against any other Person.
(b) Neither the Company nor any of its Subsidiaries is a party to any suit,
action, arbitration or legal, administrative, governmental or other proceeding
or investigation pending or, to the best of its knowledge, threatened, which
reasonably could have a Material Adverse Effect.
(c) There is no judgment, order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal to which the Company or any of its
Subsidiaries is subject which reasonably could have a Material Adverse Effect.
3.17 Compliance with Law. Except as set forth in Schedule 3.17:
(a) each of the Company and its Subsidiaries has complied in all
material respects with, and is not in violation of, in any material
respect, any law, ordinance or governmental rule or regulation
(collectively, "Laws") to which it or its business is subject; and
(b) each of the Company and its Subsidiaries has obtained all
licenses, permits, certificates or other governmental authorizations
(collectively "Authorizations") necessary for the ownership or use of its
assets and properties or the conduct of its business other than
Authorizations (i) which are ministerial in nature and which the Company or
such Subsidiary has no reason to believe would not be issued in due course
and (ii) which, the failure of the Company or such Subsidiary to possess,
would not subject the Company and its Subsidiaries to penalties other than
fines not to exceed $25,000 in the aggregate ("Immaterial Authorizations");
and
(c) neither the Company nor any of its Subsidiaries has received
notice of violation of, or knows of any violation of, any Laws to which it
or its business is subject or any Authorization necessary for the ownership
or use of its assets and properties or the conduct of its business (other
than Immaterial Authorizations).
3.18 Intellectual Property. (a) The Company and its Subsidiaries own, or
are validly licensed or otherwise have the right to use, all patents, patent
rights, trademarks, trade secrets, trade names, service
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marks, copyrights and other proprietary intellectual property rights and
computer programs (the "Intellectual Property Rights") which are material to the
conduct of the business of the Company and its Subsidiaries.
(b) Other than as disclosed on Schedule 3.18, to the best knowledge of the
Company, neither the Company nor any of its Subsidiaries has interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property Rights or other proprietary information of any other
Person. Neither the Company nor any of its Subsidiaries has received any written
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or violation (including any claim that the
Company or any such Subsidiary must license or refrain from using any
Intellectual Property Rights or other proprietary information of any other
Person) which has not been settled or otherwise fully resolved. To the Company's
best knowledge, no other Person has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
Rights or other proprietary information of the Company or any of its
Subsidiaries.
(c) Except as disclosed on Schedule 3.18, assuming that Lucent continues to
operate the business of the Company and its Subsidiaries as presently conducted
and proposed to be conducted, then, to the Company's best knowledge, Lucent's
use of the Intellectual Property Rights or other proprietary information which
is material to the conduct of the business of the Company and its Subsidiaries
will not interfere with, infringe upon, misappropriate or otherwise come into
conflict with the Intellectual Property Rights or other proprietary information
of any other Person.
(d) Each employee, agent, consultant or contractor who has materially
contributed to or participated in the creation or development of any
copyrightable, patentable or trade secret material on behalf of the Company, any
of its Subsidiaries or any predecessor in interest thereto either: (i) is a
party to a "work-for-hire" agreement under which the Company or such Subsidiary
is deemed to be the original owner/author of all property rights therein; or
(ii) has executed an assignment or an agreement to assign in favor of the
Company, such Subsidiary or such predecessor in interest, as applicable all
right, title and interest in such material.
(e) As used in this Section 3.18, all references to "best knowledge" refers
to the best knowledge of the Designated Group, Allen Zubatkin, Ira Steckler,
Phillip Gailinas, Paul Phillips and Ray Samora.
3.19 Tax Matters. (a) Except as set forth on Schedule 3.19, (i) each of
the Company and its Subsidiaries has filed all Tax Returns required to be filed;
(ii) all such Tax Returns are complete and accurate in all material respects and
all Taxes shown to be due on such Tax Returns have been timely paid; (iii) all
Taxes (whether or not shown on any Tax Return) owed by the Company and any of
its Subsidiaries have been timely paid or the Company has established adequate
reserves therefor; (iv) neither the Company nor any of its Subsidiaries has
waived or been requested to waive any statute of limitations in respect of
Taxes; (v) none of the Tax Returns referred to in clause (i) have been examined
by the Internal Revenue Service ("IRS") or the appropriate state, local or
foreign taxing authority; (vi) there is no action, suit, investigation, audit,
claim or assessment pending, proposed or threatened with respect to Taxes of the
Company or any of its Subsidiaries; (vii) all deficiencies asserted or
assessments made as a result of any examination of the Tax Returns referred to
in clause (i) have been paid in full; (viii) Tax indemnity arrangements, if any,
will terminate prior to Closing and the Surviving Corporation will not have any
liability thereunder on or after Closing; (ix) there are no Liens for Taxes upon
the assets of the Company except Liens relating to current Taxes not yet due;
(x) all Taxes which the Company or any of its Subsidiaries are required by law
to withhold or to collect for payment have been duly withheld and collected, and
have been paid or accrued, reserved against and entered on the books of the
Company or such Subsidiary in accordance with GAAP; and (xi) except as may be
limited as a result of the transactions contemplated by this Agreement, none of
the net operating carryforwards ("NOLs") of the Company and its Subsidiaries
constitute separate return limitation year ("SRLY") or consolidated return
change of ownership ("CRCO") losses immediately prior to the Effective Time,
none of the NOLs will be limited immediately prior to the Effective Time, by
Section 382 or 384 of the Code and the regulations thereunder, and none of the
NOLs constitutes "dual consolidated losses" immediately prior to the Effective
Time (as defined in Section 1503 of the Code and the regulations thereunder).
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(b) No consent to the application of Section 341(f)(2) of the Code has been
filed with respect to any property or assets held or acquired or to be acquired
by the Company or any of its Subsidiaries.
(c) Neither the Company nor any of its Subsidiaries (i) has agreed to or is
required to make any adjustment pursuant to Section 481(a) of the Code; (ii) has
any knowledge that the IRS has proposed any such adjustment or change in
accounting method with respect to the Company; and (iii) has any application
pending with the IRS or any other tax authority requesting permission for any
change in accounting method.
(d) Except as set forth in Schedule 3.19, neither the Company nor any of
its Subsidiaries owns an interest in any (i) domestic international sales
corporation, (ii) foreign sales corporation, (iii) controlled foreign
corporation, or (iv) passive foreign investment company.
(e) Neither the Company nor any of its Subsidiaries is a party (other than
as an investor) to any industrial development bond.
3.20 Employee Benefit Plans. (a) Schedule 3.20 contains a list and brief
description of all "employee pension benefit plans" (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to as "Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA) (sometimes referred to as "Welfare Plans") and
all other Benefit Plans (together with the Pension Plans and Welfare Plans, the
"Plans") maintained, or contributed to, by the Company, any of its Subsidiaries
or any Person that, together with the Company or any of its Subsidiaries, is
treated as a single employer under Section 414(b), (c), (m) or (o) of the Code
(the Company, such Subsidiaries and each such other Person, a "Commonly
Controlled Entity") for the benefit of any current or any former employees,
officers or directors of the Company. The Company has made available to Lucent
true, complete and correct copies of (i) each Plan (or, in the case of any
unwritten Benefit Plans, descriptions thereof), (ii) the most recent annual
report on Form 5500 filed with the IRS with respect to each Plan (if any such
report was required), (iii) the most recent summary plan description for each
Plan for which such summary plan description is required, (iv) each trust
agreement and group annuity contract relating to any Plan and (v) all
correspondence with the IRS or the United States Department of Labor relating to
any outstanding controversy or audit. Except as would not have a Material
Adverse Effect on the Company, (i) each Plan has been administered in accordance
with its terms and (ii) the Company, each of its Subsidiaries and all Plans are
in compliance with applicable provisions of ERISA and the Code.
(b) Except as would not have a Material Adverse Effect on the Company, all
Pension Plans that are intended to be qualified under Section 401(a) of the Code
have been the subject of determination, opinion, notification or advisory
letters from the IRS to the effect that such Pension Plans are so qualified and
are exempt from Federal income taxes under Section 501(a) of the Code, and no
such determination letter has been revoked nor has any event occurred since the
date of such Plan's most recent determination letter that would adversely affect
its qualification or materially increase its costs.
(c) Neither the Company, nor any of its Subsidiaries nor any Commonly
Controlled Entity has maintained, contributed to or been obligated to contribute
to any Plan that is subject to Title IV of ERISA.
(d) Neither the Company nor any of its Subsidiaries has any liability or
obligation under any Welfare Plan to provide life insurance or medical benefits
after termination of employment to any employee or dependent other than as
required by Part 6 of Title I of ERISA.
(e) Schedule 3.20 lists all outstanding Stock Options, showing for each
such Option: (i) the number of shares issuable, (ii) the number of vested
shares, (iii) the date of expiration and (iv) the exercise price.
(f) Schedule 3.20 lists all shares of Company Capital Stock issued pursuant
to any Restricted Stock Purchase Agreement including (i) the date such shares
were sold, (ii) the purchase price per share, (iii) the number of shares issued,
(iv) the number of such shares which, as of the date hereof, have vested and (v)
the vesting schedule for such shares which, as of the date hereof, have not
vested. All Restricted Stock Purchase Agreement are for the purchase of Company
Common Stock.
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(g) Except as set forth on Schedule 3.20, no employee of the Company or any
of its Subsidiaries will be entitled to any additional compensation or benefits
or any acceleration of the time of payment or vesting of any compensation or
benefits under any Plan as a result of the transactions contemplated by this
Agreement.
3.21 Executive Employees. (a) Schedule 3.21 lists the names, titles and
current annual salary rates of and bonuses paid or payable to all present
officers and employees of each of the Company and its Subsidiaries whose 1997
annual base salary exceeds $75,000 ("Executive Employees").
(b) Except as set forth in Schedules 3.20 or 3.21, neither the Company nor
any of its Subsidiaries has any employment agreement with, or maintains any
employee benefit plan (within the meaning of Section 3(3) of ERISA) with respect
to, any of its Executive Employees. Except as set forth in Schedules 3.20 or
3.21, there are no agreements with respect to Executive Employees which would
obligate the Company or any of its Subsidiaries to make any payment or provide
any benefit the deduction of which is limited by Section 280G of the Code or
that could be subject to tax under Section 4999 of the Code.
3.22 Employees. (a) Each of the Company and its Subsidiaries has complied
in all material respects with all applicable laws, rules and regulations
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and neither the Company nor any of its Subsidiaries
is liable for any arrears of wages or any taxes or penalties for failure to
comply with any such laws, rules or regulations; (b) the Company believes that
the Company's and its Subsidiaries' relations with their respective employees is
satisfactory; (c) there are no controversies pending or, to the best knowledge
of the Company, threatened between the Company or any of its Subsidiaries and
any of their respective employees, which controversies have or could have a
Material Adverse Effect; (d) neither the Company nor any Subsidiary is a party
to any collective bargaining agreement or other labor union contract applicable
to persons employed by the Company or any such Subsidiary, nor, to the best
knowledge of the Company, are there any activities or proceedings of any labor
union to organize any such employees; (e) there are no unfair labor practice
complaints pending against the Company or any of its Subsidiaries before the
National Labor Relations Board or any current union representation questions
involving employees of the Company or any of its Subsidiaries; (f) there is no
strike, slowdown, work stoppage or lockout existing, or, to the best knowledge
of the Company, threatened, by or with respect to any employees of the Company
or any of its Subsidiaries; (g) no charges are pending before the Equal
Employment Opportunity Commission or any state, local or foreign agency
responsible for the prevention of unlawful employment practices with respect to
the Company or any of its Subsidiaries; (h) there are no claims pending against
the Company or any of its Subsidiaries before any workers' compensation board;
and (i) neither the Company nor any of its Subsidiaries has received notice that
any federal, state, local or foreign agency responsible for the enforcement of
labor or employment laws intends to conduct an investigation of or relating to
the Company or any of its Subsidiaries and, to the best knowledge of the
Company, no such investigation is in progress. As used in this Section 3.22, the
term "best knowledge of the Company" shall mean the actual knowledge and
constructive knowledge (to the extent such knowledge would have been obtained by
the reasonable exercise of diligence in the ordinary course of business) of the
officers of the Company.
3.23 Environmental Laws. The Company has not received any notice or claim
(and is not aware of any facts that would form a reasonable basis for any
claim), or entered into any negotiations or agreements with any other Person,
and, to the knowledge of the Company, neither the Company nor any of its
Subsidiaries is the subject of any investigation by any governmental or
regulatory authority, domestic or foreign, relating to any material or
potentially material liability or remedial action under any Environmental Laws.
There are no pending or, to the best knowledge of the Company, threatened,
actions, suits or proceedings against the Company, any of its Subsidiaries or
any of their respective properties, assets or operations asserting any such
material liability or seeking any material remedial action in connection with
any Environmental Laws. As used in this Section 3.23 , the term "best knowledge
of the Company" shall mean the actual knowledge and constructive knowledge (to
the extent such knowledge would have been obtained by the reasonable exercise of
diligence in the ordinary course of business) of the Designated Group and each
other person presently employed by the Company and charged by the Company with
responsibility for compliance with Environmental Laws.
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3.24 Bank Accounts, Letters of Credit and Powers of Attorney. Schedule
3.24 lists (a) all bank accounts, lock boxes and safe deposit boxes relating to
the business and operations of each of the Company and its Subsidiaries
(including the name of the Bank or other institution where such account or box
is located and the name of each authorized signatory thereto), (b) all
outstanding letters of credit issued by financial institutions for the account
of the Company or any of its Subsidiaries (setting forth, in each case, the
financial institution issuing such letter of credit, the maximum amount
available under such letter of credit, the terms (including the expiration date)
of such letter of credit and the party or parties in whose favor such letter of
credit was issued), and (c) the name and address of each Person who has a power
of attorney to act on behalf of the Company or any of its Subsidiaries. The
Company has heretofore delivered to Lucent true, correct and complete copies of
each letter of credit and each power of attorney described on Schedule 3.24.
3.25 Subsidiaries. (a) Schedule 3.25 sets forth (i) the name and
jurisdiction of incorporation of each Subsidiary of the Company, (ii) the total
number of shares of each class of capital stock of each Subsidiary authorized,
the number of shares outstanding and the number of shares owned by the Company
or any other Subsidiary of the Company and (iii) a complete list of the
directors and officers of the Company and each Subsidiary. All the issued and
outstanding capital stock in each Subsidiary have been duly and validly
authorized and issued and are fully paid, nonassessable and free of pre-emptive
rights. None of the outstanding capital stock in any Subsidiary has been issued
in violation of the preemptive rights of any shareholder of such Subsidiary. The
shares of each Subsidiary were issued in compliance in all material respects
with all applicable Federal and state securities laws and regulations, and are
owned free and clear of all Liens.
(b) Except as set forth in Schedule 3.25, there are no existing agreements,
subscriptions, options, warrants, calls, commitments, trusts (voting or
otherwise), or rights of any kind whatsoever granting to any Person any interest
in or the right to purchase or otherwise acquire from the Company or any
Subsidiary, at any time, or upon the occurrence of any stated event, any capital
stock of or equity interest in any Subsidiary, whether or not presently issued
or outstanding, nor are there any outstanding capital stock of or equity
interest in any Subsidiary or any other entity which are convertible into or
exchangeable for other capital stock of or equity interests in any Subsidiary
nor are there any agreements, subscriptions, options, warrants, calls,
commitments or rights of any kind granting to any Person any interest in or the
right to purchase or otherwise acquire from any Subsidiary or any other Person
any capital stock or equity interests so convertible or exchangeable, nor are
there any proxies, agreements or understandings with respect to the voting of
the capital stock of or equity interests in any Subsidiary. Except for the
Company's ownership of the Subsidiaries as disclosed on Schedule 3.25, the
Company does not, directly or indirectly, have any ownership or other interest
in, or control of, any Person, nor is the Company or any Subsidiary controlled
by or under common control with any Person.
3.26 Disclosure. None of the representations or warranties of the Company
contained herein, none of the information contained in the Schedules referred to
in this Section 3, and none of the other information or documents furnished or
to be furnished to Lucent or Acquisition by the Company or any of its
Subsidiaries or pursuant to the terms of this Agreement, is false or misleading
in any material respect or omits to state a fact herein or therein necessary to
make the statements herein or therein not misleading in any material respect.
There is no fact which adversely affects or in the future is likely to adversely
affect the assets or business of the Company or any of its Subsidiaries in any
material respect which has not been set forth or referred to in this Agreement,
the schedules hereto or in other written material previously delivered to Lucent
in connection with the transactions contemplated under this Agreement.
3.27 Information in Registration Statement. None of the information
supplied or to be supplied by the Company or any of its Subsidiaries for the
purpose of inclusion in the registration statement on Form S-4 with the
Securities and Exchange Commission (the "SEC") by Lucent under the Securities
Act of 1933 (together with the rules and regulations thereunder, the "Securities
Act"), for the purpose of registering shares of Lucent Common Stock to be issued
in the Merger (together with any amendments or supplements thereto, whether
prior to or after the effective date thereof, the "Registration Statement")
will, at the time the Registration Statement is filed with the SEC, at the time
the Registration Statement becomes effective under the Securities Act and at the
Effective Time, contain any untrue statement of a material fact or omit to state
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any material fact required to be stated therein necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4. Representations and Warranties of Acquisition and Lucent. Each of
Acquisition and Lucent represents and warrants to the Company as follows:
4.1 Organization. Each of Lucent and Acquisition is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Authority. (a) Each of Lucent and Acquisition has full corporate
power and authority to execute, deliver and perform this Agreement. The
execution, delivery and performance of this Agreement by it has been duly
authorized and approved (i) in the case of Acquisition, by its Board of
Directors and (ii) in the case of Lucent, all necessary corporate action and,
except for (A) the adoption of this Agreement by the stockholders of Acquisition
and (B) the filing of appropriate merger documents as required by the DGCL, no
other corporate proceedings on the part of either Lucent or Acquisition is
necessary to authorize this Agreement and the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by each of
Lucent and Acquisition and is the legal, valid and binding obligation of each of
Lucent and Acquisition enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law). The filing of the Registration Statement has been duly authorized by
Lucent.
(b) The execution, delivery, performance by each of Lucent and Acquisition
of this Agreement and the consummation of the Merger do not, and will not, (i)
violate or conflict with any provision of the Certificate of Incorporation or
By-laws of either Lucent or Acquisition, (ii) violate any law, rule, regulation,
order, writ, injunction, judgement or decree of any court, governmental
authority, or regulatory agency, except for violations which, individually or in
the aggregate, will not have a Material Adverse Effect on Lucent and Acquisition
taken as a whole, or (iii) result in a violation or 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 note, bond,
indenture, lien, mortgage, lease, permit, guaranty or other agreement,
instrument or obligation, oral or written, to which Lucent or Acquisition is a
party or by which any of the properties of Lucent or Acquisition may be bound,
except for violations, breaches or defaults which, individually or in the
aggregate, will not have a Material Adverse Effect on Lucent, its Subsidiaries
and Acquisition taken as a whole.
(c) The execution and delivery of this Agreement by each of Lucent and
Acquisition does not, and the performance by each of Lucent and Acquisition of
this Agreement will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except (i) the filing and recordation of appropriate merger
documents as required by the DGCL; (ii) any such consent, approval,
authorization, permission, notice or filing which is required under the
Securities Act, the Securities and Exchange Act of 1934 (together with the rules
and regulations promulgated thereunder, the "Exchange Act") and applicable state
securities laws; and (iii) any such consent, approval, authorization,
permission, notice or filing which if not obtained or made would not have a
Material Adverse Effect on Lucent or Acquisition.
4.3 Capitalization. (a) The total authorized shares of capital stock of
Lucent consists of (i) 3,000,000,000 shares of Common Stock, par value $.01 per
share (the "Lucent Common Stock") and (ii) 250,000,000 shares of Lucent
Preferred Stock, par value $1.00 per share the ("Lucent Preferred Stock"). At
the close of business on September 30, 1997, 642,070,130 shares of Lucent Common
Stock were issued and outstanding and no shares of Lucent Preferred Stock were
issued and outstanding. All the outstanding shares of Lucent Common Stock have
been duly and validly authorized and issued and are fully paid and
nonassessable. None of the shares of Lucent Common Stock has been issued in
violation of the preemptive rights of any stockholder of the Company. The shares
of Lucent Common Stock were issued in compliance in all material respects with
all applicable Federal and state securities laws and regulations.
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(b) Except for Lucent plans providing for the issuance of Lucent Common
Stock to officers, directors and employees of Lucent or as set forth in Schedule
4.3, there are no existing agreements, subscriptions, options, warrants, calls,
commitments, trusts (voting or otherwise), or rights of any kind whatsoever
granting to any Person any interest in or the right to purchase or otherwise
acquire from Lucent or granting to Lucent any interest in or the right to
purchase or otherwise acquire from any Person, at any time, or upon the
occurrence of any stated event, any securities of Lucent, whether or not
presently issued or outstanding, nor are there any outstanding securities of
Lucent or for any other entity which are convertible into or exchangeable for
other securities of Lucent, nor are there any agreements, subscriptions,
options, warrants, calls, commitments or rights of any kind granting to any
Person any interest in or the right to purchase or otherwise acquire from Lucent
any securities so convertible or exchangeable.
4.4 Litigation. (a) Neither Lucent nor Acquisition is a party to any
suit, action, arbitration or legal, administrative, governmental or other
proceeding or investigation pending or, to its knowledge threatened, which
reasonably could adversely affect or restrict its ability to consummate the
transactions contemplated by this Agreement or to perform its obligations
hereunder.
(b) There is no judgment, order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal to which Lucent or Acquisition is
subject which might adversely affect or restrict its ability to consummate the
transactions contemplated by this Agreement or to perform its obligations
hereunder.
4.5 SEC Filings; Lucent Financial Statements. (a) Since October 1, 1996,
Lucent and each of its Subsidiaries has filed all forms, reports and documents
required to be filed with the SEC under the Securities Act or the Exchange Act.
All such required forms, reports and documents are referred to herein as the
"Lucent SEC Reports." As of their respective dates, the Lucent SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Lucent SEC Reports and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to made the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Except as disclosed in the Lucent SEC Reports, the financial statements
(including, in each case, any related notes thereto) contained in the Lucent SEC
Reports, including any Lucent SEC Reports filed after the date hereof but before
the Closing, (i) comply as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (ii) were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and (iii) fairly
presented the consolidated financial position of Lucent and its Subsidiaries as
at the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments and to any other adjustments described therein. The balance sheet of
Lucent contained in the Lucent SEC Reports, as of June 30, 1997 is hereinafter
referred to as the "Lucent Balance Sheet." As of June 30, 1997, neither Lucent
nor any of its Subsidiaries has any liabilities (absolute, accrued, contingent
or otherwise) of a nature required to be disclosed under GAAP on the Lucent
Balance Sheet or in the related notes which, if not so disclosed, individually
or in the aggregate, would result in a Material Adverse Effect.
4.6 Operations and Obligations. Except as described in the Lucent SEC
Reports, since the date of the Lucent Balance Sheet, (i) except as a result of
the transactions contemplated by this Agreement or in connection with the
acquisition by Lucent or any of its Subsidiaries of all or substantially all the
capital stock or all or substantially all the assets of another Person, there
has not been any development that has had or reasonably would be expected to
have a Material Adverse Effect on Lucent and its Subsidiaries taken as a whole;
(ii) there has not been any material change by Lucent in its accounting methods,
principles or practices, except as required by changes in GAAP; or (iii) except
as a result of the transactions contemplated by this Agreement or in connection
with the acquisition by Lucent or any of its Subsidiaries of all or
substantially all the capital stock or all or substantially all the assets of
another Person, there has not been any material revaluation by Lucent of any of
its assets including, without limitation, writing down the value of
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capitalized software or inventory or writing off notes or accounts receivable
which would have a Material Adverse Effect.
5. Conduct Pending Closing.
5.1 Conduct of Business Pending Closing. From the date hereof until the
Closing, the Company shall (and shall cause each of its Subsidiaries to):
(a) maintain its existence in good standing;
(b) maintain the general character of its business and properties and
conduct its business in the ordinary and usual manner consistent with past
practices, except as expressly permitted by this Agreement;
(c) maintain business and accounting records consistent with past
practices; and
(d) use its reasonable best efforts (i) to preserve its business
intact, (ii) to keep available to the Company the services of its present
officers and employees, and (iii) to preserve for the Company or such
Subsidiary the goodwill of its suppliers, customers and others having
business relations with the Company or such Subsidiary.
5.2 Prohibited Actions Pending Closing. Unless otherwise provided for
herein or approved by Lucent in writing, from the date hereof until the Closing,
the Company shall not (and shall not permit any of its Subsidiaries to):
(a) amend or otherwise change its Certificate of Incorporation or
By-laws;
(b) issue or sell or authorize for issuance or sale (other than any
issuance of Company Capital Stock upon the exercise of any outstanding
option or warrant to purchase Company Capital Stock which option or warrant
was issued prior to the date hereof in accordance with the terms of the
relevant stock option or warrant agreement), or grant any options or make
other agreements with respect to, any shares of its capital stock or any
other of its securities, except for those provisions of the agreement with
the Exchange Agent which provisions are in furtherance of this Agreement;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise with respect to
any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock (other
than the repurchase of Company Common Stock pursuant to Restricted Stock
Agreements which are in effect on November 1, 1997);
(e) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or
make any loans or advances, except (x) in the ordinary course of business
and consistent with past practice, (it being understood that any loan,
advance or indebtedness similar to the 8% subordinated indebtedness of the
Company incurred on December 2, 1997 would not be deemed to be in the
ordinary course of business and consistent with past practices); (y) for
indebtedness incurred by the Company under its existing line of credit with
Silicon Valley Bank for working capital (or any extension of such line; of
credit on terms and conditions identical to those currently in effect;
provided that the Company shall have given Lucent not less than 10 days'
prior notice of such extension and of any incurrence under such line; and
(z) additional indebtedness in an amount not to exceed $5,000,000 which
shall be certified in good faith by the Company's Chief Executive Officer
as being required for on-going operations (and not for the repayment of
indebtedness other than under the Silicon Valley Bank line of credit which
is then due and payable and cannot be extended); provided that the Company
shall first request, in writing, that Lucent provide such financings, which
request shall include the proposed terms for such financing which the
Company is able to obtain from third parties (the "Offered Terms"). If,
within five business days after such request, Lucent fails to respond or
elects, in writing, not to provide such financing on terms which are
equivalent or are more favorable to the Company than the Offered Terms, the
Company
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may for a period of 10 business days thereafter obtain such financing from
third parties on the Offered Terms;
(f) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of assets; (ii) enter into any contract or agreement other
than in the ordinary course of business, consistent with past practice;
(iii) authorize any capital commitment which is in excess of $25,000 or
capital expenditures which are, in the aggregate, in excess of $100,000; or
(iv) enter into or amend any contract, agreement, commitment or arrangement
with respect to any matter set forth in Section 5.2(e) or this Section
5.2(f);
(g) mortgage, pledge or subject to Lien, any of its assets or
properties or agree to do so except for Permitted Liens;
(h) assume, guarantee or otherwise become responsible for the
obligations of any other Person or agree to so do;
(i) enter into or agree to enter into any employment agreement;
(j) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees who are not officers of the
Company or any of its Subsidiaries, or grant any severance or termination
pay to, or enter into any severance agreement with any director, officer or
other employee of the Company or such Subsidiary, or establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any such
director, officer or employee;
(k) take any action, other than in the ordinary course of business and
consistent with past practice, with respect to accounting policies or
procedures (including, without limitation, procedures with respect to the
payment of accounts payable and collection of accounts receivables);
(l) make any Tax election or settle or compromise any material
federal, state, local or foreign income Tax liability;
(m) settle or compromise any pending or threatened suit, action or
claim which is material or which relates to any of the transactions
contemplated by this Agreement;
(n) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or
reserved against in the Balance Sheet or subsequently incurred in the
ordinary course of business and consistent with past practice;
(o) except in connection with the sale of the Company's products in
the ordinary course of business and consistent with past practice, sell,
assign, transfer, license, sublicense, pledge or otherwise encumber any of
the Intellectual Property Rights; or
(p) announce an intention, commit or agree to do any of the foregoing.
5.3 Access; Documents; Supplemental Information. (a) From and after the
date hereof until the Closing, the Company shall afford, shall cause its
Subsidiaries to afford and, with respect to clause (ii) below, shall use its
best efforts to cause the independent certified public accountants for the
Company to afford, (i) to the officers, independent certified public
accountants, counsel and other representatives of Acquisition and Lucent, upon
reasonable notice free and full access at all reasonable times to the
properties, books and records including tax returns filed and those in
preparation of the Company or any of its Subsidiaries and the right to consult
with the officers, employees, accountants, counsel and other representatives of
the Company or any of its Subsidiaries in order that Acquisition and Lucent may
have full opportunity to make such investigations as they shall reasonably
desire to make of the operations, properties, business, financial condition and
prospects
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of the Company and its Subsidiaries, (ii) to the independent certified public
accountants of Acquisition and Lucent, free and full access at all reasonable
times to the work papers and other records of the accountants relating to the
Company and its Subsidiaries, and (iii) to Acquisition and Lucent and their
representatives, such additional financial and operating data and other
information as to the properties, operations, business, financial condition and
prospects of the Company and its Subsidiaries as Acquisition and Lucent shall
from time to time reasonably require.
(b) From the date of this Agreement through and including the Closing,
Acquisition, Lucent and the Company agree to furnish to each other copies of any
notices, documents, requests, court papers, or other materials received from any
governmental agency or any other third party with respect to the transactions
contemplated by this Agreement, except where it is obvious from such notice,
document, request, court paper or other material that the other party was
already furnished with a copy thereof.
(c) The Company shall deliver to Lucent, without charge, the following
financial information (the "Supplemental Financial Information"): (i) within 45
days after each fiscal quarter ending after the date hereof and prior to the
Effective Time, the unaudited consolidated and consolidating balance sheet of
the Company and its Subsidiaries as of the end of such quarter and the unaudited
consolidated and consolidating statements of operations, cash flow and
redeemable preferred stock and stockholders' equity of the Company for such
quarter and for the portion of the fiscal year then completed, (ii) within 90
days after each fiscal year ending after the date hereof and prior to the
Effective Time, the audited consolidated balance sheet of the Company and its
Subsidiaries as of the end of such year and the audited consolidated statements
of operations, cash flow and redeemable preferred stock and stockholders' equity
of the Company for such year, in each case prepared in accordance with GAAP
certified by Price Waterhouse LLP and consolidating financial statements with
respect to the foregoing, and (iii) promptly upon the reasonable request by
Lucent, such additional financial information as may be required in connection
with any filing by Lucent pursuant to the requirements of federal or state
securities laws. Such Supplemental Financial Information shall present fairly,
in all material respects, the consolidated financial position of the Company and
its Subsidiaries for the period covered, subject in the case of unaudited
financials to normal year-end adjustments.
(d) Lucent shall deliver to the Company, without charge, a copy of any
filing made by Lucent with the SEC under the Exchange Act, including, without
limitation, any Form 10-Q, 8-K or 10-K, not later than five business days after
the date of such filing with the SEC.
5.4 No Solicitation. The Company shall not, nor shall it authorize or
permit any of its affiliates or any officer, director, employee, investment
banker, attorney or other adviser or representative of the Company or any of its
affiliates to (a) solicit, initiate, or encourage the submission of, any
Acquisition Proposal (as hereinafter defined), (b) enter into any agreement with
respect to any Acquisition Proposal or (c) participate in any discussions or
negotiations regarding, or furnish to any Person any information for the purpose
of facilitating the making of, or take any other action to facilitate any
inquiries or the making of, any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal. Without limiting the foregoing,
it is understood that any violation, of which the Company or any of its
Affiliates had knowledge at the time of such violation, of the restrictions set
forth in the immediately preceding sentence by any officer, director, employee,
investment banker, attorney, employee, or other adviser or representative of the
Company or any of its Affiliates, whether or not such Person is purporting to
act on behalf of the Company or any of its Affiliates or otherwise, shall be
deemed to be a breach of this Section 5.4 by the Company and its Affiliates. The
Company promptly shall advise Lucent of any Acquisition Proposal and inquiries
with respect to any Acquisition Proposal. "Acquisition Proposal" means any
proposal for a merger or other business combination involving the Company or any
of its Affiliates or any proposal or offer to acquire in any manner, directly or
indirectly, an equity interest in the Company or any of its Affiliates, any
voting securities of the Company or any of its Affiliates or a substantial
portion of the assets of the Company (other than sales of the Company's products
in the ordinary course of business consistent with past practice).
5.5 Registration; Other Actions. (a) As promptly as practicable after the
date hereof, Lucent shall prepare and file the Registration Statement with the
SEC. Lucent acknowledges that the Company and its counsel may participate in the
preparation of the Registration Statement, provided that the final determination
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<PAGE> 97
of any issues related thereto shall be made by Lucent. Lucent shall use its
reasonable best efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing. Lucent
shall also take such actions (other than qualifying to do business in any
jurisdiction in which Lucent is now not so qualified) as may be required to be
taken under any applicable state securities laws in connection with the issuance
of Lucent Common Stock in the Merger and upon the exercise of the Substitute
Options. The Company shall furnish all information concerning the Company and
the holders of Company Capital Stock as may be reasonably requested in
connection with any of the foregoing.
(b) Each party hereto agrees, subject to applicable laws relating to the
exchange of information, promptly to furnish the other parties hereto with
copies of written communications (and memoranda setting forth the substance of
all oral communications) received by such party, or any of its Subsidiaries,
affiliates or associates (as such terms are defined in Rule 12b-2 under the
Exchange Act as in effect on the date hereof), from, or delivered by any of the
foregoing to, any governmental or regulatory authority, domestic or foreign,
relating to or in respect of the transactions contemplated under this Agreement.
5.6 Comfort Letters. The Company shall use its reasonable best efforts to
cause to be delivered to Lucent a "comfort" letter of Price Waterhouse LLP, the
Company's independent public accountants, dated the date on which the
Registration Statement shall become effective and as of the Effective Time, and
addressed to Lucent and the Company, in form and substance reasonably
satisfactory to Lucent and reasonably customary in scope and substance for
letters delivered by independent public accounts in connection with transactions
such as those contemplated by this Agreement.
5.7 Stock Exchange Listing. Lucent shall use all reasonable best efforts
to list on the NYSE, upon official notice of issuance, the shares of Lucent
Common Stock to be issued in connection with the Merger and upon exercise of
Substitute Options.
5.8 Company Stock Options. (a) Concurrent with the Effective Time, each
stock option to purchase Company Common Stock (the "Stock Options") which is
outstanding immediately prior to the Effective Time pursuant to the Company's
1996 Stock Option Plan in effect on the date hereof (the "Stock Plan") shall be
assumed by Lucent and become and represent an option (a "Substitute Option") to
purchase the number of shares of Lucent Common Stock (decreased to the nearest
full share) determined by multiplying (i) the number of shares of Company Common
Stock subject to such Stock Option immediately prior to the Effective Time by
(ii) the Common Stock Exchange Ratio, which Stock Options shall have an exercise
price per share of Lucent Common Stock (rounded up to the nearest tenth of a
cent) equal to the exercise price per share of Common Stock immediately prior to
the Effective Time divided by the Common Stock Exchange Ratio. Lucent shall pay
cash to holders of Stock Options in lieu of issuing fractional shares of Lucent
Common Stock upon the exercise of Substitute Options for shares of Lucent Common
Stock. After the Effective Time, except as provided herein, each Substitute
Option shall be exercisable upon the same terms and conditions as were
applicable under the related Stock Option immediately prior to the Effective
Time. The Company agrees that it will not grant any stock appreciation rights or
limited stock appreciation rights and will not permit cash payments to holders
of Stock Options in lieu of the substitution therefor of Substitute Options, as
described in this Section 5.8.
(b) The adjustments provided herein with respect to any "Stock Options"
that are "Incentive Stock Options" as defined in Section 422 of the Code shall
be and are intended to be effected in a manner which is consistent with Section
424(a) of the Code.
(c) As soon as practicable after the Effective Time, Lucent shall deliver
to the holders of Stock Options appropriate notices setting forth such holders'
rights pursuant to the Stock Plan and the agreements evidencing the grants of
such Stock Options and that such Stock Options and agreements shall be assumed
by Lucent and shall continue in effect on the same terms and conditions (subject
to the adjustment set forth in this Section 5.8).
(d) At the Effective Time, each Restricted Stock Purchase Agreement (each
such Agreement as may have been modified pursuant to a letter between Lucent and
the individual party thereto, a "Restricted Stock Agreement") set forth on
Schedule 5.8 shall be assumed by Lucent and each share of restricted Company
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<PAGE> 98
Common Stock which is outstanding and unvested thereunder at or immediately
prior to the Effective Time pursuant to the Stock Plan shall become the right to
0.1027 (as adjusted in accordance with Section 1.6) share of Lucent Common Stock
subject to the same restrictions and vesting as set forth in each such
Restricted Stock Agreement (the "Substitute Restricted Stock"). As soon as
practicable after the date on which all Substitute Restricted Stock under such
holder's Restricted Stock Agreement shall vest, Lucent shall pay to each holder
of such restricted Common Stock, in lieu of issuing fractional shares of Lucent
Common Stock, cash in an amount rounded to the nearest whole cent, determined by
multiplying (i) the per share closing price on the NYSE of Lucent Common Stock
(as reported on the NYSE Composite Transactions) on the date of such vesting
(or, if the Lucent Common Stock shall not trade on the NYSE on such date, the
first day of trading of Lucent Common Stock on the NYSE thereafter) by (ii) the
fractional shares to which such holder would otherwise be entitled.
(e) No later than 60 days after the Effective Time, Lucent shall prepare
and file with the SEC a registration statement on Form S-8 (or another
appropriate form) registering a number of shares subject to the Substitute
Options. Such registration statement shall be kept effective (and the current
status of the prospectus required thereby shall be maintained in accordance with
the relevant requirements of the Securities Act and the Exchange Act) at least
for so long as any Substitute Options remain outstanding.
5.9 Warrants. Prior to the mailing of the Proxy Statement/Prospectus
included as part of the Registration Statement, the Company shall have received
from each holder of an outstanding warrant to purchase shares of Company Capital
Stock (each, a "Warrant") an agreement that, as of the Effective Time, such
Warrant shall be converted into a right of the holder thereof to receive the
consideration set forth in the next sentence at the same time as payment for
shares of Company Capital Stock is made in connection with the Merger. In
consideration for entering such agreement and the conversion of its Warrant,
each holder of a Warrant shall be entitled to receive the number of shares of
Lucent Common Stock (decreased to the nearest full share) equal to the number of
shares of Company Capital Stock subject to such Warrant immediately prior to the
Effective Time multiplied by (i) in the case of Warrants having an exercise
price per share of less than $1.00, 0.1027 (the "Warrant A Exchange Ratio") and
(ii) in the case of Warrants having an exercise price per share equal to or
greater than $1.00 but less than $2.00, 0.0796 (the "Warrant B Exchange Ratio").
The Warrant A Exchange Ratio and the Warrant B Exchange Ratio are collectively
referred to as the "Warrant Exchange Ratios." Lucent shall pay cash (without
interest) to holders of Warrants in lieu of issuing fractional shares of Lucent
Common Stock in an amount, rounded to the nearest whole cent, computed in the
manner set forth in Section 1.9.
5.10 Affiliates. Prior to the Closing, the Company shall deliver to
Lucent a letter identifying all Persons who are, at the time this Agreement is
submitted for approval to the stockholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The Company shall use
its reasonable best efforts to cause each such Person to execute and deliver to
Lucent, on or before the Closing Date, an agreement substantially in the form of
Exhibit F.
5.11 Notification of Certain Matters. The Company shall give prompt
notice to Lucent, and Lucent shall give prompt notice to the Company, of (a) the
occurrence, or non-occurrence, of any event which would be likely to cause (i)
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (ii) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied; and (iii) any
failure of the Company, Lucent or Acquisition, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided that the delivery of any notice pursuant to
this Section 5.11 shall not limit or otherwise affect the remedies available to
the party receiving such notice.
5.12 Reorganization. Each of Lucent and the Company shall use its best
efforts to cause the business combination to be effected by the Merger to be
qualified as a "reorganization" described in Section 368(a) of the Code. Lucent
shall take no action, and shall not cause the Surviving Corporation to take any
action, following the Effective Time that would have the effect of causing the
Merger to fail to so qualify.
5.13 Indemnification. From and after the Effective Time, Lucent shall, or
shall cause the Surviving Corporation to, fulfill and honor in all respects the
obligations of the Company to indemnify each person who
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<PAGE> 99
is or was a director or officer (an "Indemnified Party") of the Company or any
of its Subsidiaries pursuant to any indemnifications provision of the Company's
Certificate of Incorporation or By-laws as each is in effect on the date hereof.
All rights to such indemnification in favor or any Indemnified Party, as
provided in the Company's Certificate of Incorporation and By-laws in effect at
the date hereby shall survive the Merger and shall continue in full force and
effect, without amendment thereto, for a period of six years from the Effective
Time.
5.14 Actions by the Parties. Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties hereto will use its reasonable
best efforts to take or cause to be taken all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable law and
regulations to consummate and make effective in the most expeditious manner
practicable, the transactions contemplated by this Agreement including (i) the
obtaining of all necessary actions and non-actions, waivers and consents, if
any, from any governmental agency or authority and the making of all necessary
registrations and filings and the taking of all reasonable steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any governmental agency or authority; (ii) the obtaining of all
necessary consents, approvals or waivers from any other Person; (iii) the
defending of any claim, investigation, action, suit or other legal proceeding,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby; and (iv) the execution of
additional instruments necessary to consummate the transactions contemplated by
this Agreement. Each party will promptly consult with the other and provide
necessary information (including copies thereof) with respect to all filings
made by such party with the any agency or authority in connection with this
Agreement and the transactions contemplated hereby.
6. Conditions Precedent.
6.1 Conditions Precedent to Each Party's Obligation to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
shall be subject to the fulfillment or satisfaction, prior to or on the Closing
Date of the following conditions:
(a) Stockholder Approval. The Merger shall have been duly approved by
the requisite vote of the outstanding shares of the Capital Stock of the
Company (and, in the case of the Series A Preferred Stock and the Series B
Preferred Stock, by holders of more than 80% of the holders of each such
Series, voting as a class, that the Merger will not be deemed a
liquidation, dissolution or winding up with respect to such Series
entitling such holder of Series A Preferred Stock and Series B Preferred
Stock to cash distributions; provided that nothing contained in this
parenthetical shall affect the right of any holder of Series A Preferred
Stock or Series B Preferred Stock to receive the liquidation preference
with respect to such Series which preference is reflected in the Series A
Exchange Rate and Series B Exchange Rate, respectively) and the common
stock, $.01 par value per share, of Acquisition entitled to vote thereon in
accordance with the DGCL and the Certificate of Incorporation and By-laws
of each of the Company and Acquisition, respectively.
(b) Approvals. All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting
periods imposed by, any governmental or regulatory authority, domestic or
foreign, which the failure to obtain, make or occur would have the effect
of making the Merger or any of the transactions contemplated hereby illegal
or would have a Material Adverse Effect on Lucent or the Company (as
Surviving Corporation), assuming the Merger had taken place, shall have
been obtained, made or occurred.
(c) Representation Letters. Each of the Company and Lucent shall have
executed and delivered a letter of representation relating to certain tax
matters substantially in the form of Exhibits B-1 and B-2. Stockholders of
the Company owning not less than 65% of the Company Capital Stock shall
have executed and delivered a letter of representation substantially in the
form of Annex II to Exhibit B-1. Each of the stockholders of the Company
(other than any stockholder who shall have indicated properly in writing in
accordance with Section 262 of the DGCL that he intends to demand appraisal
for his shares of Company Capital Stock) shall have executed and delivered
a letter, in form and substance acceptable to Lucent and Acquisition,
agreeing to the appointment of the Stockholders' Representative.
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<PAGE> 100
(d) No Injunction. No action or proceeding shall have been commenced
seeking any temporary restraining order, preliminary or permanent
injunction or other order from any court of competent jurisdiction or
seeking any other legal restraint or prohibition preventing the
consummation of the Merger or any of the transactions contemplated
hereunder other than any of the foregoing which shall have been dismissed
with prejudice.
(e) Escrow Agreement. Each of Lucent, Acquisition, the Company, the
Escrow Agent and the Stockholders' Representative shall have entered into
an Escrow Agreement substantially in the form of Exhibit E (the "Escrow
Agreement").
(f) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall
have been initiated or, to the knowledge of Lucent or the Company,
threatened by the SEC. All necessary state securities authorizations shall
have been received.
(g) Stock Exchange Listing. The shares of Lucent Common Stock
issuable in accordance with the Merger shall have been authorized for
listing on the NYSE, subject to official notice of issuance.
6.2 Conditions Precedent to Obligations of Acquisition and Lucent. All
obligations of Acquisition and Lucent under this Agreement are subject to the
fulfillment or satisfaction, prior to or on the Closing Date, of each of the
following conditions precedent:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed and complied in all material respects with all
agreements and conditions contained in this Agreement that are required to
be performed or complied with by it prior to or at the Closing. Each of the
Company's representations and warranties contained in Section 3 of this
Agreement to the extent it is qualified by Material Adverse Effect and the
representations contained in Section 3.18 shall be true and correct and
each of the Company's representations and warranties to the extent it is
not so qualified by Material Adverse Effect, shall be true and correct in
all material respects, in each case, on and as of the Closing with the same
effect as though such representations and warranties were made on and as of
the Closing, except for changes permitted by this Agreement and except to
the extent that such representations and warranties expressly relate to an
earlier date, in which case such representations and warranties shall be as
of such earlier date. Lucent and Acquisition shall have received a
certificate dated the Closing Date and signed by the Chairman, President or
a Vice-President of the Company, certifying that, the conditions specified
in this Section 6.2(a) have been satisfied.
(b) Opinion of Counsel. Lucent and Acquisition shall have received
the favorable written opinion dated the Closing Date of Hale and Dorr LLP,
counsel to the Company, in form satisfactory to Lucent and Acquisition.
(c) Resignations. The Company shall have delivered to Lucent and
Acquisition the written resignation of each director and officer of the
Company as shall be requested in writing by Lucent. The Company also shall
have delivered to Lucent the written resignation of all Trustees of all the
benefit plans of the Company as shall be requested in writing by Lucent.
(d) No Material Adverse Change. There shall have been no material
adverse change in the assets, business, financial condition, operations or
prospects of the Company and no event or events shall have occurred that
could reasonably be expected to have a Material Adverse Effect (other than
(i) conditions generally affecting the data networking industry or (ii)
resulting from the announcement of the transaction) on the Company and
Lucent shall have received a certificate signed on behalf of the Company by
its Chief Executive Officer and Chief Financial Officer to such effect.
(e) Consents. The Company shall have received all necessary consents
or waivers, in form and substance satisfactory to Lucent and Acquisition,
from the other parties (i) to each contract or agreement listed on Schedule
6.2(e) and (ii) all other contracts, leases or agreements to which the
Company is a party, except, in the case of any consents required under
clause (ii) of this Section 6.2(e),
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<PAGE> 101
where the failure to receive such consent would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company.
(f) Employment Agreement. Each of the individuals listed on Schedule
6.2(f) shall have entered into employment agreements with Lucent, each
substantially in the form of Exhibit C hereto, and such agreements shall be
in full force and effect.
(g) Non-Competition Agreements. Each of the individuals listed on
Schedule 6.2(g) shall have entered into Non-Competition Agreements with the
Surviving Corporation, each substantially in the form of Exhibit D hereto,
and such agreements shall be in full force and effect.
(h) Affiliates. Lucent shall have received from each person named in
the letter referred to in Section 5.10, an executed copy of an agreement
substantially in the form of Exhibit F.
6.3 Conditions Precedent to the Company's Obligations. All obligations of
the Company under this Agreement are subject to the fulfillment or satisfaction,
prior to or on the Closing Date, of each of the following conditions precedent:
(a) Performance of Obligations; Representations and
Warranties. Acquisition and Lucent shall have performed and complied in
all material respects with all agreements and conditions contained in this
Agreement that are required to be performed or complied with by them prior
to or at the Closing. Each of the representations and warranties of
Acquisition and Lucent contained in Section 4 of this Agreement to the
extent it is qualified by Material Adverse Effect shall be true and correct
and each of the representations and warranties of Acquisition and Lucent to
the extent it is not so qualified by Material Adverse Effect shall be true
and correct in all material respects, in each case, on and as of the
Closing with the same effect as though such representations and warranties
were made on and as of the Closing except for changes permitted by this
Agreement and except to the extent that such representations and warranties
expressly relate to an earlier date, in which case such representations and
warranties shall be as of such earlier date. The Company shall have
received certificates dated the Closing Date and signed by the President or
a Vice-President of Acquisition and an authorized signatory of Lucent,
certifying that the conditions specified in this Section 6.3(a) have been
satisfied.
(b) Opinion of Counsel. The Company shall have received the favorable
written opinion dated the Closing Date of Sidley & Austin, special counsel
to Acquisition and Lucent, and internal counsel to Acquisition and Lucent,
each in form satisfactory to the Company.
(c) No Material Adverse Change. There shall have been no material
adverse change in the assets, business, financial condition, operations or
prospects of Lucent and no event or events shall have occurred that could
reasonably be expected to have a Material Adverse Effect (other than (i)
conditions generally affecting the data networking industry or (ii)
resulting from the announcement of this transaction) on Lucent and the
Company shall have received a certificate signed on behalf of Lucent by an
authorized signatory thereof.
7. Non-Survival of Representation and Warranties.
7.1 Representations and Warranties. None of the representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time. This Section shall not limit any
covenant or agreement by the parties which contemplates performance after the
Effective Time.
8. Escrow.
8.1 Escrow Fund. Within ten business days after the Effective Time,
432,210 shares of Lucent Common Stock shall be registered in the name of, and be
deposited with, a bank or trust company designated as the escrow agent by Lucent
(which designation shall be reasonably acceptable to the Company (the "Escrow
Agent")), such deposit (as it may be adjusted from time to time as a result of
stock splits or combinations) to constitute an escrow fund (the "Escrow Fund")
and to be governed by the terms set forth herein and in the Escrow Agreement.
The shares of Lucent Common Stock deposited with the Escrow Agent pursuant to
this Section 8.1 on behalf of such holder shall be equal to 19.18% of such
holder's shares of Lucent
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<PAGE> 102
Common Stock, including Substitute Restricted Stock, issued pursuant to Section
1, Section 5.8(d) and Section 5.9 (the "Proportionate Amount"); provided that
such percentage shall be adjusted, as necessary, so that in all events 432,210
shares of Lucent Common Stock shall be deposited with the Escrow Agent. Of each
holder's Proportionate Amount, the number of shares of Substitute Restricted
Stock, if any, to be deposited with the Escrow Agent on behalf of any
stockholder of the Company shall be equal to 19.18% (as such percentage may be
adjusted pursuant to the immediately preceding sentence) of such holder's
Substitute Restricted Stock.
8.2 Timely Product Delivery. If Lucent and the Stockholders'
Representative agree that Product Delivery has occurred on or before June 30,
1998, then such parties shall jointly execute and deliver a written notice to
the Escrow Agent directing the delivery of all shares which constitute the
Escrow Fund to the stockholders entitled thereto.
8.3 Untimely Product Delivery. If Product Delivery fails to occur by June
30, 1998, Lucent may at any time or from time to time thereafter deliver one or
more notices of such failure (a "Lucent Notice") to the Escrow Agent (with a
copy of such notice to the Stockholders' Representative). If the Stockholders'
Representative agrees with such notice or, within 10 days after receipt of such
notice, fails to object by written notice to the Escrow Agent and Lucent, then
the Escrow Agent shall deliver to Lucent from the Escrow Fund the number of
shares of Lucent Common Stock set forth in the table below (as such number of
shares may be adjusted for stock splits or combinations):
<TABLE>
<CAPTION>
PRODUCT DELIVERY AFTER NUMBER OF SHARES
----------------------------------------------------- ----------------
<S> <C>
June 30, 1998........................................ 172,884
July 31, 1998........................................ 302,547
August 31, 1998...................................... 432,210
</TABLE>
If Product Delivery occurs after June 30, 1998 but prior to August 31, 1998, the
parties shall deliver a written notice to the Escrow Agent directing the
delivery of any portion of the Escrow Fund not delivered to Lucent to the
stockholders entitled thereto.
8.4 Objections to Claims. (a) If the Stockholders' Representative shall
object to a Lucent Notice within such 10-day period, then Lucent and the
Stockholders' Representative shall use their good faith efforts to resolve such
dispute. If Lucent and the Stockholders' Representative resolve such dispute,
the parties shall deliver a written notice to the Escrow Agent directing the
delivery of the Escrow Fund.
(b) If Lucent and the Stockholders' Representative are unable to resolve
such dispute within 30 days after the Stockholders' Representative objects to
such Lucent Notice, either Lucent or the Stockholders' Representative may, by
written notice to the other, demand arbitration of such dispute. Any such
arbitration shall be conducted by JAMS/Endispute, Inc. or such other alternative
dispute service ("Arbitration Service") as shall be reasonable acceptable to
Lucent and the Stockholders' Representative. The Arbitration Service shall
select one arbitrator reasonable acceptable to Lucent and the Stockholders'
Representative who shall be expert in the area of development and production of
data networking products. The decision by the arbitrator as to whether Product
Delivery has occurred, shall be binding and conclusive and, notwithstanding any
other provisions of this Section 8, the Escrow Agent shall be entitled to act in
accordance with such decision and make payments out of the Escrow Fund in
accordance therewith.
(c) The arbitration shall be held in New York, New York. The costs of any
such arbitration shall be borne one-half for the account of Lucent and one-half
by the stockholders. Judgment upon any award rendered by the arbitrator may be
entered in any court of competent jurisdiction.
8.5 Stockholders' Representative. (a) Menachem E. Abraham is hereby
appointed as representative ("Stockholders' Representative") for and on behalf
of the holders of the Company Capital Stock (the "Company Stockholders") to take
all actions necessary or appropriate in the judgment of the Stockholders'
Representative for the accomplishment of the terms of this Section 8. The
holders of a majority in interest of the Escrow Fund may replace the
Stockholders' Representative upon not less than 10 days' prior written notice to
Lucent. No bond shall be required of the Stockholders' Representative and the
Stockholders'
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Representative shall receive no compensation for his services. Notices of
communications to or from the Stockholders' Representative shall constitute
notice to or from each of the Company Stockholders.
(b) The Stockholders' Representative shall not be liable for any act done
or omitted in such capacity while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith. The Company
Stockholders shall severally indemnify the Stockholders' Representative and hold
him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Representative and
arising out of or in connection with the acceptance or administration of his
duties hereunder.
(c) Any decision, act, consent or instruction of the Stockholders'
Representative shall constitute a decision of all Company Stockholders for whom
shares of Lucent Common Stock otherwise issuable to them are deposited in the
Escrow Fund and shall be final, binding and conclusive upon each such Company
Stockholder, and the Escrow Agent and Lucent may rely upon any decision, act,
consent or instruction of each and every such Company Stockholder. The Escrow
Agent and Lucent are hereby relieved from any liability to any person for acts
done by them in accordance with such decision, act, consent or instruction of
the Stockholders' Representative.
9. Brokers' and Finders' Fees.
9.1 Company. The Company represents and warrants to Acquisition and
Lucent that no broker, investment banker or financial advisor other than
BancAmerica Robertson Stephens and R. Stephen Cheheyl is entitled to a brokerage
fee, financing commission or other commission in respect of the execution of
this Agreement or the consummation of the transactions contemplated hereby. The
terms of the Company's arrangements with BancAmerica Robertson Stephens and R.
Stephen Cheheyl are set forth in Schedule 9.1. The Company agrees that if the
transactions contemplated by this Agreement are not consummated (other than as a
result of a breach or default by Lucent or Acquisition), it shall indemnify and
hold Acquisition and Lucent harmless against any and all claims, losses,
liabilities, costs or expenses which may be asserted against them as a result of
the Company's or any of its Affiliates' dealings, arrangements or agreements
with any such Person.
9.2 Acquisition and Lucent. Acquisition and Lucent represent and warrant
to the Company that no broker, investment banker or financial advisor is
entitled to any brokerage fee, financing commission or other commission in
respect of the execution of this Agreement or the consummation of the
transactions contemplated hereby. Acquisition and Lucent agree that if the
transactions contemplated hereby are not consummated (other than as a result of
a breach or default by the Company), they shall jointly and severally indemnify
and hold the Company harmless against any and all claims, losses, liabilities,
costs or expenses which may be asserted against them, as a result of
Acquisition's or Lucent's or any of their respective Affiliates' dealings,
arrangements or agreements with any such Person.
10. Expenses. Each party hereto shall pay its own expenses incidental to the
preparation of this Agreement, the carrying out of the provisions of this
Agreement and the consummation of the transactions contemplated hereby, except
that all printing expenses and SEC filing fees shall be divided equally between
Lucent and the Company.
11. Press Releases. Except as required by law or Lucent's listing agreement
with the NYSE, Lucent, Acquisition and the Company shall not issue any press
release or otherwise make public any information with respect to this Agreement
nor the transactions contemplated hereby, prior to the Closing, without the
prior written consent of the other parties to this Agreement.
12. Contents of Agreement; Parties in Interest; etc. This Agreement and the
agreements referred to or contemplated herein and the letter agreement dated
September 9, 1997 concerning confidentiality (the "Confidentiality Agreement")
set forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby, and, except as set forth in this Agreement,
such other agreements and the Exhibits hereto and the Confidentiality Agreement,
there are no representations or warranties, express or implied, made by any
party to this Agreement with respect to the subject matter of this Agreement and
the Confidentiality Agreement. Except for the matters set forth in the
Confidentiality Agreement, any and all
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previous agreements and understandings between or among the parties regarding
the subject matter hereof, whether written or oral, are superseded by this
Agreement and the agreements referred to or contemplated herein.
13. Assignment and Binding Effect. This Agreement may not be assigned by
either party hereto without the prior written consent of the other party;
provided, that Acquisition may assign its rights and obligations under this
Agreement to any directly or indirectly wholly-owned Subsidiary of Lucent, upon
written notice to the Company if the assignee shall assume the obligations of
Acquisition hereunder and Lucent shall remain liable for its obligations
hereunder. All the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
14. Termination. This Agreement may be terminated, and the Merger may be
abandoned at any time prior to the Effective Time whether before or after the
approval and adoption of this Agreement and the transactions contemplated hereby
by the stockholders of the Company or the stockholders of Acquisition:
(a) by the mutual agreement of the Board of Directors of Acquisition
and the Company and the appropriate corporate authority of Lucent;
(b) by Lucent, Acquisition or the Company if (i) the Effective Time
shall not have occurred by March 31, 1998; provided that the right to
terminate this Agreement under this Section 14(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date; or (ii) any court of competent jurisdiction
in the United States or other United States governmental authority shall
have issued an order, decree, ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable;
(c) by the Company, in the event Lucent or Acquisition materially
breaches its obligations under this Agreement, unless such breach is cured
within 15 days after notice to Lucent by the Company; or
(d) by Lucent or Acquisition, in the event the Company materially
breaches its obligations under this Agreement unless such breach is cured
within 15 days after notice by Lucent or Acquisition.
15. Definitions. As used in this Agreement the terms set forth below shall
have the following meanings:
(a) "Affiliate" of a Person means any other Person who (i) directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with, such Person or (ii) owns more than 5% of the capital
stock or equity interest in such Person. "Control" means the possession of the
power, directly or indirectly, to direct or cause the direction of the
management and policies of a Person whether through the ownership of voting
securities, by contract or otherwise.
(b) "Benefit Plan" shall mean any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other material plan, arrangement or
understanding (whether or not legally binding) providing material benefits to
any current or former employee, officer or director of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Designated Group" shall mean Menachem E. Abraham, Steven E. Horowitz,
Stephen Metzger, Brian Ramelson, Joshua Weiss, Douglas Ruby and Timothy Lieto.
(e) "Environmental Laws" shall mean all applicable federal, state, local or
foreign laws, rules and regulations, orders, decrees, judgments, permits,
filings and licenses relating (i) to protection and clean-up of the environment
and activities or conditions related thereto, including those relating to the
generation, handling, disposal, transportation or release of Hazardous
Substances and (ii) the health or safety of employees in the workplace
environment, all as amended from time to time, and shall also include any common
law theory based on nuisance, trespass, negligence or other tortious conduct.
28
<PAGE> 105
(f) "Exchange Agent" shall mean The Bank of New York or another bank or
trust company designated as the exchange agent by Lucent (which designation
shall be reasonably acceptable to the Company).
(g) "GAAP" shall mean generally accepted accounting principles.
(h) "Hazardous Substances" shall mean any and all hazardous and toxic
substances, wastes or materials, any pollutants, contaminants, or dangerous
materials (including, but not limited to, polychlorinated biphenyls, PCBs,
friable asbestos, volatile and semi-volatile organic compounds, oil, petroleum
products and fractions, and any materials which include hazardous constituents
or become hazardous, toxic, or dangerous when their composition or state is
changed), or any other similar substances or materials which are included under
or regulated by any Environmental Laws.
(i) "Introduction Criteria" shall mean the criteria utilized by Lucent in
introducing its new products in the data networking industry, including, without
limitation, that any such product (a) has industry-leading reliability, (b) can
be manufactured in high volumes at reasonable production costs, (c) contains
state-of-the-art features and functionality, (d) has general industry-wide
interoperability, and (e) provides significant value by offering high
performance capability for a reasonable purchase price.
(j) "Liens" shall mean any mortgage, pledge, lien, security interest,
conditional or installment sale agreement, encumbrance, charge or other claims
of third parties of any kind.
(k) "Permitted Liens" shall mean (a) Liens for taxes, assessments, or
similar charges, incurred in the ordinary course of business that are not yet
due and payable or are being contested in good faith; (b) pledges or deposits
made in the ordinary course of business; (c) Liens of mechanics, materialmen,
warehousemen or other like Liens securing obligations incurred in the ordinary
course of business that are not yet due and payable or are being contested in
good faith; and (d) similar Liens and encumbrances which are incurred in the
ordinary course of business and which do not in the aggregate materially detract
from the value of such assets or properties or materially impair the use thereof
in the operation of such business.
(l) "Person" shall mean any individual, corporation, partnership, limited
partnership, limited liability company, trust, association or entity or
government agency or authority.
(m) "Product Delivery" shall mean the date on which the Company's P550
Cajun switch with integrated routing satisfies the Introduction Criteria.
(n) "Subsidiary" of a Person shall mean any corporation, partnership, joint
venture or other entity in which such person (a) owns, directly or indirectly,
50% or more of the outstanding voting securities or equity interests or (b) is a
general partner.
(o) "Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall mean
any federal, state, local or foreign net income, gross income, gross receipts,
windfall profit, severance, property, production, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum, ad
valorem, value-added, transfer, stamp, or environmental tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount imposed by any governmental authority.
(p) "Tax Return" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
16. Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by facsimile transmission (promptly
followed by a hard-copy delivered in accordance with this Section 16) or by
registered or certified mail (return receipt
29
<PAGE> 106
requested), with postage and registration or certification fees thereon prepaid,
addressed to the party at its address set forth below:
If to Acquisition or Lucent:
Lucent Technologies Inc.
c/o Business Communications Systems
211 Mount Airy Road
Basking Ridge, New Jersey 07920-2332
Att: President
with copies to:
Lucent Technologies Inc.
c/o Business Communications Systems
211 Mount Airy Road
Basking Ridge, New Jersey 07920-2332
Att: General Counsel, Business Communications Systems
If to the Company:
Prominet Corporation
400 Nickerson Road
Marlborough, Massachusetts 01752
Att: President and Chief Executive Officer
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02107
Att: Peter B. Tarr, Esq.
or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telegraphed or mailed.
17. Amendment. This Agreement may be amended, modified or supplemented at
any time prior to the Effective Time by the respective Boards of Directors of
the parties hereto notwithstanding the approval hereof by the stockholders of
the Company or the stockholders of Acquisition, as applicable, except as
provided in Section 251(d) of the DGCL. Any amendment, modification or revision
of this Agreement and any waiver of compliance or consent with respect hereto
shall be effective only if in a written instrument executed by the parties
hereto.
18. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of New York as applied to
contracts made and fully performed in such state, except insofar as the DGCL
shall be mandatorily applicable to the Merger and the rights of the stockholders
of the Company in connection therewith.
19. No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto, and their respective successors and assigns, and they shall not be
construed as conferring, and are not intended to confer, any rights on any other
Person.
20. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of the
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Agreement shall remain in full force and effect. Upon such determination, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
give effect to the original intent of the parties to the fullest extent
permitted by applicable law.
21. Section Headings. All section headings are for convenience only and
shall in no way modify or restrict any of the terms or provisions hereof.
22. Schedules and Exhibits. All Schedules and Exhibits referred to herein
are intended to be and hereby are specifically made a part of this Agreement.
23. Extensions. At any time prior to the Effective Time, Lucent and
Acquisition, on the one hand, and the Company on the other may by corporate
action, extend the time for compliance by or waive performance of any
representation, warranty, condition or obligation of the other party.
24. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and the Company,
Acquisition and Lucent may become a party hereto by executing a counterpart
hereof. This Agreement and any counterpart so executed shall be deemed to be one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement as of the date first above written.
LUCENT TECHNOLOGIES INC.
By: /s/ CARL PAVARINI
------------------------------------
Title: Vice President
PRANCER ACQUISITION, INC.
By: /s/ PAUL DICZOK
------------------------------------
Title: Treasurer and Chief
Financial Officer
PROMINET CORPORATION
By: /s/ MENACHEM E. ABRAHAM
------------------------------------
Title: President, Chief
Executive
Officer and Treasurer
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<PAGE> 108
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
- -------------------------------------------------------------------------- ----------------------
<S> <C>
Acquisition............................................................... Preamble
Acquisition Common Stock.................................................. Recitals
Acquisition Proposal...................................................... Section 5.4
Affiliate................................................................. Section 15(a)
Agreement................................................................. Recitals
Arbitration Service....................................................... Section 8.4(b)
Authorizations............................................................ Section 3.17(b)
Balance Sheet............................................................. Section 3.5(a)
Benefit Plan.............................................................. Section 15(b)
Capital Stock Exchange Ratio.............................................. Section 1.5(c)
Certificate of Merger..................................................... Section 1.1(b)
Certificates.............................................................. Section 1.7(b)
Closing................................................................... Section 1.1(b)
Closing Date.............................................................. Section 1.1(b)
Code...................................................................... Section 15(c)
Common Stock Exchange Ratio............................................... Section 1.5(c)
Commonly Controlled Entity................................................ Section 3.20(a)
Company................................................................... Preamble
Company Capital Stock..................................................... Recitals
Company Common Stock...................................................... Recitals
Company Preferred Stock................................................... Recitals
Confidentiality Agreement................................................. Section 12
CRCO...................................................................... Section 3.19(a)
DGCL...................................................................... Recitals
Designated Group.......................................................... Section 15(d)
Dissenting Shares......................................................... Section 1.7(a)
Effective Time............................................................ Section 1.1(b)
Environmental Laws........................................................ Section 15(e)
ERISA..................................................................... Section 3.20(a)
Escrow Agent.............................................................. Section 8.1
Escrow Agreement.......................................................... Section 6.1(e)
Escrow Fund............................................................... Section 8.1
Exchange Act.............................................................. Section 4.2(c)
Exchange Agent............................................................ Section 15(f)
Exchange Fund............................................................. Section 1.7(a)
Exchange Ratio............................................................ Section 1.5(c)
Executive Employees....................................................... Section 3.21(a)
Financial Statements...................................................... Section 3.5(a)
GAAP...................................................................... Section 15(g)
Hazardous Substances...................................................... Section 15(h)
Immaterial Authorizations................................................. Section 3.17(b)
Indemnified Party......................................................... Section 5.13
Intellectual Property Rights.............................................. Section 3.18(a)
Introduction Criteria..................................................... Section 15(i)
IRS....................................................................... Section 3.19
Laws...................................................................... Section 3.17(a)
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
- -------------------------------------------------------------------------- ----------------------
<S> <C>
Liens..................................................................... Section 15(j)
Lucent.................................................................... Preamble
Lucent Balance Sheet...................................................... Section 4.5(b)
Lucent Financials......................................................... Section 4.5(b)
Lucent Common Stock....................................................... Section 4.3
Lucent Notice............................................................. Section 8.3
Lucent Preferred Stock.................................................... Section 4.3
Lucent SEC Reports........................................................ Section 4.5(a)
Material Adverse Effect................................................... Section 3.1
Merger.................................................................... Recitals
NOLS...................................................................... Section 3.19(a)
NYSE...................................................................... Section 1.8
Pension Plans............................................................. Section 3.20(a)
Permitted Liens........................................................... Section 15(k)
Person.................................................................... Section 15(l)
Plans..................................................................... Section 3.20(a)
Product Delivery.......................................................... Section 15(m)
Proportionate Amount...................................................... Section 8.1
Registration Statement.................................................... Section 3.27
Restricted Stock Agreement................................................ Section 5.8(d)
Right..................................................................... Section 1.5(c)
SEC....................................................................... Section 3.27
Securities Act............................................................ Section 3.27
Series A Exchange Ratio................................................... Section 1.5(c)
Series A Preferred Stock.................................................. Recitals
Series B Exchange Ratio................................................... Section 1.5(c)
Series B Preferred Stock.................................................. Recitals
Shares.................................................................... Section 3.2(a)
SRLY...................................................................... Section 3.19(a)
Stock Options............................................................. Section 5.8(a)
Stock Plan................................................................ Section 5.8(a)
Stockholders' Representative.............................................. Section 8.5
Subsidiary................................................................ Section 15(n)
Substitute Option......................................................... Section 5.8(a)
Substitute Restricted Stock............................................... Section 5.8(d)
Supplemental Financial Information........................................ Section 5.3(c)
Surviving Corporation..................................................... Section 1.1(a)
Tax....................................................................... Section 15(o)
Tax Return................................................................ Section 15(p)
Warrant................................................................... Section 5.9
Warrant A Exchange Ratio.................................................. Section 5.9
Warrant B Exchange Ratio.................................................. Section 5.9
Warrant Exchange Ratios................................................... Section 5.9
Welfare Plans............................................................. Section 3.20
</TABLE>
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APPENDIX B
DELAWARE GENERAL CORPORATION LAW
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Section 262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251 of this title), 252, 254, 257, 258, 263 or 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this
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subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided that, if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or
B-3
<PAGE> 113
resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-4
<PAGE> 114
Appendix C
Form of Proxy Cards
C-1
<PAGE> 115
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF PROMINET CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Prominet Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement/Prospectus each dated December 18, 1997,
revokes all prior proxies and hereby appoints MENACHEM E. ABRAHAM and JOSHUA
WEISS, or either of them, proxies and attorneys-in-fact, with full power to
each of substitution, on behalf and in the name of the undersigned to represent
the undersigned at the Special Meeting of Stockholders of Prominet Corporation
to be held on January 21, 1998 at 10:00 a.m., local time, at the offices of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts and at any
postponement or adjournment thereof, and to vote all shares of Common Stock of
Prominet Corporation which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below.
IN THEIR DISCRETION, THE PROXY HOLDERS ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS
THEREOF. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL, THIS PROXY
WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS. ATTENDANCE OF THE
UNDERSIGNED AT THE MEETING OR AT ANY ADJOURNMENT THEREOF WILL NOT BE DEEMED TO
REVOKE THIS PROXY UNLESS THE UNDERSIGNED SHALL REVOKE THIS PROXY IN WRITING.
[SEE REVERSE SIDE]
<PAGE> 116
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. Approval and adoption of the Agreement and Plan of Merger pursuant to which
the Company will become a wholly owned subsidiary of Lucent Technologies
Inc.
For [ ] Against [ ] Abstain [ ]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: FOR APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN
OF MERGER, AND AS THE PROXY HOLDERS DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
SIGNATURE(S)___________________________________________________________________
DATE___________________________________________________________________________
SIGNATURE(S)___________________________________________________________________
DATE___________________________________________________________________________
NOTE:(This Proxy should be marked, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE [X]
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PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE> 117
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF PROMINET CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Prominet Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement/Prospectus each dated December 18, 1997,
revokes all prior proxies and hereby appoints MENACHEM E. ABRAHAM and JOSHUA
WEISS, or either of them, proxies and attorneys-in-fact, with full power to
each of substitution, on behalf and in the name of the undersigned to represent
the undersigned at the Special Meeting of Stockholders of Prominet Corporation
to be held on January 21, 1998 at 10:00 a.m., local time, at the offices
of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts and at any
postponement or adjournment thereof, and to vote all shares of Series B
Convertible Preferred Stock of Prominet Corporation which the undersigned would
be entitled to vote if then and there personally present, on the matters set
forth below.
IN THEIR DISCRETION, THE PROXY HOLDERS ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS
THEREOF. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL, THIS PROXY
WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS. ATTENDANCE OF THE
UNDERSIGNED AT THE MEETING OR AT ANY ADJOURNMENT THEREOF WILL NOT BE DEEMED TO
REVOKE THIS PROXY UNLESS THE UNDERSIGNED SHALL REVOKE THIS PROXY IN WRITING.
[SEE REVERSE SIDE]
<PAGE> 118
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. Approval and adoption of the Agreement and Plan of Merger pursuant to
which the Company will become a wholly owned subsidiary of Lucent
Technologies Inc.
For [ ] Against [ ] Abstain [ ]
2. Approval of determination that the Merger shall not be deemed a
liquidation, dissolution or winding up for purposes of Article FOURTH,
Section B2(c) of the Certificate of Incorporation.
For [ ] Against [ ] Abstain [ ]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: FOR APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN
OF MERGER, AND AS THE PROXY HOLDERS DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
SIGNATURE(S)____________________________________________________________________
DATE____________________________________________________________________________
SIGNATURE_______________________________________________________________________
DATE____________________________________________________________________________
NOTE: (This Proxy should be marked, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE [X]
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PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE> 119
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF PROMINET CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Prominet Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement/Prospectus each dated December 18, 1997,
revokes all prior proxies and hereby appoints MENACHEM E. ABRAHAM and JOSHUA
WEISS, or either of them, proxies and attorneys-in-fact, with full power to each
of substitution, on behalf and in the name of the undersigned to represent the
undersigned at the Special Meeting of Stockholders of Prominet Corporation to be
held on January 21, 1998 at 10:00 a.m., local time, at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts and at any postponement or
adjournment thereof, and to vote all shares of Common Stock of Prominet
Corporation which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below.
IN THEIR DISCRETION, THE PROXY HOLDERS ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS
THEREOF. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL, THIS PROXY
WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS. ATTENDANCE OF THE
UNDERSIGNED AT THE MEETING OR AT ANY ADJOURNMENT THEREOF WILL NOT BE DEEMED TO
REVOKE THIS PROXY UNLESS THE UNDERSIGNED SHALL REVOKE THIS PROXY IN WRITING.
[SEE REVERSE SIDE]
<PAGE> 120
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. Approval and adoption of the Agreement and Plan of Merger pursuant to
which the Company will become a wholly owned subsidiary of Lucent
Technologies Inc.
For [ ] Against [ ] Abstain [ ]
2. Approval of determination that the Merger shall not be deemed a
liquidation, dissolution or winding up for purposes of Article FOURTH,
Section C2(c) of the Certificate of Incorporation.
For [ ] Against [ ] Abstain [ ]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: FOR APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN
OF MERGER, AND AS THE PROXY HOLDERS DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
SIGNATURE(S)____________________________________________________________________
DATE____________________________________________________________________________
SIGNATURE_______________________________________________________________________
DATE____________________________________________________________________________
NOTE: (This Proxy should be marked, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE [X]
|
|
------
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation, a "derivative action") if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such actions, and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's bylaws, disinterested director vote, stockholder
vote, agreement or otherwise.
The Lucent Certificate provides that each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of Lucent or is or was serving
at the request of Lucent as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, will be indemnified and held harmless by Lucent to
the fullest extent authorized by the DGCL, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits Lucent to provide broader indemnification rights than said law
permitted Lucent to provide prior to such amendment), against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith. Such right to indemnification includes the right to have Lucent pay
the expenses incurred in defending any such proceeding in advance of its final
disposition, subject to the provisions of the DGCL. Such rights are not
exclusive of any other right which any person may have or thereafter acquire
under any statute, provision of the Certificate, Lucent By-Law, agreement, vote
of stockholders or disinterested directors or otherwise. No repeal or
modification of such provision will in any way diminish or adversely affect the
rights of any director, officer, employee or agent of Lucent thereunder in
respect of any occurrence or matter arising prior to any such repeal or
modification. The Certificate also specifically authorizes Lucent to maintain
insurance and to grant similar indemnification rights to employees or agents of
Lucent.
The DGCL permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) payments of unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
The Lucent Certificate provides that a director of Lucent will not be
personally liable to Lucent or its stockholders for monetary damages for breach
of fiduciary duty as a director, except, if required by the DGCL, as amended
from time to time, for liability (i) for any breach of the director's duty of
loyalty to Lucent or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit. Neither the amendment
nor repeal of such provision will eliminate or reduce the effect of such
provision in respect of any matter occurring, or any cause of action, suit or
claim that, but for such provision, would accrue or arise prior to such
amendment or repeal.
II-1
<PAGE> 122
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a list of Exhibits included as part of this Registration
Statement. Lucent agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request. Items marked with an asterisk are filed
herewith.
<TABLE>
<C> <S>
+2.1 Agreement and Plan of Merger dated as of October 14, 1997 among Lucent Technologies
Inc., Prancer Acquisition, Inc. and Prominet Corporation. (included as Appendix A to
the Proxy Statement/Prospectus).
3.1 Restated Certificate of Incorporation of Lucent is hereby incorporated by reference to
Exhibit No. (3.1) to Amendment No. 3 to the Registration Statement on Form S-1 of
Lucent filed with the SEC on April 1, 1996 (Registration No. 333-00703) ("Amendment
No. 3").
3.2 By-Laws of Lucent are hereby incorporated by reference to Exhibit No. (3.2) to
Amendment No. 3.
4.3 Rights Agreement between Lucent and The Bank of New York (as successor to First
Chicago Trust Company of New York), as Rights Agent, dated as of April 4, 1996 in
hereby incorporated by reference to Exhibit No. (4.2) to Amendment No. 3.
+5.1 Opinion of Lucent Vice President -- Law, as to the legality of the securities being
registered, dated December 15, 1997.
*8.1 Opinion of Hale and Dorr LLP, as to certain United States federal income tax
consequences of the Merger.
+11.1 Statement re Computation of Per Share Earnings.
*23.1 Consent of Price Waterhouse LLP, dated December 18, 1997.
*23.2 Consent of Coopers & Lybrand L.L.P., dated December 18, 1997.
+23.3 Consent of Lucent Vice President -- Law (included as part of Exhibit 5.1).
*23.4 Consent of Hale and Dorr LLP (included as part of Exhibit 8.1).
+24.1 Powers of Attorney.
</TABLE>
- ---------------
* Filed herewith
+ Previously filed with Initial Registration Statement on Form S-4 on December
15, 1997.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar amount of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE> 123
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Proxy Statement/Prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this registration statement
through the date of responding to the request.
(f) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement or amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in Murray
Hill, New Jersey, on the 18th day of December, 1997.
LUCENT TECHNOLOGIES INC.
By: /s/ JAMES S. LUSK
--------------------------------------
Name: James S. Lusk
Title: Vice President and Controller
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed by the following
persons in the capacities and on the date indicated.
Principal Executive Officer:
Richard A. McGinn
Chief Executive Officer
Principal Financial Officer:
Donald K. Peterson
Executive Vice President
and Chief Financial Officer
<TABLE>
<S> <C>
Principal Accounting Officer: By: /s/ JAMES S. LUSK
----------------------------------------------
(James S. Lusk, attorney-in-fact)*
James S. Lusk
Vice President and Controller
Directors: December 18, 1997
Paul A. Allaire
Carla A. Hills
Drew Lewis
Richard A. McGinn
Paul H. O'Neill *by power of attorney
Donald S. Perkins
Henry B. Schacht
Franklin A. Thomas
John A. Young.
</TABLE>
II-4
<PAGE> 125
INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ---------- -----
<C> <S> <C>
+2.1 Agreement and Plan of Merger dated as of October 14, 1997 among Lucent
Technologies Inc., Prancer Acquisition, Inc. and Prominet Corporation.
(included as Appendix A to the Proxy Statement/Prospectus).
3.1 Restated Certificate of Incorporation of Lucent is hereby incorporated by
reference to Exhibit No. (3.1) to Amendment No. 3 to the Registration
Statement on Form S-1 of Lucent filed with the SEC on April 1, 1996
(Registration No. 333-00703) ("Amendment No. 3").
3.2 By-Laws of Lucent are hereby incorporated by reference to Exhibit No. (3.2)
to Amendment No. 3.
4.3 Rights Agreement between Lucent and The Bank of New York (as successor to
First Chicago Trust Company of New York), as Rights Agent, dated as of
April 4, 1996 in hereby incorporated by reference to Exhibit No. (4.2) to
Amendment No. 3.
+5.1 Opinion of Lucent Vice President -- Law, as to the legality of the
securities being registered, dated December 15, 1997.
*8.1 Opinion of Hale and Dorr LLP, as to certain United States federal income
tax consequences of the Merger.
+11.1 Statement re Computation of Per Share Earnings.
*23.1 Consent of Price Waterhouse LLP, dated December 18, 1997.
*23.2 Consent of Coopers & Lybrand L.L.P., dated December 18, 1997.
+23.3 Consent of Lucent Vice President -- Law (included as part of Exhibit 5.1).
*23.4 Consent of Hale and Dorr LLP (included as part of Exhibit 8.1).
+24.1 Powers of Attorney.
</TABLE>
- ---------------
* Filed herewith
+ Previously filed with Initial Registration Statement on Form S-4 on December
15, 1997.
<PAGE> 1
[GRAPHIC OMITTED]
Washington, DC Boston, MA London, UK*
HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 - fax 617-526-5000
EXHIBIT 8.1
December , 1997
Prominet Corporation
400 Nickerson Road
Marlborough, MA 01752
Re: Merger pursuant to Agreement and Plan of Merger
among Lucent Technologies Inc., Prancer Acquisition, Inc.,
and Prominet Corporation
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Proxy Statement/Prospectus relating to the Agreement and Plan
of Merger dated as of December 9, 1997 (the "Merger Agreement"), by and among
Lucent Technologies Inc., a Delaware corporation ("Parent"), Prancer
Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of Parent
("Sub"), and Prominet Corporation, a Delaware corporation ("Target"). Pursuant
to the Merger Agreement, Sub will merge with and into Target (the "Merger").
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement and the exhibits thereto or in the
letters delivered to Hale and Dorr LLP by Parent and Target and certain Target
shareholders containing certain representations of Parent and Target and certain
Target shareholders relevant to this opinion (the "Representation Letters"). All
section references, unless otherwise indicated, are to the United States
Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel to Target in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Escrow Agreement,
the Representation Letters, and such other documents as we considered relevant
to our analysis. In our examination of documents, we have assumed the
authenticity of original documents, the accuracy of copies, the genuineness of
signatures, and the legal capacity of signatories.
<PAGE> 2
Prominet Corporation
December , 1997
Page 2
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person or
entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders of
Target that are subject to special tax rules, and we express no opinion
regarding the tax consequences of the Merger arising in connection with the
ownership of options or warrants for Target stock or Target stock issued in
compensatory transactions.
On the basis of, and subject to, the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
<PAGE> 3
Prominet Corporation
December , 1997
Page 3
1. The Merger will constitute a reorganization within the meaning of
Section 368(a);
2. No gain or loss will be recognized by Parent, Sub, or Target as a
result of the Merger;
3. No gain or loss will be recognized by the shareholders of Target upon
the exchange of Target stock solely for shares of Parent stock in the Merger;
4. Cash received by the shareholders of Target in lieu of fractional
shares of Parent stock will be treated as received as a distribution in
redemption of such fractional shares, subject to the provisions of Section 302,
as if such fractional shares had been issued in the Merger and then redeemed by
Parent;
5. The tax basis of the shares of Parent stock received by the
shareholders of Target in the Merger will be equal to the tax basis of the
shares of Target stock exchanged therefor in the Merger, reduced by any basis
allocable to a fractional share of Parent stock treated as sold or exchanged
under Section 302; and
6. The holding period for the shares of Parent stock received by the
shareholders of Target will include the holding period for the shares of Target
stock exchanged therefor in the Merger, provided that the shares of Target stock
are held as capital assets at the Effective Time.
No opinion is expressed as to any federal income tax consequence of the
Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences specifically discussed
herein. This opinion is intended solely for the purpose of inclusion as an
exhibit to the Registration Statement. It may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to any
other person or entity without our prior written consent. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and
further consent to the use of our name in the Registration Statement in
connection with references to this opinion and the tax
<PAGE> 4
Prominet Corporation
December , 1997
Page 4
consequences of the Merger. In giving this consent, however, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement/Prospectus constituting
part of this Registration Statement on Amendment No. 1 to Form S-4 of Lucent
Technologies Inc. of our report dated April 25, 1997, except as to Note 10,
which is as of December 9, 1997 relating to the financial statements of
Prominet Corporation, which appears in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data".
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 18, 1997
<PAGE> 1
Exhibit 23.2
[Letterhead of Coopers & Lybrand]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Amendment No. 1 to this
registration statement on Form S-4, of our reports dated October 24, 1996, on
our audits of the consolidated financial statements and financial statement
schedule of Lucent Technologies Inc. and subsidiaries as of September 30, 1996
and December 31, 1995, and for the nine-month period ended September 30, 1996
and the years ended December 31, 1995 and 1994, which reports are included or
incorporated by reference in the Company's Transition Report on Form 10-K. We
also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
New York, New York
December 18, 1997
