SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Lucent Technologies Inc.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
---------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------
5) Total fee paid:
------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
-------------------------------------------------
2) Form, Schedule or Registration Statement No.
----------------------------
3) Filing party:
-----------------------------------------------------------
4) Date filed:
-------------------------------------------------------------
<PAGE>
After completing a record-setting
first year as a new company...
We present to our shareowners
notice of our 1998 annual meeting and
proxy
statement
[LUCENT TECHNOLOGIES LOGO CARD]
<PAGE>
YOUR VOTE IS IMPORTANT
To ensure that your shares will be represented at the Annual Meeting,
please complete, sign, date and promptly mail your proxy card to the Transfer
Agent, The Bank of New York, in the enclosed postage-paid envelope. If you are
a Shareowner of record, you may use the toll-free telephone number on the proxy
card to vote your shares.
If your shares are held in the name of a bank, broker or other holder
of record, you will receive instructions from the holder of record that you
must follow in order for your shares to be voted. Telephone voting also will be
offered to Shareowners owning stock through certain banks and brokers.
ELIMINATE DUPLICATE MAILINGS
Securities and Exchange Commission ("SEC") rules require the Company
to provide an Annual Report to Shareowners who receive this proxy statement. If
you are a Shareowner of record and have more than one account in your name or
the same address as other Shareowners of record, you may authorize the Company
to discontinue mailings of multiple Annual Reports. To do so, mark the
appropriate box on each proxy card for which you do not wish to receive an
Annual Report, or, if you are a Shareowner of record voting by telephone, you
may stay on the line until you receive the appropriate prompt.
<PAGE>
LUCENT TECHNOLOGIES INC.
600 Mountain Avenue
Murray Hill, New Jersey 07974
----------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
----------------------------------------------------------------------
TIME .................. 9:30 a.m. E.S.T., on Wednesday,
February 18, 1998
PLACE .................. Meadowlands Exposition Center
355 Plaza Drive
Secaucus, New Jersey 07094
ITEMS OF BUSINESS ...... (1) To elect members of the Board of
Directors, whose terms are described
herein.
(2) To approve the amended Lucent
Technologies Inc. Short Term
Incentive Plan.
(3) To approve the amended Lucent
Technologies Inc. 1996 Long Term
Incentive Program.
(4) To transact such other business,
including Shareowner proposals
(beginning on page 25 of the
accompanying Proxy Statement), as
may properly come before the Meeting
and any adjournment thereof.
RECORD DATE ............ Holders of Common Shares of record at
the close of business, December 22, 1997,
are entitled to vote at the Meeting.
ANNUAL REPORT ......... The Annual Report of the Company for
1997, which is not a part of the proxy
soliciting material, is enclosed.
PROXY VOTING ............ It is important that your Shares be
represented and voted at the Meeting.
Please USE THE TOLL-FREE TELEPHONE
NUMBER on the enclosed proxy card OR
MARK, SIGN, DATE AND PROMPTLY
RETURN the enclosed proxy card in the
postage-paid envelope furnished for
that purpose. Any proxy may be
revoked in the manner described in the
accompanying Proxy Statement at any
time prior to its exercise at the Meeting.
RICHARD J. RAWSON
Senior Vice President,
General Counsel and
December 22, 1997 Corporate Secretary
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
PROXY STATEMENT ................................................... 1
Annual Meeting Admission .......................................... 2
Proxies ......................................................... 2
Shareowners Entitled to Vote .................................... 3
Required Vote ................................................... 4
Multiple Copies of Annual Report to Shareowners .................. 4
Cost of Proxy Solicitation ....................................... 5
Advance Notice Procedures ....................................... 5
Shareowner Communications ....................................... 5
Shareowner Account Maintenance .................................... 6
Section 16(a) Beneficial Ownership Reporting Compliance ......... 6
Relationship with Independent Public Accountants .................. 6
GOVERNANCE OF THE COMPANY .......................................... 7
Committees of the Board of Directors .............................. 7
Compensation of Directors ....................................... 8
Compensation Committee Interlocks and Insider Participation ...... 9
ELECTION OF DIRECTORS ............................................. 10
Nominees for Terms Expiring in 2001 .............................. 11
Directors Whose Terms Will Expire in 1999 ........................ 12
Directors Whose Terms Will Expire in 2000 ........................ 13
DIRECTORS' PROPOSALS ............................................. 14
About the Directors' Proposals .................................... 14
Directors' Proposal to Approve the Amended Lucent Technologies Inc.
Short Term Incentive Plan ....................................... 14
Directors' Proposal to Approve the Amended Lucent Technologies Inc.
1996 Long Term Incentive Program .............................. 16
SHAREOWNER PROPOSALS ............................................. 25
Shareowner Proposal Number 1 .................................... 25
Shareowner Proposal Number 2 .................................... 26
EXECUTIVE COMPENSATION ............................................. 29
Board Compensation Committee Report on Executive
Compensation ................................................... 29
Performance Graph ................................................ 35
Share Ownership of Management and Directors ..................... 36
Summary Compensation Table ....................................... 37
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Values ......................................................... 39
Option Grants in Last Fiscal Year ................................. 40
Long-Term Incentive Plans - Awards in Last Fiscal Year ............ 41
Pension Plans ................................................... 41
Related Transactions ............................................. 44
OTHER MATTERS ...................................................... 46
<PAGE>
[Lucent Technologies logo]
Lucent Technologies Inc.
Executive Offices
600 Mountain Avenue
Murray Hill, New Jersey 07974
PROXY STATEMENT
- --------------------------------------------------------------------------------
These proxy materials are furnished in connection with the solicitation by
the Board of Directors of Lucent Technologies Inc. ("Lucent" or the "Company"),
a Delaware corporation, of proxies to be voted at the 1998 Annual Meeting of
Shareowners of the Company (the "Annual Meeting" or "Meeting") and at any
meeting following adjournment thereof.
You are cordially invited to attend Lucent's second Annual Meeting of
Shareowners on February 18, 1998, beginning at 9:30 a.m. E.S.T. Shareowners
will be admitted beginning at 8:30 a.m. The Meeting will be held in the
Meadowlands Exposition Center at 355 Plaza Drive, Secaucus, New Jersey 07094. A
map and directions can be found on the admission ticket portion of the proxy
card. Parking is available at no charge.
The Exposition Center is accessible to handicapped persons and we will
provide wireless headsets for hearing amplification. Sign interpretation will
be offered upon request by calling either 908-582-3610 or our TTY number,
800-711-7072.
The Company was formed in November 1995 as a wholly-owned subsidiary of
AT&T Corp. ("AT&T") as part of AT&T's plan to restructure itself into three
companies: a communications services company (AT&T), a systems and technology
company (Lucent) and a computer company (NCR Corporation). The Company
completed its initial public offering in April 1996 and became fully
independent of AT&T upon the distribution by AT&T of its Lucent shares to AT&T
shareowners on September 30, 1996 (the "Spin-Off").
The Company's 1997 fiscal year began on October 1, 1996 and ended
September 30, 1997. All references in this Proxy Statement to the year 1997 or
fiscal 1997 refer to the twelve-month period from October 1, 1996 through
September 30, 1997.
This Proxy Statement and accompanying forms of proxy and voting
instructions are being mailed to holders of the Company's common stock ("Common
Shares" or "Shares") on the record date, which is December 22, 1997 (the
"Record Date").
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Annual Meeting Admission
An admission ticket, which will be required for entry into the Annual
Meeting, is attached to the proxy card accompanying this Proxy Statement. If
you plan to attend the Annual Meeting in person, please retain the admission
ticket attached to the proxy card.
Shareowners whose Shares are held in the name of a bank, broker or
other holder of record who plan to attend the Meeting in person may obtain
admission tickets in advance by sending written requests, along with proof of
ownership, such as a bank or brokerage account statement, to the Company's
Transfer Agent, The Bank of New York, Church Street Station, P.O. Box 11009,
New York, New York 10286. Shareowners who do not have admission tickets will be
admitted upon verification of ownership at the door.
Proxies
Your vote is important. Because many Shareowners cannot personally
attend the Meeting, it is necessary that a large number be represented by
proxy. Shareowners of record may vote their proxies using the toll-free number
listed on the proxy card or they may mark, sign, date and mail their proxies in
the postage-paid envelope provided. Proxies may be revoked at any time before
they are exercised by written notice to the Corporate Secretary, by timely
delivery of a properly executed, later-dated proxy or by voting by ballot at
the Meeting. Prompt return of your proxy card or telephone vote may save the
Company the expense of a second mailing.
Shareowners of record can save the Company expense by voting their
Shares by calling the toll-free telephone number on the proxy card. The
telephone voting procedure is designed to authenticate Shareowners by use of a
Control Number. A Shareowner of record can also stay on the line to give
instructions for the Company to discontinue future duplicate Annual Report
mailings for his or her account. The telephone voting procedures described on
the proxy card allow Shareowners to vote their Shares and to confirm that their
instructions have been properly recorded.
If your Shares are held in the name of a bank or broker, you may be
able to vote by telephone. Follow the instructions on the form you receive from
your bank or broker.
The method by which you vote will in no way limit your right to vote
at the Annual Meeting if you later decide to attend in person. If your Shares
are held in the name of a bank, broker or other holder of record, you must
obtain a proxy, executed in your favor, from the holder of record to be able to
vote at the Meeting.
2
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
All Shares entitled to vote and represented by properly executed
proxies received prior to the Annual Meeting and not revoked will be voted at
the Annual Meeting in accordance with the instructions indicated on those
proxies. If no instructions are indicated on a properly executed proxy, the
Shares represented by that proxy will be voted as recommended by the Board of
Directors.
If any other matters are properly presented at the Annual Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Annual Meeting to another time or place, the persons named in the
enclosed form of proxy and acting thereunder will have discretion to vote on
those matters according to their best judgment to the same extent as the person
signing the proxy would be entitled to vote. At the date this proxy statement
went to press, the Company did not anticipate that any other matters would be
raised at the Annual Meeting.
Shareowners Entitled to Vote
Holders of record of Common Shares at the close of business on the
Record Date are entitled to notice of and to vote at the Annual Meeting.
On October 1, 1997, there were 642,072,290 Common Shares outstanding.
Each Common Share is entitled to one vote on each matter properly brought before
the Meeting.
If you are a participant in the BuyDIRECT(SM) dividend reinvestment
and stock purchase plan ("BuyDIRECT"), Common Shares held in your BuyDIRECT
account are included on, and may be voted through, the proxy card accompanying
this mailing. The plan's administrator, as the Shareowner of record, may only
vote the plan Shares for which it has received directions to vote from plan
participants.
For Lucent Employees: If you are a participant in the Lucent Employee
Stock Ownership Plan, Lucent Long Term Savings Plan for Management Employees,
Lucent Long Term Savings and Security Plan, Lucent Retirement Savings and
Profit Sharing Plan, Lucent Long Term Savings and Security Employee Stock
Ownership Trust or Lucent Employee Stock Purchase Plan, you will receive one
proxy card for all Shares you own. That proxy card will serve as a voting
instruction card for the trustees of those plans where all accounts are
registered in the same name. If you own Shares through these plans and do not
return your proxy card, the respective plan trustees will have discretion to
vote those Shares.
(SM) BuyDIRECT is a service mark of The
Bank of New York
3
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
If you hold Lucent Shares through any other company's stock purchase
or savings plan, you will receive voting instructions from that plan's
administrator. Please sign and return those instructions promptly to ensure
your Shares are represented at the Meeting.
In accordance with Delaware law, a list of Shareowners entitled to
vote at the Annual Meeting will be available at the Meadowlands Exposition
Center on February 18, 1998, and for 10 days prior to the Meeting, between the
hours of 9 a.m. and 4 p.m. at the office of the Transfer Agent, The Bank of New
York, 925 Paterson Plank Road, Secaucus, New Jersey 07094.
Required Vote
The presence, in person or by proxy, of the holders of a majority of
the votes entitled to be cast by the Shareowners entitled to vote generally at
the Annual Meeting is necessary to constitute a quorum. Abstentions and broker
"non-votes" are counted as present and entitled to vote for purposes of
determining a quorum. A broker "non-vote" occurs when a nominee holding Shares
for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power with respect to that item and
has not received instructions from the beneficial owner.
A plurality of the votes duly cast is required for the election of
Directors (i.e., the nominees receiving the greatest number of votes will be
elected). Abstentions and broker "non-votes" are not counted for purposes of
the election of Directors.
The affirmative vote by the holders of the majority of the Common
Shares present in person or represented by proxy and entitled to vote is
required to approve the other matters to be acted upon at the Annual Meeting.
An abstention is counted as a vote against and a broker "non-vote" is not
counted for purposes of approving those matters.
Multiple Copies of Annual Report to Shareowners
The Company's 1997 Annual Report to Shareowners has been mailed to
Shareowners. If more than one copy of the Annual Report is sent to your address
and you wish to reduce the number of reports you receive and save the Company
the cost of producing and mailing these reports, we will discontinue the
mailing of reports on the accounts you select if you mark the designated box on
the appropriate proxy card(s), or stay on the line if you are a Shareowner of
record voting by telephone.
At least one account must continue to receive the Annual Report.
Mailing of dividends, dividend reinvestment statements, proxy
4
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
materials and special notices will not be affected by your election to
discontinue duplicate mailings of the Annual Report. To discontinue or resume
the mailing of an Annual Report to an account, call the Lucent Shareowner
Services toll-free number, 1-888-LUCENT6.
If you own Common Shares through a bank, broker or other nominee and
receive more than one Lucent Annual Report, contact the holder of record to
eliminate duplicate mailings.
Cost of Proxy Solicitation
The cost of soliciting proxies will be borne by the Company. Proxies
may be solicited on behalf of the Company by Directors, officers or employees
of the Company in person or by telephone, facsimile transmission, telegram or
electronic transmission. The Company has engaged the firm of Morrow & Co. to
assist the Company in the distribution and solicitation of proxies. The Company
has agreed to pay Morrow & Co. a fee of $15,000 plus expenses for these
services.
In accordance with the regulations of the SEC and the New York Stock
Exchange (the "NYSE") the Company will also reimburse brokerage firms and other
custodians, nominees and fiduciaries for their expenses incurred in sending
proxies and proxy materials to beneficial owners of Common Shares.
Advance Notice Procedures
Under the Company's By-Laws, nominations for Director may be made only
by the Board or a Board committee, or by a Shareowner entitled to vote who has
delivered notice to the Company not less than 90 days nor more than 120 days
prior to the first anniversary of the preceding year's annual meeting.
The By-Laws also provide that no business may be brought before an
annual meeting except as specified in the notice of the meeting or as otherwise
brought before the meeting by or at the direction of the Board or by a
Shareowner entitled to vote who has delivered notice to the Company (containing
certain information specified in the By-Laws) within the time limits described
above for delivering notice of a nomination for the election of a Director.
These requirements apply to any matter that a Shareowner wishes to raise at an
annual meeting other than pursuant to the procedures in SEC Rule 14a-8.
A copy of the full text of the By-Law provisions discussed above may
be obtained by writing to the Corporate Secretary's Department, 600 Mountain
Avenue, Room 3C-515, Murray Hill, New Jersey 07974.
Shareowner Communications
Highlights of the Annual Meeting will be included in a quarterly
report to Shareowners
5
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
following the Meeting. A transcript can be obtained by writing to the Corporate
Secretary's Department, 600 Mountain Avenue, Room 3C-515, Murray Hill, New
Jersey 07974.
As a Shareowner, your comments pertaining to any aspect of Company
business are welcome. Space is provided for this purpose on the proxy card
given to Shareowners of record. Other Shareowners may write to the Corporate
Secretary's Department at the address set forth above. Although Shareowner
comments are not answered on an individual basis, they do assist Company
management in understanding the concerns of Shareowners.
Shareowner Account Maintenance
The Company's Transfer Agent is The Bank of New York. All
communications concerning accounts of Shareowners of record, including address
changes, name changes, inquiries as to requirements to transfer Common Shares
and similar issues can be handled by calling the Lucent Shareowner Services
toll-free number 1-888-LUCENT6. For other Company information, Shareowners can
visit Lucent's Web site at http://www.lucent.com.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors and executive officers to file reports of holdings and
transactions in Shares with the SEC and the NYSE. Based on Company records and
other information, the Company believes that all SEC filing requirements
applicable to its Directors and executive officers with respect to the
Company's fiscal year ending September 30, 1997, were met.
Relationship with Independent Public Accountants
Upon recommendation of the Audit and Finance Committee of the Board
of Directors, the Board has reappointed Coopers & Lybrand L.L.P. ("Coopers &
Lybrand") as the independent public accounting firm to audit the Company's
financial statements for the fiscal year beginning October 1, 1997 and ending
September 30, 1998.
Representatives of Coopers & Lybrand will be present at the Annual
Meeting. They will be given the opportunity to make a statement if they desire
to do so, and they will be available to respond to appropriate questions.
- --------------------------------------------------------------------------------
6
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
GOVERNANCE OF THE COMPANY
- --------------------------------------------------------------------------------
Pursuant to the Delaware General Corporation Law, as implemented by the
Company's Certificate of Incorporation and By-Laws, the business, property and
affairs of the Company are managed under the direction of the Board of
Directors. Members of the Board are kept informed of the Company's business
through discussions with the Chairman and officers, by reviewing materials
provided to them and by participating in meetings of the Board and its
committees.
During fiscal 1997, the Board held eight meetings and the committees
held eleven meetings in the aggregate, including a meeting held by a special
committee formed to review an acquisition. The average attendance in the
aggregate of the total number of Board meetings and the total number of
committee meetings was 94%.
Committees of the Board of Directors
During fiscal 1997, the Board of Directors had two ongoing
committees: an Audit and Finance Committee and a Corporate Governance and
Compensation Committee.
The Audit and Finance Committee meets with management to consider the
adequacy of the internal controls and the objectivity of financial reporting.
The Audit and Finance Committee also meets with the independent auditors and
with appropriate financial personnel and internal auditors of the Company
regarding these matters. The Audit and Finance Committee recommends to the
Board the appointment of the independent auditors. Both the internal auditors
and the independent auditors regularly meet alone with the Audit and Finance
Committee and have unrestricted access to the Audit and Finance Committee. The
Audit and Finance Committee reviews the Company's financing plans and reports
recommendations to the full Board for approval and to authorize action. The
Audit and Finance Committee met five times in 1997.
The functions of the Corporate Governance and Compensation Committee
(the "Compensation Committee" or the "Committee") include: recommending to the
full Board nominees for election as Directors of the Company; making
recommendations to the Board from time to time as to matters of corporate
governance; administering management incentive compensation plans and making
recommendations to the Board with respect to the compensation of Directors and
officers of the Company. The
7
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Committee will consider qualified candidates for Director suggested by
Shareowners in written submissions to the Corporate Secretary of the Company.
The Corporate Governance and Compensation Committee met five times in 1997.
Compensation of Directors
With respect to fiscal 1997, all non-employee Directors received an
annual Board retainer of $55,000. The Chair of each committee described in the
previous section received an additional annual retainer of $10,000. The annual
Board retainer and the additional annual retainer for committee Chairs are paid
fifty percent (50%) in cash and fifty percent (50%) in Common Shares, in
accordance with the Company's Stock Retainer Plan for Non-Employee Directors.
Under the Company's Deferred Compensation Plan, non-employee
Directors may defer all or a portion of their compensation to a Deferred
Compensation Account (the "Account"). Directors may elect to defer the receipt
of all or part of the 50% of such compensation payable in cash into a portion
of the Account, the value of which is measured from time to time by the value
of the Common Shares (the "Company Shares Portion") or into a cash portion of
the Account (the "Cash Portion") and to defer the receipt of all or part of the
50% of such compensation payable in Common Shares into the Company Shares
Portion of the Account. The Company Shares Portion is credited on each dividend
payment date for Common Shares with a number of units representing Common
Shares equivalent in market value to the amount of the quarterly dividend on
the Common Shares then credited in the Account. The Cash Portion of the Account
earns interest, compounded quarterly at an annual rate equal to the average
interest rate for 10-year United States Treasury notes for the previous
quarter, plus 5%. Deferrals to the Cash Portion after October 1, 1997, will
earn interest compounded quarterly at an annual rate equal to 120% of the
average interest rate for 10-year U.S. Treasury notes for the previous quarter.
Interest rates for past and future deferrals to the Cash Account may be revised
by the Board. All distributions in respect of the Company Shares Portion are
payable solely in cash. For this purpose, the value of the units representing
Common Shares will be equal to the average of the closing prices of the Common
Shares on the five consecutive trading days immediately prior to the payment
date. Mr. Schacht has a balance in the plan as a result of his service on the
Board of Directors of AT&T prior to the Spin-Off. He does not receive a
retainer for his service as a Director of Lucent. The portion
8
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
of the interest accrued on Mr. Schacht's balance in the Cash Portion of his
Account that constitutes above-market interest for fiscal 1997 was $40,738. In
the event of a Potential Change in Control as defined in the plan, the
Company's Deferred Compensation Plan will be supported by a benefits protection
grantor trust, the assets of which will be subject to the claims of the
Company's creditors.
The Company also maintains a general insurance policy which provides
non-employee Directors with travel accident insurance when on Company business.
A non-employee Director may purchase life insurance sponsored by the Company.
The Company will share the premium expense with the non-employee Director;
however, all Company contributions will be returned to the Company at the
earlier of (a) the non-employee Director's death or (b) the later of age 70 or
10 years from the policy's inception. This benefit will continue after the
non-employee Director's retirement from the Company's Board of Directors.
The current Directors of the Company who were formerly directors of
AT&T were entitled to an annual retirement benefit under the AT&T Pension Plan
for Directors (the "Pension Plan"), equal to their annual retainer at
retirement from the AT&T Board, provided they attained five years service. In
connection with the Spin-Off, the Company assumed AT&T's liabilities under the
Pension Plan and agreed to credit the Directors' years of service as Directors
of both AT&T and the Company in the determination of years of service. The
benefit was to begin at the later of age 70 or retirement and was payable for
life. Effective October 5, 1997, the Board terminated the Pension Plan. The
amount of each Director's accrued benefit under the Pension Plan was credited
to the Cash Portion of his or her Account under the Deferred Compensation Plan
and will be credited with interest at the rate established for future deferrals
described above. Except as described above, the Company does not have a
retirement plan for non-employee Directors.
Compensation Committee Interlocks and Insider Participation
During Lucent's 1997 fiscal year, all of the Company's outside
Directors served on the Compensation Committee. Franklin A. Thomas was the
Chairman of the committee. The other committee members were: Paul A. Allaire,
Carla A. Hills, Drew Lewis, Paul H. O'Neill, Donald S. Perkins and John A.
Young. Effective October 13, 1997, Patricia F. Russo, Executive Vice President,
Corporate Staff Operations, became a director of Xerox Corporation, of which
Mr. Allaire
9
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
is Chairman and Chief Executive Officer. In addition, Henry B. Schacht,
Chairman of the Board of the Company, is a director of Aluminum Company of
America, of which Mr. O'Neill is Chairman and Chief Executive Officer.
ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
The Board of Directors is divided into three classes, currently
consisting of three Directors each, whose terms expire at successive annual
meetings. Three Directors will be elected at the Annual Meeting to serve for a
three-year term expiring at the Company's Annual Meeting in the year 2001.
The persons named in the enclosed proxy intend to vote such proxy for
the election of each of the three nominees named below, unless you indicate on
the proxy card that your vote should be withheld from any or all of such
nominees. If you are voting by telephone, you will be instructed how to
withhold your vote from all of such nominees. Each nominee elected as a
Director will continue in office until his or her successor has been duly
elected and qualified, or until the earliest of his or her death, resignation
or retirement.
The Board of Directors has proposed the following nominees for
election as Directors at the Annual Meeting.
Nominees for Terms Expiring at the Annual Meeting to be held in the year 2001:
Richard A. McGinn
Paul H. O'Neill
Franklin A. Thomas
The Board of Directors recommends a vote FOR the election of the
above-named nominees for election as Directors.
The Company expects each nominee for election as a Director at the
Annual Meeting to be able to serve if elected. If any nominee is unable to
serve if elected, proxies will be voted in favor of the remainder of those
nominated and may be voted for substitute nominees.
Beginning on page 11, the principal occupation and certain other
information are set forth regarding such nominees and other Directors whose
terms of office will continue after the Annual Meeting. Information about the
Share ownership of the nominees and other Directors can be found on page 36.
10
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
- --------------------------------------------------------------------------------
NOMINEES FOR TERMS EXPIRING IN 2001
- --------------------------------------------------------------------------------
[Photo of Richard A. McGinn]
Richard A. McGinn, Chief Executive Officer and President of
Lucent effective October 6, 1997. President and Chief
Operating Officer of Lucent from February 1996 to October
1997 and Director since April 1996. Executive Vice
President of AT&T and Chief Executive Officer of the AT&T
Network Systems Group (1994-1996), President and Chief
Operating Officer of the AT&T Network Systems Group
(1993-1994), Senior Vice President of the AT&T Network
Systems Group (1991-1993). Director of Oracle Corporation.
Age: 51.
- --------------------------------------------------------------------------------
[Photo of Paul H. O'Neill]
Paul H. O'Neill, Director of Lucent since October 1996.
Chairman of the Board and Chief Executive Officer of
Aluminum Company of America (Alcoa) (production of
aluminum) since 1987. Chairman of the Rand Corporation.
Director of the Gerald R. Ford Foundation and Manpower
Demonstration Research Corporation. Committees: Member of
the Audit and Finance and Corporate Governance and
Compensation Committees. Age: 62.
- --------------------------------------------------------------------------------
[Photo of Franklin A. Thomas]
Franklin A. Thomas, Director of Lucent since April 1996.
Consultant to the TFF Study Group since April 1996 (a
non-profit initiative assisting development in southern
Africa). Retired President of The Ford Foundation
(1979-1996). Director of Aluminum Company of America
(Alcoa), Citicorp and its subsidiary, Citibank, N.A.,
Cummins Engine Company, Inc. and PepsiCo, Inc. Committees:
Chairman of the Corporate Governance and Compensation
Committee and Member of the Audit and Finance Committee.
Age: 63.
- --------------------------------------------------------------------------------
11
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
- --------------------------------------------------------------------------------
DIRECTORS WHOSE TERMS WILL EXPIRE IN 1999
- --------------------------------------------------------------------------------
[Photo of Paul A. Allaire]
Paul A. Allaire, Director of Lucent since October 1996.
Chairman and Chief Executive Officer of Xerox Corporation
(document processing services and products) since 1991.
Director of Sara Lee Corp., SmithKline Beecham p.l.c. and
J.P. Morgan & Co., Inc. and Consultant to Lucent Board of
Directors (1996). Committees: Member of the Audit and
Finance and Corporate Governance and Compensation
Committees. Age: 59.
- --------------------------------------------------------------------------------
[Photo of Henry B. Schacht]
Henry B. Schacht, Chairman of the Board of Lucent since
April 1996. Chief Executive Officer of Lucent from February
1996 to October 1997. Chairman (1977-1995) and Chief
Executive Officer (1973-1994) of Cummins Engine Company,
Inc. Director of The Chase Manhattan Corporation and The
Chase Manhattan Bank, N.A., Aluminum Company of America
(Alcoa), Cummins Engine Company, Inc. and Johnson &
Johnson. Age: 63.
- --------------------------------------------------------------------------------
[Photo of John A. Young]
John A. Young, Director of Lucent since October 1996.
Vice-Chairman of Novell, Inc. since April 1997. Retired
President and Chief Executive Officer of Hewlett-Packard
Company (manufacturer of measurement and computation
products) (1978-1992). Director of Wells Fargo Bank, Wells
Fargo & Co., Chevron Corp., Shaman Pharmaceuticals, Inc.,
SmithKline Beecham p.l.c., Affymetrix, Inc. and Novell,
Inc. and Consultant to Lucent Board of Directors (1996).
Committees: Member of the Corporate Governance and
Compensation Committee. Age: 65.
- --------------------------------------------------------------------------------
12
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
- --------------------------------------------------------------------------------
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000
- --------------------------------------------------------------------------------
[Photo of Carla A. Hills]
Carla A. Hills, Director of Lucent since April 1996.
Chairman and Chief Executive Officer of Hills & Company
(international consultants) since 1993, United States Trade
Representative (1989-1993). Director of American
International Group, Inc., Chevron Corp. and Time Warner
Inc. Committees: Member of the Corporate Governance and
Compensation Committee. Age: 63.
- --------------------------------------------------------------------------------
[Photo of Drew Lewis]
Drew Lewis, Director of Lucent since April 1996. Retired
Chairman and Chief Executive Officer of Union Pacific
Corporation (rail transportation and trucking) (1987-1996).
Director of American Express Company, FPL Group, Inc.,
Gannett Co., Inc., Union Pacific Resources Group Inc. and
Gulfstream Aerospace Corporation. Committees: Member of the
Audit and Finance and Corporate Governance and Compensation
Committees. Age: 66.
- --------------------------------------------------------------------------------
[Photo of Donald S. Perkins]
Donald S. Perkins, Director of Lucent since April 1996.
Retired Chairman and Chief Executive Officer of Jewel
Companies, Inc. (diversified retailer) (1970-1980). From
January through June 1995, Mr. Perkins served as
Non-Executive Chairman of Kmart Corp. Director of Aon Corp.,
Cummins Engine Company, Inc., Current Assets, LaSalle Street
Fund, Inc., LaSalle U.S. Realty Income and Growth Fund,
Inc., The Putnam Funds, Ryerson Tull Inc., Springs
Industries, Inc. and Time Warner Inc. Committees: Chairman
of the Audit and Finance Committee and Member of the
Corporate Governance and Compensation Committee. Age: 70.
- --------------------------------------------------------------------------------
13
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
DIRECTORS' PROPOSALS
- --------------------------------------------------------------------------------
About the Directors' Proposals
The Company's incentive compensation policies for officers include
both short term and long term components. The short term component consists of
annual bonuses paid under the Lucent Technologies Inc. Short Term Incentive
Plan (the "Short Term Plan"). The long term component consists of multi-year
awards, such as stock options and performance awards, that are granted under
the Lucent Technologies Inc. 1996 Long Term Incentive Program (the "Long Term
Plan"). Shareowner approval of the Short Term Plan and the Long Term Plan will
allow compensation paid under those plans to qualify as "performance-based"
compensation not subject to the limitation on deductibility for income tax
purposes of certain executive compensation in excess of $1 million under
Section 162(m) of the Internal Revenue Code of 1986, as amended ("Section
162(m)").
The following descriptions of the Short Term Plan and the Long Term
Plan are qualified by reference to the full texts thereof, copies of which were
filed electronically with the SEC with this proxy statement.
DIRECTORS' PROPOSAL TO APPROVE THE AMENDED
LUCENT TECHNOLOGIES INC. SHORT TERM INCENTIVE PLAN
- --------------------------------------------------------------------------------
The Short Term Plan provides officers of the Company and its affiliates with
incentive compensation based upon the level of achievement of financial and
other performance criteria. The Short Term Plan is intended to enhance the
ability of the Company and its affiliates to attract and retain individuals of
exceptional managerial talent upon whom, in large measure, the sustained
progress, growth and profitability of the Company depend. The Short Term Plan
was originally adopted by the Board of Directors in September 1996 and was
amended in certain minor respects in July 1997.
Eligible Participants
Officers of the Company and its affiliates (approximately 65
individuals) are eligible to receive awards under the Short Term Plan.
Awards Under the Short
Term Plan
At the beginning of each fiscal year, the Compensation Committee
establishes specific target awards for participants
14
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
and the performance criteria to be applicable to awards that year. The
performance criteria utilized by the Compensation Committee may be based on
individual performance, earnings per share, other Company and business unit
financial objectives, customer satisfaction indicators, operational efficiency
measures and other measurable objectives tied to the Company's success. At the
end of the year, the Compensation Committee (or a delegate), determines the
actual amount of the award, which may be greater than, less than or the same as
the target award. A participant may defer receipt of an award under the
Company's Deferred Compensation Plan.
Awards to "Covered Employees"
The Short Term Plan also provides that, if the Compensation Committee
determines at the time an award is granted that the recipient is, or may be as
of the end of the tax year in which the Company would claim a tax deduction in
connection with such award, a "covered employee" within the meaning of Section
162(m) (i.e., the Chief Executive Officer or one of the four other most highly
compensated officers of the Company), then the Compensation Committee may make
payment of the award subject to the Company having a level of net income (as
defined in the Short Term Plan to exclude certain non-recurring amounts)
specified by the Compensation Committee. The Compensation Committee will also
have the discretion to reduce (but not increase) the final amount of any such
award based on criteria such as individual and Company performance. The maximum
award that a participant can receive in any fiscal year is $9 million.
Plan Benefits
Awards relating to fiscal 1997 under the Short Term Plan to the Chief
Executive Officer and each of the four other most highly compensated officers
in fiscal 1997 (the "named officers") are set forth in the "Bonus" column of
the Summary Compensation Table on page 37. Those awards were based on nine
months of compensation due to the Company's change in fiscal year in 1996 and
reflect the fact that in the 12-month period ended September 30, 1997, the
Company exceeded its aggressive financial objectives.
The table below sets forth the awards under the Short Term Plan with
respect to fiscal 1997 to the indicated groups:
Dollar
Value($)
----------
Executive Officer
Group 6,321,078
Non-Executive
Officer Employee
Group 8,197,245
Non-employee Directors do not participate in the Short Term Plan.
15
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Other Provisions
Awards may not be assigned or alienated. The Company or any affiliate
has the right to deduct from any award any federal, state or local taxes
required with respect to such payment.
Plan Administration
The Compensation Committee administers and interprets the Short Term
Plan and may delegate authority to others to act for it, subject to such
resolutions, not inconsistent with the Short Term Plan, as may be adopted by
the Board, except that the Compensation Committee (or a subcommittee thereof)
administers all awards intended to qualify as "performance-based" compensation
under Section 162(m).
The Board can modify or terminate the Short Term Plan at any time. In
addition, the Senior Vice President, Human Resources is authorized to make
certain minor or administrative changes or changes required by or made
desirable by government regulation.
The Board of Directors recommends that Shareowners vote FOR the
approval of the amended Lucent Technologies Inc. Short Term Incentive Plan.
Proxies solicited by the Board of Directors will be so voted unless Shareowners
otherwise specify in their proxies.
DIRECTORS' PROPOSAL TO APPROVE THE AMENDED
LUCENT TECHNOLOGIES INC.
1996 LONG TERM INCENTIVE PROGRAM
- --------------------------------------------------------------------------------
The purposes of the Long Term Plan are to encourage selected key employees of
the Company and its affiliates to acquire a proprietary and vested interest in
the growth and performance of the Company, to generate an increased incentive
to contribute to the Company's future success and prosperity, thus enhancing
the value of the Company for the benefit of the Shareowners, and to enhance the
ability of the Company and its affiliates to attract and retain individuals of
exceptional managerial talent upon whom, in large measure, the sustained
progress, growth and profitability of the Company depend. The Long Term Plan
was adopted by the Board in March 1996 and was approved by AT&T while it was
Lucent's sole Shareowner. The Long Term Plan was amended by the Board of
Directors in September 1996 to update it in light of changes in the Section 16
insider trading rules adopted by the SEC in mid-1996. The Long Term Plan was
further amended by the Board of Directors in July 1997, with the amendments
scheduled to become effective February 18, 1998, subject to Shareowner
approval. Unless otherwise indicated, the statements below apply to the amended
Long Term Plan that Shareowners are being asked to approve.
16
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Changes to the Long Term Plan
The Long Term Plan which is being presented for Shareowner approval
includes the following significant changes from the existing Plan:
Shorter Term. Awards would be granted through February 2003 as
compared with October 2006 under the existing plan.
Fewer Shares Available for Awards. A total of 32 million Shares would
be available for awards under the amended Long Term Plan during its five-year
term whereas the existing plan allows grants each year of up to 1.2% of the
total number of Shares outstanding at the beginning of the year, approximately
70 million Shares over its remaining term, based on the number of Shares
outstanding on October 1, 1997, and assuming no subsequent issuance of Shares.
No Option Repricing. Unlike the existing plan, the amended Long Term
Plan would effectively prohibit the lowering of the exercise price of an
outstanding option.
New Limit on Certain Types of Awards. The amended Long Term Plan
would limit the number of Shares that may be made the basis of SARs, Restricted
Stock Awards, Performance Awards and Other Stock Unit Awards (as such terms are
defined below) during its five-year term to 10 million. The existing plan does
not have any such limits.
Awards
The Long Term Plan provides for the grant of incentive stock options
("ISOs") that qualify under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and non-statutory Options (as defined below), SARs,
Restricted Stock Awards, Performance Awards, Other Stock Unit Awards and other
rights, interests or options relating to Common Shares or other securities of
the Company (collectively, "Awards") to such persons as are determined by the
Compensation Committee ("Participants"). Generally, the Compensation
Committee's practice is to grant Awards under the Long Term Plan to executives
and officers, approximately 400 individuals, although all employees are
eligible to participate.
Shares Available
Subject to customary anti-dilution adjustments, the total number of Shares
available for the grant of Awards under the Long Term Plan on and after
February 18, 1998 and on or prior to February 28, 2003, is 32 million. The Long
Term Plan also permits Awards to be granted and Shares to be issued through the
assumption or substitution of outstanding grants from an acquired company
("Substitute
17
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Awards"). Substitute Awards do not count toward the 32 million Share limit. Any
Shares issued under the Long Term Plan may consist, in whole or in part, of
authorized and unissued Shares or treasury Shares. If any Shares subject to any
Award are forfeited or such Award otherwise terminates without the issuance of
such Shares, those Shares will again be available for grant under the Long Term
Plan. On November 18, 1997, the reported last sale price of Common Shares on
the NYSE was $83.375 per Share.
During the five-year term of the Long Term Plan, no more than 10
million Shares will be available for the grant of ISOs and no more than 10
million Shares may be the basis of SARs not granted in connection with Options,
Restricted Stock Awards, Performance Shares and Other Stock Unit Awards. No
individual may be granted Awards with respect to more than 5 million Shares
over the five-year term of the Long Term Plan. In addition, the maximum value
of property, including cash, that may be paid or distributed to any participant
pursuant to a grant of performance units and/or Other Stock Unit Awards that
are valued with reference to property other than Shares made in any one
calendar year is $9 million.
In the event of a merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, reverse stock split, spin-off or
similar transaction or other change in corporate structure affecting the Common
Shares, such adjustments and other substitutions will be made to the Long Term
Plan and to Awards as the Compensation Committee in its sole discretion deems
equitable or appropriate.
Plan Administration
The Compensation Committee, which is comprised of non-employee Directors, none
of whom may receive any Awards under the Long Term Plan, administers the Long
Term Plan. The Compensation Committee may delegate to one or more Directors the
power to grant and administer Awards to Participants who are not executive
officers.
Options; Stock Appreciation Rights
Options to purchase Common Shares ("Options") may be granted under
the Long Term Plan, either alone or in addition to other Awards and for no
consideration or for such consideration as the Compensation Committee may
determine. The purchase price per Share purchasable under an Option will be
determined by the Compensation Committee, but may not be less than the fair
market value of a Share on the date the Option is granted. The term of each
18
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Option will be fixed by the Compensation Committee, but no ISO will be
exercisable after the expiration of 10 years from the date the Option is
granted. Options will be exercisable at such time or times as determined by the
Compensation Committee at or subsequent to grant. Unless otherwise determined
by the Compensation Committee at or subsequent to grant, no ISO may be
exercisable prior to the first anniversary of the granting of the ISO.
Subject to the other provisions of the Long Term Plan and any
applicable Award agreement, any Option may be exercised by the Participant, in
whole or in part, at such time or times, and the Participant may make payment
of the option price in such form or forms, including, without limitation,
payment by delivery of cash, Shares or other consideration (including, where
permitted by law and the Compensation Committee, Awards) having a fair market
value on the exercise date equal to the total option price, or by any
combination of cash, Shares and other consideration as the Compensation
Committee may specify in the applicable Award agreement.
In accordance with rules and procedures established by the
Compensation Committee, the aggregate fair market value (determined as of the
time of grant) of the Common Shares with respect to which ISOs held by any
Participant and exercisable for the first time by such Participant during any
calendar year under all Company benefit plans will not exceed $100,000 or, if
different, the maximum limitation in effect at the time of grant under Section
422 of the Code. In its sole discretion, the Compensation Committee may
provide, at the time of grant, that the Shares to be issued upon an Option's
exercise will be in the form of Restricted Stock or other similar securities,
or may reserve the right so to provide after the time of grant.
Stock appreciation rights ("SARs"), which entitle a holder to receive
upon exercise an amount equal to the number of Shares subject to the award
multiplied by the excess of the fair market value of a Share at the time of
exercise over the grant price of the SAR, may be granted to Participants either
alone or in addition to other Awards and may, but need not, relate to a
specific Option. Any SAR related to an Option other than an ISO may be granted
at the same time the Option is granted or at any time thereafter before
exercise or expiration of the Option. Any SAR related to an ISO must be granted
at the same time the Option is granted.
An SAR related to an Option, or the applicable portion thereof, will
terminate and no longer be
19
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
exercisable upon the termination or exercise of the related Option, except that
any SAR granted with respect to less than the full number of Shares covered by
a related Option will not be reduced except to the extent that the number of
Shares affected by the exercise or termination of the related Option exceeds
the number of Shares not covered by the SAR. Any Option related to an SAR that
is exercised will cease to be exercisable to the extent the related SAR has
been exercised. The Compensation Committee may impose conditions or
restrictions on the exercise of SARs.
Performance Awards
Performance-based awards ("Performance Awards") may be issued to
Participants, for no cash consideration or for such minimum consideration as
may be required by applicable law, either alone or in addition to other Awards
granted under the Long Term Plan. The performance criteria to be achieved
during any Performance Period (as defined in the Long Term Plan) and the length
of the Performance Period will be determined by the Compensation Committee.
With certain exceptions, Performance Awards will be distributed only
after the end of the relevant Performance Period. Performance Awards may be
paid in cash, Common Shares, other property or any combination thereof, in the
sole discretion of the Compensation Committee at the time of payment.
Performance Awards may be paid in a lump sum or in installments following the
close of the Performance Period.
Other Stock Unit Awards
Other Awards of Common Shares and other Awards that are valued in
whole or in part by reference to, or are otherwise based on, Common Shares or
other property ("Other Stock Unit Awards") may be granted to Participants,
either alone or in addition to other Awards. Other Stock Unit Awards may be
paid in Common Shares, other securities of the Company, cash or any other form
of property as the Compensation Committee may determine.
Shares (including securities convertible into Shares) granted as
Other Stock Unit Awards may be issued for no cash consideration or for such
minimum consideration as may be required by applicable law; Shares (including
securities convertible into Shares) purchased pursuant to a purchase right
granted as an Other Stock Unit Award will be purchased for such consideration
as the Compensation Committee may determine, which will not be less than the
fair market value of such Shares or other securities as of the date such
purchase right is awarded.
20
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Restricted Stock
Restricted stock awards ("Restricted Stock Awards") may be issued to
Participants, for no cash consideration or for such minimum consideration as
may be required by applicable law, either alone or in addition to other Awards
granted under the Long Term Plan. Except as otherwise determined by the
Compensation Committee, upon termination of employment for any reason during
the restriction period, any portion of a Restricted Stock Award still subject
to restriction will be forfeited by the Participant and reacquired by the
Company.
Long Term Plan Benefits
Awards under the Long Term Plan in fiscal 1997 to the named officers
are set forth in the columns "Restricted Stock Award(s)" and "Securities
Underlying Options(#)" in the Summary Compensation Table on page 37 and in the
Long - Term Incentive Plans - Awards in Last Fiscal Year table on page 41. The
table below sets forth the Awards made to the indicated groups during fiscal
1997 under the Long Term Plan. Of the Awards granted in fiscal 1997, 68% of the
Options and 94% of the restricted stock units ("RSUs") were special one-time
awards granted in connection with the Spin-Off. Non-employee Directors do not
participate in the Long Term Plan.
--------------------------------------------------------------
Target Value
of
Stock Performance
Options (#) RSUs (#) Awards ($)
------------- ----------- -------------
Executive Officer Group 3,743,300 918,900 5,987,690
Non-Executive Officer
Employee Group 6,006,899 1,209,346 4,690,420
--------------------------------------------------------------
Change in Control
The Long Term Plan provides that, unless the Compensation Committee
determines otherwise at the time of grant with respect to a particular Award,
in the event of a Change in Control (as defined below), with certain
exceptions, (i) any Options and SARs outstanding as of the date the Change in
Control is determined to have occurred will become fully exercisable and
vested; (ii) the restrictions and deferral limitations applicable to any
Restricted Stock Awards will lapse; (iii) all Performance Awards will be
considered to be earned and payable in full, and any deferral or other
restriction will lapse and such Performance Awards will be immediately
21
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
settled or distributed; and (iv) the restrictions and deferral limitations and
other conditions applicable to any Other Stock Unit Awards or any other Awards
will lapse, and such Other Stock Unit Awards or such other Awards will become
free of all restrictions, limitations or conditions and become fully vested and
transferable.
The Long Term Plan also provides, with certain exceptions, that, if
determined by the Compensation Committee at or after the time of grant, during
the 60-day period from and after a Change in Control (the "Exercise Period"), a
Participant holding an Option will have the right, whether or not the Option is
fully exercisable and in lieu of the payment of the purchase price for the
Shares being purchased under the Option and by giving notice to the Company, to
elect (within the Exercise Period) to surrender all or part of the Option to
the Company and to receive cash in an amount equal to the amount by which the
Change in Control Price (as defined below) per Share on the date of such
election exceeds the purchase price per Share under the Option multiplied by
the number of Shares granted under the Option as to which the election is made.
The Long Term Plan defines "Change in Control" to mean with certain
exceptions: (i) an acquisition by any individual, entity or group of beneficial
ownership of 20% or more of either (A) the then outstanding Common Shares or
(B) the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of Directors; (ii) a change
in the composition of the Board during any two-year period such that the
individuals who, as of the beginning of such two-year period, constitute the
Board, cease for any reason to constitute at least a majority of the Board;
(iii) the approval by the Shareowners of a merger, reorganization or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (each, a "Corporate Transaction") or, if consummation of
such Corporate Transaction is subject, at the time of such approval by
Shareowners, to the consent of any government or governmental agency, the
obtaining of such consent (either explicitly or implicitly by consummation); or
(iv) the approval of the Shareowners of a complete liquidation or dissolution
of the Company.
The Long Term Plan defines "Change in Control Price," with certain
exceptions, as the higher of (i) the highest price of a Share during the 60-day
period prior to and including the date of a Change in Control or (ii) if the
Change in Control is the result of
22
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
a tender or exchange offer or a Corporate Transaction, the highest price per
Share paid in such tender or exchange offer or Corporate Transaction.
Other Provisions
The Board may amend, alter or discontinue the Long Term Plan, but no
amendment, alteration, or discontinuation may be made that would impair rights
of a Participant under an Award theretofore granted without the Participant's
consent, or that, without the approval of the Shareowners, would (a) except
pursuant to the provisions providing for anti-dilution adjustments, increase
the total number of Common Shares reserved under the Plan or (b) change the
employees or class of employees eligible to participate in the Plan. The
Compensation Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment may impair the rights of
any Participant without his or her consent. The Long Term Plan effectively
prohibits the Committee from lowering the exercise price under an outstanding
Option.
The Compensation Committee is authorized to make adjustments in
Performance Award criteria or in the terms and conditions of other Awards in
recognition of unusual or nonrecurring events affecting the Company or its
financial statements or changes in applicable laws, regulations or accounting
principles. The Compensation Committee may also establish procedures providing
for the deferral of the payment of any Award and the delivery of Common Shares
in satisfaction of withholding tax obligations.
Subject to the provisions of the Long Term Plan and any Award
agreement, the recipient of an Award (including, without limitation, any
deferred Award) may, if so determined by the Compensation Committee, be
entitled to receive, currently or on a deferred basis, interest or dividends,
or interest or dividend equivalents, with respect to the number of Common
Shares covered by the Award, and the Compensation Committee may provide that
such amounts (if any) will be deemed to have been reinvested in additional
Common Shares or otherwise reinvested.
The Compensation Committee has the authority to impose additional
conditions on Awards, including forfeiture in the event the Participant engages
in an activity in competition with the Company.
Awards to "Covered Employees"
The Long Term Plan also provides that, if the Compensation Committee
determines at the
23
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
time a Restricted Stock Award, a Performance Award or an Other Stock Unit Award
is granted to a Participant that such Participant is, or may be as of the end
of the tax year in which the Company would claim a tax deduction in connection
with such Award, a "covered employee" within the meaning of Section 162(m),
then the Compensation Committee may make the lapsing of restrictions thereon
and the distribution of cash, Shares or other property pursuant to such Award
subject to the Company having a level of net income (as defined in the Long
Term Plan to exclude certain non-recurring amounts) specified by the
Compensation Committee. The Compensation Committee will also have the
discretion to reduce (but not increase) the final amount of any Performance
Award or Other Stock Unit Award based on criteria such as individual and
Company performance.
Tax Aspects of Stock Options
The Company believes that under present law, the following are the
U.S. federal income tax consequences generally arising with respect to Options.
The grant of an Option will create no tax consequences for a Participant or the
Company. A Participant will have no taxable income upon exercising an ISO
(except that the alternative minimum tax may apply), and the Company will
receive no deduction when an ISO is exercised. Upon exercising an option other
than an ISO, a Participant must recognize ordinary income equal to the
difference between the fair market value of the Shares on the date of exercise
and the exercise price. The Company will be entitled to a deduction for the
same amount. The treatment to a Participant of a disposition of Shares acquired
through the exercise of an Option depends on how long the Shares were held and
on whether the Shares were acquired by exercising an ISO or by exercising an
option other than an ISO. Generally, there will be no tax consequence to the
Company in connection with a disposition of Shares acquired under an Option,
except that the Company may be entitled to a deduction in the case of a
disposition of Shares acquired under an ISO before the applicable ISO holding
periods have been satisfied.
The Board of Directors has not determined what action it will take if
the Long Term Plan is not approved by Shareowners, although, by its terms, the
Long Term Plan in its current form would remain in effect pending such action,
if any.
The Board of Directors recommends a vote FOR approval of the amended
Lucent Technologies Inc. 1996 Long Term Incentive Program. Proxies solicited by
the Board of Directors will be so voted unless Shareowners otherwise specify in
their proxies.
24
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
SHAREOWNER PROPOSALS
- --------------------------------------------------------------------------------
Shareowners who intend to present proposals at the 1999 Annual Meeting,
and who wish to have such proposals included in the Company's Proxy Statement
for the 1999 Annual Meeting, must be certain that such proposals are received
by the Corporate Secretary's Department, 600 Mountain Avenue, Room 3C-515,
Murray Hill, New Jersey 07974, not later than August 24, 1998. Such proposals
must meet the requirements set forth in the rules and regulations of the SEC in
order to be eligible for inclusion in the Proxy Statement for the Company's
1999 Annual Meeting.
SHAREOWNER PROPOSAL NUMBER 1
- --------------------------------------------------------------------------------
Mrs. Evelyn Y. Davis, having an office at the Watergate Office Building,
Suite 215, 2600 Virginia Avenue, Washington, D.C. 20037, beneficial owner of 100
Common Shares, has proposed the adoption of the following resolution and has
furnished the following statement in support of her proposal:
RESOLVED: "That the shareholders of Lucent Technologies recommend that the
Board of Directors take necessary steps to have the election of directors
ANNUALLY, instead of the stagger system which was recently adopted.
REASONS:
"Many New York Stock Exchange listed corporations elect all their
directors each year."
"This insures that ALL directors will be more accountable to ALL
shareholders each year and to a certain extent prevents the self-perpetuation
of the Board."
AT&T has ANNUAL election of ALL directors.
"We do have a good Board of Directors but they should be willing to
stand for election EVERY year."
"If you AGREE, please mark your proxy FOR this resolution."
- --------------------------------------------------------------------------------
25
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
COMPANY RESPONSE
- --------------------------------------------------------------------------------
Your Directors recommend a vote AGAINST this proposal.
The Company's Board of Directors is divided into three classes,
serving staggered three-year terms. The Company is confident that a classified
Board (that is, one where only a portion of the Board is elected each year) is
in the best interests of the Shareowners. In fact, over 70% of corporations
included in the S&P 500 index currently have classified boards.
The Company believes that a classified Board reduces the vulnerability
of the Company to certain potentially abusive takeover tactics and encourages
potential acquirors to negotiate with the Board. The classified Board does not
preclude unsolicited acquisition proposals but, by eliminating the threat of
imminent removal, positions the incumbent Board to act to maximize the value of
a potential acquisition to all Shareowners.
The Company also believes that the classified Board structure assures
continuity and stability of the Company's management and policies, since a
majority of the Directors at any given time have prior experience as Directors
of the Company. In addition, the Company believes that Directors elected for
staggered terms are not any less accountable to Shareowners than they would be
if elected annually.
The Board of Directors recommends a vote AGAINST the adoption of this
Shareowner proposal. Proxies solicited by the Board of Directors will be so
voted unless Shareowners otherwise specify in their proxies.
SHAREOWNER PROPOSAL NUMBER 2
- --------------------------------------------------------------------------------
Mark Seidenberg, with an address of P.O. Box 6102, Woodland Hills,
California 91365, beneficial owner of 32 Common Shares, has proposed the
adoption of the following resolution and has furnished the following statement
in support of his proposal:
The stockowners recommend the Board of Directors adopt these policies
for all dealings with China and the former Soviet Union:
1. Goods or services produced in whole or in part by slave or forced
labor shall not be acceptable for delivery to the corporation, its
subsidiaries, affiliates, or joint ventures. A suitable certificate of origin
shall be required.
2. Goods provided by the corporation, its subsidiaries, affiliates
26
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
or joint ventures shall not be sold to or otherwise provided to any facility
utilizing slave or forced labor. A suitable certificate of use shall be
required.
3. The right of on-site inspection to determine the existence of
slave or forced labor shall be vigorously pursued.
4. The corporation shall cooperate promptly, energetically, and fully
with the United States government and any international organization in their
laws or policies to discourage the use of slave or forced labor.
The term "former Soviet Union" shall mean the countries of, and any
combination thereof, Russia, Ukraine, Kazakhstan, Georgia, Armenia, Azerbaijan,
Uzbekistan, Belarus (Byelorussia), Kyrgyzstan (Kirghizia), Moldova (Moldovia),
Tajikistan (Tadzhikistan), and Turkmenistan (Turkmenia).
Supporting Statement
The arrest and expulsion of American Harry Wu by the Communist
Chinese in 1995 was a wake-up call. He has tirelessly exposed the Chinese
"laogai".
Slave and forced labor are widespread in China and the former Soviet
Union. China's laogai camps and factories include about 8,000,000 forced
laborers, and gulags of the former Soviet Union still remain. They produce
numerous products, including sophisticated machinery and electronics, and much
of it is intended for export. The State of California has passed a law refusing
to buy slave-made goods from overseas.
Lucent has multi-million dollar deals with China and the former
Soviet Union, but has no comprehensive anti-slave labor policies, as proposed
by this resolution. Here's what Lucent's current policy lacks:
- --No by-laws or corporate article includes it.
- --No board resolution includes it.
- --No agreement with joint ventures or affiliates includes it.
- --No specific written guidelines for buyers, sales personnel, or other
employees or agents covers all sales or purchases.
- --No standard clause on it is in all purchase or sales contracts.
- --No specific penalty for violations by customers, suppliers, employees, or
agents exists.
- --No relevant certificates of origin (for all purchases) or use (for all sales)
are utilized.
Much of Lucent's business is conducted overseas and is beyond the
reach of U.S. law, but not beyond managerial control.
27
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
A disturbing policy is found in Lucent's publication "Business
Guideposts: A Personal Commitment": "Where local country laws contain mandatory
requirements that differ from the provision from this code of conduct, such
requirements prevail for employees working in those countries." In some
countries, slave and forced labor is the law of the land. Does Lucent accept
and/or utilize it?
If you can imagine any convincing argument against having this
proposed anti-slave labor policy, I can't. But somehow Lucent's board will
think of something. Please do your own thinking and vote your own conscience.
COMPANY RESPONSE
- --------------------------------------------------------------------------------
Your Directors recommend a vote AGAINST this proposal.
Lucent conducts business in many countries. We believe that our
products and jobs improve the quality of life in each of these countries. We do
not employ "slave" or "forced" labor. We offer employees attractive
compensation packages and working conditions so that they will seek us out as
an employer.
Our code of conduct requires us to comply with the law of each of the
jurisdictions in which we operate. We have set up many procedures to make sure
that our operations are in fact in compliance with these laws, including those
relating to working conditions and employee health and safety. In addition,
our procurement practices require that our suppliers meet certain pre-
qualification requirements, which include on-site inspections.
We believe that our policies adequately address the concerns of the
proponent and do not believe that mandating the additional measures he requests
is appropriate or necessary.
The Board of Directors recommends a vote AGAINST the adoption of this
Shareowner proposal. Proxies solicited by the Board of Directors will be so
voted unless Shareowners otherwise specify in their proxies.
- --------------------------------------------------------------------------------
28
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The following Report of the Compensation Committee on Executive
Compensation and the Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
This Report of the Compensation Committee covers the following
topics:
[bullet] Role of the Corporate Governance and Compensation Committee relative
to the compensation program.
[bullet] Executive Compensation Guiding Principles
[bullet] Components of the Compensation Program
[bullet] Chief Executive Officer compensation
Role of the Corporate Governance and Compensation Committee
The Committee is made up of seven members of the Board of Directors
who are not current or former employees of the corporation and are not eligible
to participate in any of the executive compensation programs of the Company.
The Committee met 5 times in fiscal 1997.
The Committee sets the overall compensation principles of the Company
and reviews the entire program at least annually. This includes each element
described below, the measurements used to make payments of awards under the
incentive plans and the overall effectiveness of the program. The Committee
specifically reviews the individual award levels for each of the 17 members of
the Executive Council. The Committee has considered the advice of an
independent outside consultant in determining the appropriateness and the level
of compensation.
Executive Compensation Guiding Principles
Lucent has developed a new compensation program to motivate and
retain the key talent it needs to be a market leader. This program supports the
Company's aggressive business strategy and has been developed by the Committee
and the Company's
29
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
senior leadership team. The following principles guided the development of the
1997 program:
[bullet] Compensation opportunity should be related to performance. That is, if
Lucent's and the individual's performance are at the median of those
companies with whom we compete for talent, then pay should also be at
the median. Opportunity should increase proportionately if Lucent's
performance is above the median. On the other hand, if performance is
at less than the median, payout will be at the Committee's discretion.
[bullet] Ownership should be pervasive throughout the Company with each
individual being provided multiple opportunities to own Lucent stock.
To that end, in October 1996, the Board of Directors approved the
Global Founders Grant Stock Option Plan under which each full time
employee of the Company received an option to acquire 100 shares of
Lucent stock, vesting in three years. In addition, the Board of
Directors has approved two programs that will increase ownership among
employees. These are the 1997 Long Term Incentive Plan and the
Employee Stock Purchase Plan. The overall intent is to encourage each
employee to be, and to behave like, an owner of the business.
[bullet] As described later in this report, our compensation programs are
designed to balance short and long term financial objectives, build
Shareowner value and reward for individual, small team and corporate
performance.
[bullet] The proportion of total pay that is at risk against individual and
Company performance objectives increases with the more senior
positions. For example, in fiscal 1997, approximately 81 percent of
the Chairman's total pay opportunity was at risk against short and
long term performance goals.
Survey data is compiled by two independent outside consultants.
Compensation data from 27 companies is compiled to ensure that our total
program is competitive. Companies selected are those with whom we compete for
executive talent. Lucent targets the mean of the selected sample group. The
Company's competitors for executive talent are not necessarily the same
companies that are selected to compare shareowner returns (see Performance
Graph, page 35) because the Company requires skills from multiple sets of
backgrounds.
It is the Company's goal to have compensation paid to its five most
highly compensated officers qualify as performance-based
30
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
compensation deductible for federal income tax purposes under Section 162(m),
although as a result of certain of the actions taken in connection with AT&T's
decision to create the Company and in connection with the Spin-Off, certain
compensation paid by the Company in fiscal 1997 did not qualify. The Short Term
Plan and Long Term Plan are being submitted to Shareowner vote so that future
compensation paid under those plans will qualify.
Components of the Compensation Program
The four components of the total compensation program are:
[bullet] Base Salary
[bullet] Short Term Incentives
[bullet] Long Term Incentives
[bullet] Special Equity Grants
1. Base Salary
Base salaries for all officers have been set at the comparable median
positions for the companies with whom we compare for compensation purposes.
While surveys are conducted annually it is intended that salaries will only
be adjusted as needed based on the results of our market surveys. This is in
line with the philosophy that above median compensation opportunity should
come from the variable portion of the compensation package.
2. Short Term Incentives
This component is designed to align executive pay with short term (annual)
performance of the Company. Amounts at median levels of performance are
targeted at the median compensation levels for our survey group.
In 1997, one half of the annual bonus opportunity was based on corporate
earnings per share objectives that were tied to both our internal objectives
and external expectations of the investment community; other factors may be
used or added in subsequent years.
In 1997, the other half of the annual bonus opportunity was tied to
individual performance and was determined by the Board of Directors at the
conclusion of the performance period. Factors such as leadership, customer
focus, business knowledge, innovation, social responsibility and execution of
the business strategy are included in the Board's assessment.
3. Long Term Incentives: Three Year Performance Awards and Stock Options
Performance awards are granted for a three year performance period. Target
award levels are based on comparison to our selected
31
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
sample group of companies. However, grants to individuals are based on
Company and individual performance. These awards are expressed as a dollar
amount and are paid in cash at the end of the period. At the beginning of
each period the Committee approves a payout schedule based on a prescribed
financial target, which, in the period beginning October 1, 1996, was an
aggressive earnings per share growth objective. If target levels are reached,
payout will equal 100% of the amount granted at the beginning of the period.
Performance above or below the target amount pays more or less than the
target amount based on the schedule.
In addition, regular annual grants of stock options are made. Grants for 1997
were made January 20,1997. Due to the change in fiscal year, grants for 1998
were made October 6, 1997. In the future, annual grants will continue to be
made at the beginning of each fiscal year. These options are granted with an
exercise price equal to the fair market value of a Share on the day of grant.
The options generally vest after three years of service and expire ten years
from the date of the grant. As with the three year performance awards, target
grants are based on comparison to our selected sample group; however, grants
to individuals are based on individual performance.
4. Special Equity Grants: Stock Options and Restricted Stock Units
As explained above, the Committee believes that ownership of Company Shares
is a key element of the compensation program and that retention of its
officer team is essential to the Company's success both short and long term.
To accomplish these objectives, the Committee awards special equity grants
from time to time. Special grants of stock options and restricted stock units
were made to certain officers at the time Lucent became an independent
company on October 1, 1996.
The original terms of the stock options provided for vesting after six years,
although vesting could be accelerated to as early as three years if certain
stock price targets were attained prior to six years. These price targets
have been met. Because the Company's earnings and stock price have
outperformed expectations, the Compensation Committee allowed officers to
elect to accelerate vesting of 1/3 of this grant and postpone vesting on 1/3
of the grant.
32
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
The restricted stock units also vest after six years. Vesting can be
accelerated if an aggressive earnings per share target is reached as follows:
[bullet] Target met in year three, 1/3 of the grant vests in year four, 1/3 in
year five and 1/3 in year six.
[bullet] Target met in year four, 1/3 vests in year five and 2/3 vests in year
six.
Compensation of the Chief Executive Officer
In fiscal 1997 the Company's most highly compensated officer was
Henry B. Schacht, Chairman of the Board and Chief Executive Officer. Assuming
results at the median of the select sample, approximately 41% of Mr. Schacht's
annual cash compensation would have been base salary and 59% would have been
short term incentive compensation. Because performance was above median the
incentive compensation was a greater portion of the total. If performance had
been less than the median, the incentive compensation would have been a smaller
portion of the total.
Annually, the Chief Executive Officer agrees on a set of multi-year
objectives with the Board of Directors. The Board reviews the Chief Executive
Officer's performance against those objectives at year-end. This review
includes a detailed analysis of the short and long term financial results as
well as progress towards the Company's strategic objectives. In addition, the
Board considers Mr. Schacht's leadership ability, relationship with the
investment community and community service activities.
Base Salary:
The Committee increased Mr. Schacht's base salary from $932,000 to
$1,000,000 in 1997, effective March 1, 1997. This change was meant to insure
that his salary is competitive with the companies with whom we compare but also
to recognize the excellent progress that Lucent has made in becoming a fully
independent Company and in making progress toward its aggressive financial
targets.
Short Term Incentives:
For fiscal 1997, Mr. Schacht's short term bonus was based on the
following:
[bullet] 50% corporate earnings per share objectives
[bullet] 50% individual objectives as determined by the Board of Directors
The Company exceeded its aggressive financial objectives for fiscal
1997, with earnings per share of $2.34 excluding extraordinary charges.
Therefore, the portion of Mr. Schacht's bonus based on corporate earnings per
share was paid substantially above his target level. The por-
33
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
tion of his bonus tied to individual performance was also paid substantially
above target. Some of the factors included in the Committee's assessment of
this portion were his leadership in developing and executing the new business
strategy, the relationship he has developed with the investment community, his
work in developing a successor and the excellent efforts the Company has made
to increase its awareness of the responsibility to the communities in which it
serves.
Long Term Incentives:
Since Mr. Schacht was not an officer at the time of grant, he
received no payout for the 1994-1996 performance award period.
Special Equity Grant:
In order to provide a substantial ownership interest in the new
company, on October 1, 1996 the Committee awarded Mr. Schacht a special stock
option grant for 800,000 Shares.
In addition, Mr. Schacht was granted a stock option for 97,200 Shares
and a performance award with a target value of $1,379,450 as a part of the long
term component of his regular annual compensation program.
The terms and conditions of Mr. Schacht's special and annual grants
are consistent with the special and annual grants for other officers, except
that his options are transferable to family members and that upon the
appointment of Mr. McGinn as Chief Executive Officer of the Company in October
1997, Mr. Schacht's options became exercisable and his then outstanding
performance awards will not terminate, with certain exceptions, if he leaves
the Company.
The Committee also approved a reduction in Mr. Schacht's base salary
and annual bonus and the utilization of the savings as a result of the
reduction to purchase, and pay the Company's portion of the annual premium on,
a split-dollar life insurance arrangement. More specific information on this is
provided in footnote 10 to the Summary Compensation Table.
The Committee believes that the Company has been successfully
launched as an independent enterprise. It is noteworthy that the Company's 1996
financial results were record-breaking despite significant start-up costs.
Results for fiscal 1997 were also excellent; substantial progress was made
toward the achievement of aggressive multi-year financial targets.
Franklin A. Thomas (Chairman)
Paul A. Allaire
Carla A. Hills
Drew Lewis
Paul H. O'Neill
Donald S. Perkins
John A. Young
34
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Performance Graph
The graph below provides an indicator of cumulative total Shareowner
returns for the Company as compared with the S&P 500 Stock Index ("S&P 500")
and the S&P Technology Sector Index ("S&P Technology Sector") weighted by
market value at each measurement point.
This graph covers the period of time beginning April 4, 1996, when
Lucent's Common Shares were first traded on the NYSE, through September 30,
1997.
[GRAPHIC OF LINE CHART]
April 4, 1996 September 30, 1996 September 30, 1997
------------- ------------------ ------------------
Lucent $100.00 $150.39 $267.74
S&P 500 $100.00 $105.98 $148.84
S&P Technology Sector $100.00 $116.92 $189.90
Footnotes
(1) Assumes $100 invested on April 4, 1996, in Lucent Common Shares, the S&P 500
and S&P Technology Sector and reinvestment of dividends.
(2) The S&P Technology Sector is the successor to the S&P High Technology
Composite Index presented in last year's proxy statement.
35
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Share Ownership of Management and Directors
The following table sets forth information concerning the beneficial
ownership of the Company's Common Shares as of October 1, 1997, for (a) each
incumbent Director and each of the nominees for Director; (b) the named
officers who are not also Directors; and (c) the Directors and executive
officers as a group. Except as otherwise noted, the named individual or family
members had sole voting and investment power with respect to such securities.
NUMBER OF COMMON SHARES
-----------------------------------------
BENEFICIALLY DEFERRAL
NAME OWNED (1) PLANS (2) TOTAL
- ------------------------------------ ------------ -------- ----------
(a)
Henry B. Schacht(3) 935,568 3,151 938,719
Richard A. McGinn(4) 125,382 0 125,382
Paul A. Allaire(5) 5,654 0 5,654
Carla A. Hills 2,642 9,038 11,680
Drew Lewis 20,000 1,517 21,517
Paul H. O'Neill 1,000 1,312 2,312
Donald S. Perkins(6) 813,831 3,112 816,943
Franklin A. Thomas 365 7,607 7,972
John A. Young 0 1,490 1,490
(b)
Daniel C. Stanzione(7) 87,251 0 87,251
Donald K. Peterson(8) 12,253 1,469 13,722
Patricia F. Russo(9) 44,491 0 44,491
(c)
Directors and Executive
Officers as a Group (21 persons)(10) 2,506,372 33,779 2,540,151
Footnotes
1. No individual Director or nominee for Director or named officer
beneficially owns 1% or more of the outstanding Common Shares, nor do the
Directors and executive officers as a group. The Company does not know of
any person who beneficially owns more than 5% of the outstanding Common
Shares.
2. Includes units denominated as Common Share equivalents held in deferred
compensation accounts.
3. Includes beneficial ownership of 910,227 Shares that may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
4. Includes beneficial ownership of 116,915 Shares that may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
5. On October 29, 1997, Mr. Allaire purchased an additional 5,000 Common
Shares.
6. Mr. Perkins, as an investment company trustee, has shared voting power over
808,100 of the Common Shares included above.
7. Includes beneficial ownership of 86,090 Shares that may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans. On October 29, 1997, Mr. Stanzione acquired and
subsequently sold 48,627 of those Shares by exercising stock options.
8. Includes beneficial ownership of 12,253 Shares that may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
9. Includes beneficial ownership of 44,408 Shares that may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
10. Includes beneficial ownership of 1,612,433 Shares that may be acquired
within 60 days pursuant to stock options awarded under employee incentive
compensation plans as well as 808,100 Shares over which a Director has
shared voting power.
36
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Summary Compensation Table
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Annual Compensation(2) Long Term Compensation(2)
------------------------------- -------------------------------------------
Awards(5) Payouts
-------------------------------------------
Other
Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Name and Salary Bonus sation Award(s) Options Payouts sation
Principal Position(1) Year (3)($) (3)($) (4)($) (6d)($) (#) (7)($) (8)($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry B. Schacht(9)(10) 1997 763,666 637,038 110,022 0 897,200(6a) 0 78,851
Chairman of the 1996 600,000 0 38,207 1,300,828(6b) 90,083 0 2,410
Board and Chief 1995 0 0 0 0 0 0 0
Executive Officer
Richard A. McGinn 1997 856,250 1,469,773 138,055 10,023,125(6a) 484,500(6a) 558,103 42,101
President and 1996 480,733 1,455,233 67,277 782,439(6b) 0 309,803 23,533
Chief Operating 1995 469,400 517,200 70,637 501,897(6b) 45,249 158,712 31,991
Officer
Daniel C. Stanzione 1997 604,167 953,388 152,013 5,009,375(6a) 307,200(6a) 178,545 34,899
President - Bell Labs 1996 379,633 1,077,344 77,398 563,584(6b) 0 173,850 18,482
and Network Systems 1995 336,000 314,000 57,551 280,445(6b) 272,328 108,450 28,169
1,079,500(6c)
Donald K. Peterson(11) 1997 408,750 452,221 55,173 4,007,600(6a) 227,900(6a) 158,731 54,651
Executive Vice 1996 293,950 501,165 14,025 243,849(6b) 16,295 154,574 49,407
President and 1995 108,333 74,600 2,342 118,892(6b) 40,108 0 0
Chief Financial
Officer
Patricia F. Russo 1997 379,166 408,634 128,342 4,007,500(6a) 224,800(6a) 178,545 20,446
Executive Vice 1996 257,250 440,062 63,934 229,474(6b) 0 173,850 17,967
President and 1995 301,000 339,000 44,617 155,222(6b) 87,179 92,598 23,985
Chief Staff Officer 844,800(6c)
----------------------------------------------------------------------------------------------
</TABLE>
Footnotes
(1) Includes those who in fiscal 1997 were the Chief Executive Officer and the
four other most highly compensated executive officers as measured by
salary and bonus. In October 1997, Mr. McGinn was named Chief Executive
Officer and President while Mr. Schacht remained Chairman of the Board of
Directors. In addition, effective November 1, 1997, Mr. Stanzione became
Executive Vice President and a Chief Operating Officer.
(2) Compensation deferred at the election of named officers is included in the
category (e.g., bonus or LTIP payouts) and year it would have otherwise
been reported had it not been deferred.
(3) Because of the change in the Company's fiscal year in 1996, salary and
bonus shown for 1997 cover 12-month and nine-month periods, respectively,
and salary and bonus shown for 1996 cover nine-month and 12-month periods,
respectively. Bonuses shown for 1996 were paid in March 1997 and were not
available for inclusion in last year's proxy statement.
(4) Includes (a) payments of above-market interest on deferred compensation,
(b) dividend equivalents paid with respect to awards shown in the
"Restricted Stock Award(s)" column and (c) tax payment reimbursements.
(5) Awards granted prior to fiscal 1997 were granted with respect to AT&T
common shares. The amounts shown for 1995 and 1996 restricted stock awards
represent the dollar value of the awards on the dates originally granted.
The amounts shown for 1995 and 1996 stock options represent the number of
Common Shares resulting from the replacement on October 1, 1996 of
outstanding AT&T awards with Lucent awards, which replacement was intended
to preserve the economic value of the options at the time of the Spin-Off.
37
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
(6) (a) On October 1, 1996, the Compensation Committee granted a special equity
award of stock options and restricted stock units to Messrs. McGinn,
Stanzione and Peterson and to Ms. Russo and a special award of stock
options to Mr. Schacht. The value of the restricted stock unit awards on
the grant date is reflected in the table. Pursuant to the terms of the
stock options granted on October 1, 1996, the vesting of those options has
been accelerated from six years to three years because certain stock price
targets have been met. The restricted stock unit awards vest after six
years or sooner if certain financial targets are met. Dividend equivalents
are paid on such awards in cash. The number of stock options shown for
1997 also includes the regular annual grants made in January 1997, which
become exercisable three years following grant.
(b) On January 1, 1995, AT&T granted performance share awards to Messrs.
McGinn, Stanzione and Peterson and to Ms. Russo. The payout of these awards
was originally tied to AT&T achieving specific levels of return-to-equity.
At its December 1995 meeting, the AT&T Compensation Committee recommended
and approved that the performance amounts for the 1995-1997 performance
cycles be deemed to have been met at the target level. This action was taken
in acknowledgment that AT&T's restructuring had rendered the original
performance criteria inapplicable and of the difficulty of establishing
revised criteria while the restructuring was in progress. In addition, the
AT&T Compensation Committee granted awards for the 1996-1998 cycle to
Messrs. Schacht, McGinn, Stanzione and Peterson and to Ms. Russo. The awards
for both cycles were replaced with Lucent awards at the Spin-Off. The value
of such awards as of the original grant dates is reflected in the table. All
other terms and conditions of the awards continue to apply. Following the
end of each three-year cycle, the awards will be distributed in cash and/or
Shares if the holder remains in the employ of the Company for the full three
years of the cycle. There are certain exceptions in the case of death,
disability or retirement. Dividend equivalents are paid on such awards in
cash. The number of Lucent Common Shares represented by awards for the
1995-1997 and 1996-1998 cycles respectively were: Mr. McGinn 12,381 and
14,979, Mr. Stanzione 6,918 and 10,789 and Mr. Peterson 2,932 and 4,668 and
Ms. Russo 3,829 and 4,393. Mr. Schacht's award for the 1996-1998 cycle was
24,903 Shares.
(c) In 1995, as part of an AT&T special equity incentive/retention program,
AT&T granted awards of restricted stock units to Mr. Stanzione and Ms.
Russo. The value of such awards as of the original grant dates is reflected
in the table. These awards were replaced with awards for Lucent restricted
stock units at the Spin-Off in the amounts of 21,073 units and 16,362 units,
respectively. These grants vest four years after the date of grant of the
original AT&T award and carry stringent penalties for competition and other
activities adverse to the Company. Dividend equivalents are paid on such
awards in cash.
(d) Based on the closing price of Shares on the NYSE on September 30, 1997,
the aggregate number and values of all restricted stock and restricted stock
unit holdings on such date were 24,903 Shares and $2,026,482 for Mr.
Schacht, 256,460 Shares and $20,869,433 for Mr. McGinn, 153,280 Shares and
$12,473,160 for Mr. Stanzione, 99,200 Shares and $8,072,400 for Mr. Peterson
and 116,184 Shares and $9,454,473 for Ms. Russo.
(7) Includes distribution in 1997 to Messrs. McGinn, Stanzione and Peterson and
Ms. Russo of performance shares awarded by the AT&T Compensation Committee
where the three-year performance period ended December 31, 1996.
(8) For 1997, includes (a) Company contributions to savings plans (Mr. McGinn
$6,400, Mr. Stanzione $6,400, Mr. Peterson $6,400 and Ms. Russo $6,400),
(b) the dollar value of the benefit or premiums paid for split-dollar life
insurance policies (unrelated to term life insurance coverage) projected
on an actuarial basis (Mr. Schacht $78,851, Mr. McGinn $15,607, Mr.
Stanzione $14,594, Mr. Peterson $48,251 and Ms. Russo $6,419) and (c)
payments equal to lost Company savings plan matching contributions
resulting from Code limitations (Mr. McGinn $20,094, Mr. Stanzione $13,905
and Ms. Russo $7,627).
38
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
(9) Mr. Schacht became Chief Executive Officer of the Company on February 1,
1996. He received $75,000 salary for the month of January 1996 as an
employee of AT&T.
(10) The Board of Directors restructured Mr. Schacht's 1996 and 1997
compensation, reducing his 1996 annual bonus by $2,281,838, reducing his
1997 salary by $208,000 and reducing his 1997 annual bonus by $1,510,162
and establishing a split-dollar life insurance policy insuring him and his
spouse. Under this arrangement, the Company will utilize the savings from
the salary and bonus reduction to pay premiums. The aggregate premiums for
this policy will be $4,000,000 over a three-year period. The Company is a
beneficiary of this policy. In fiscal 1997, the annual value of the policy
to Mr. Schacht of $5,362 was imputed as income.
(11) Mr. Peterson joined AT&T on September 1, 1995.
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year End (#) Year End ($)
----------------- -----------------
Shares
Acquired Value Exercisable/ Exercisable/
Name (1) on Exercise (#) Realized ($) Unexercisable(2) Unexercisable
- --------------------- --------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C>
Henry B. Schacht 0 0 30,027 846,608
940,256(3) 34,086,723
Richard A. McGinn 0 0 109,168 4,494,659
515,077 18,799,077
Daniel C. Stanzione 11,527 418,229 76,794 3,460,480
581,847 19,819,475
Donald K. Peterson 0 0 12,253 402,570
272,050 9,886,382
Patricia F. Russo 14,696 819,871 44,408 1,916,893
303,030 10,735,139
</TABLE>
Footnotes
(1) Includes those who in fiscal 1997 were the Chief Executive Officer and the
four other most highly compensated executive officers as measured by
salary and bonus.
(2) Includes both options granted prior to and following the Spin-Off. Options
granted prior to the Spin-Off were granted with respect to AT&T common
shares and the amounts shown include the number of Lucent Common Shares
resulting from the replacement on October 1, 1996 of each AT&T award with
a Lucent award, which replacement was intended to preserve the economic
value of the options at the time of the Spin-Off.
(3) Does not include an option covering 17,000 Shares that was irrevocably
transferred in 1997 to a family trust.
39
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------
Number of
Shares Grant
Underlying % of Total Date
Options Options Exercise Present
Granted Granted to Price Expiration Value (3)
Name(1) # (2) Employees ($/Sh) Date ($)
- ------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Henry B. Schacht 800,000 3.5 44.5625 10/1/06 11,048,000
97,200 0.4 52.5625 1/20/07 1,585,332
Richard A. McGinn 408,200 1.8 44.5625 10/1/06 5,637,242
76,300 0.3 52.5625 1/20/07 1,244,453
Daniel C. Stanzione 255,100 1.1 44.5625 10/1/06 3,522,931
52,100 0.2 52.5625 1/20/07 849,751
Donald K. Peterson 204,100 0.9 44.5625 10/1/06 2,818,621
23,800 0.1 52.5625 1/20/07 388,178
Patricia F. Russo 204,100 0.9 44.5625 10/1/06 2,818,621
20,700 0.1 52.5625 1/20/07 337,617
</TABLE>
Footnotes
(1) Includes those who in fiscal 1997 were the Chief Executive Officer and the
four other most highly compensated executive officers as measured by
salary and bonus.
(2) Includes a special equity grant following the Spin-Off as well as the
regular annual grant of options. Pursuant to the terms of the stock
options shown with an expiration date of 10/1/06, the vesting of these
options has been accelerated from six years to three years because certain
stock price targets have been met. Stock options shown with an expiration
date of 1/20/07 become exercisable on January 20, 2000. Mr. Schacht's
options may be transferred to family members or certain entities in which
family members have interests. During fiscal 1997, Mr. Schacht irrevocably
so transferred options to purchase 17,000 Shares. All of the options shown
in the table above for Mr. Schacht became exercisable in October 1997 as a
result of the appointment of Mr. McGinn as Chief Executive Officer of the
Company.
(3) In accordance with SEC rules, the Black-Scholes option pricing model was
chosen to estimate the grant date present value of the options set forth
in this table. The Company's use of this model should not be construed as
an endorsement of its accuracy at valuing options. All stock option
valuation models, including the Black-Scholes model, require a prediction
about the future movement of the stock price. The following assumptions
were made for purposes of calculating the grant date present value: for
the options shown with an expiration date of 10/1/06, an option term of
five years, volatility of 0.224, dividend yield at .67% and interest rate
at 6.43%; for the options shown with an expiration date of 1/20/07, an
option term of five years, volatility of 0.224, dividend yield at .57% and
interest rate at 6.27%. The real value of the options in this table
depends upon the actual changes in the market price of the Common Shares
during the applicable period.
-----------------------------------------------------------------------------
40
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Long-Term Incentive Plans - Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Estimated Future Payouts
Performance Under Non-Stock Price-Based Plans(2)
Period Until -----------------------------------------
Maturation or
Name(1) Payout(2) Threshold($) Target($) Maximum($)
- -------------------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Henry B. Schacht 1997-1999 689,725 1,379,450 2,758,900
Richard A. McGinn 1997-1999 541,420 1,082,840 2,165,680
Daniel C. Stanzione 1997-1999 369,700 739,400 1,478,800
Donald K. Peterson 1997-1999 168,885 337,770 675,540
Patricia F. Russo 1997-1999 146,885 293,770 587,540
</TABLE>
Footnotes
(1) Includes those who in fiscal 1997 were the Chief Executive Officer and the
four other most highly compensated executive officers as measured by
salary and bonus.
(2) The awards listed in the table relate to the performance period beginning
October 1, 1996 and ending September 30, 1999. The payout for each named
officer at the end of the cycle will be based on the level of attainment
of an earnings per share growth objective. In no event will the award to
any named officer exceed 0.13% of the Company's gross margins for each
year in the performance period divided by the total number of named
officers receiving payouts.
Pension Plans
In July 1997, the Company adopted revisions to the existing Lucent
Technologies Inc. Management Pension Plan (the "Management Pension Plan") and
to certain Lucent non-qualified pension plans. The revisions will affect
management employees, including Messrs. McGinn, Stanzione and Peterson and Ms.
Russo, who retire on or after January 1, 1998. In addition to revising the
formula under the Management Pension Plan, the Company has adopted a
"transition formula" under this plan. This formula is available to certain
management employees who terminate employment on or after January 1, 1998.
Eligible employees terminating on or after January 1, 1998 will receive the
greater of the benefit calculated under the revised formula or the transition
formula. The revised pension formula and the transition formula are described
below.
The Management Pension Plan is a non-contributory pension plan which
covers all management employees. Under revisions to this plan effective January
1, 1998, annual pensions are computed on an adjusted career average pay basis.
The adjusted career average pay formula is the sum of (a) 1.4% of the average
annual pay for the five years ending December 31, 1997 (excluding the annual
bonus award paid in December 1997), times the number of years of service prior
to January 1, 1998, plus (b) 1.4% of
41
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
pay subsequent to December 31, 1997 (including the annual bonus award paid in
December 1997). Base salary and annual bonus awards for management employees
are taken into account in the formula used to compute pension amounts. However,
federal laws place limitations on compensation amounts that may be included
under this plan. In 1997, up to $160,000 in eligible base salary and annual
bonus could be included in the calculation under this plan. For Messrs. McGinn,
Stanzione and Peterson and Ms. Russo, as well as other executive officers, only
base salary is taken into account in the formula used to compute pension
amounts. The normal retirement age under this plan is 65; however, retirement
before age 65 can be elected. Employees who are at least age 50 with at least
15 years of service are eligible to retire with reduced benefits. If an
employee's age (must be 50 or older) plus service, when added together, is
equal to or greater than 75, the employee may retire with unreduced pension
benefits. A reduction equal to 3% is made for each year age plus service is
less than 75.
The transition formula under the Management Pension Plan uses
retirement eligibility rules as in effect prior to January 1, 1998 and bases a
benefit on an adjusted career average pay period. Management employees,
including Messrs. McGinn, Stanzione and Peterson and Ms. Russo, who retire on
or after January 1, 1998, may be entitled to a benefit under this formula.
Although age 65 is the normal retirement age under this formula, retirement
before age 65 can be elected under certain conditions. Employees who are at
least age 55 with at least 20 years of service are eligible to retire with an
unreduced pension. Employees who meet certain other age and service
requirements can retire with reduced benefits. The adjusted career average pay
formula is 1.6% of the average annual pay for the six years ending December 31,
1996 times the number of years of service through the earlier of December 31,
2000 or the retirement date. This transition formula is also applicable to
certain management employees who retired in 1997, if such formula provides a
higher benefit than the benefit they are currently receiving. Eligible retirees
will receive a revised benefit, on a prospective basis, beginning January 1,
1998. The types of compensation (i.e., base salary and annual bonus), and the
federal limitations on such compensation, which are applicable to the revised
pension formula, are also relevant to this formula.
Compensation and benefit amounts under the Management Pension Plan
formula which exceed the applicable federal limitations, as well as pension
amounts related to annual bonus awards payable to executive officers, including
Messrs. McGinn, Stanzione and Peterson and
42
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
Ms. Russo, will be paid under the Lucent Technologies Inc. Supplemental Pension
Plan (the "Supplemental Pension Plan"). This plan, which was also adopted in
July 1997 to replace certain non-qualified pension plans, is a non-contributory
plan and uses the same adjusted career average pay formula and eligibility
rules as the Management Pension Plan. All benefits are paid as an operating
expense. The transition arrangements are also applicable to this plan on the
same basis as the Management Pension Plan.
The Supplemental Pension Plan also provides executive officers,
including Messrs. McGinn, Stanzione and Peterson and Ms. Russo, with minimum
pension provisions. Eligible retired executive officers and surviving spouses
may receive an annual minimum pension equal to 15% of the sum of final base
salary plus annual bonus awards. Such minimum pension will be offset by
pensions payable under the Management Pension Plan and non-qualified pension
plans and will be payable from operating income.
Pension amounts under the Management Pension Plan and the
Supplemental Pension Plan are not subject to reductions for social security
benefits or other offset amounts. If Messrs. McGinn and Stanzione and Ms. Russo
continue in their current positions and retire at the normal retirement age of
65, the estimated annual pension amounts payable under the Management Pension
Plan and the Supplemental Pension Plan would be $1,318,600, $744,300 and
$687,200, respectively. Amounts shown are straight-life annuity amounts
although other optional forms of payment, which provide for actuarially reduced
pensions, are available. In addition to the Management Pension Plan and the
Supplemental Pension Plan, Mr. Peterson is entitled to a supplemental pension
under the Lucent Technologies Inc. Mid-Career Pension Plan. This plan provides
certain management employees, who are hired at age 35 or over at specified
levels and who terminate with at least five years at such level, with pension
benefits. The plan provides additional pension credits equal to the difference
between age 35 and the maximum possible years of service attainable at age 65,
but not to exceed actual net credited service, at approximately one-half the
rate in the Management Pension Plan. Payments under this plan are made from
operating income. Assuming retirement at age 65, Mr. Peterson's estimated
annual pension payable under the Management Pension Plan, the Supplemental Plan
and the Lucent Technologies Inc. Mid-Career Pension Plan would be $730,700. Mr.
Schacht, based on age at hire and current mandatory retirement practices, would
have insufficient service to vest in any Company qualified or non-qualified
pension plans.
Certain of the Company's non-qualified executive benefit plans
43
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
will be supported by a benefits protection grantor trust, the assets of which
are subject to the claims of the Company's creditors. In the event of a "Change
in Control" or "Potential Change in Control" of the Company (as such terms are
defined therein), certain additional funds might be required to be contributed
to such trust to support benefits under such plans.
Related Transactions
Since October 1, 1996, the Company has had outstanding loans to
executive officers as follows: (1) Two executive loans to Mr. Gerald J. Butters,
Group President, Optical Networking Group. The proceeds of these loans were used
to purchase a residence and to repay a loan from a former employer. The largest
aggregate principal amounts of such loans since October 1, 1996 were $80,000 and
$40,000, respectively, and the outstanding principal balances of such loans as
of October 31, 1997 were $70,000 and $20,000, respectively. The loans carry
interest rates of 5.19% and 5.21% per annum, respectively, payable annually, and
mature in 1999. (2) An executive loan to Mr. Donald K. Peterson, Executive Vice
President and Chief Financial Officer, with respect to the purchase of, and
secured by a mortgage on, Mr. Peterson's residence. The largest aggregate
principal amount of such loan since October 1, 1996 was $239,199, and the
outstanding principal balance of such loan as of October 31, 1997 was $215,293.
The loan carries an interest rate of 3% per annum, matures on March 31, 2006 and
is amortized through monthly, level payments of $2,414. The loans to Messrs.
Butters and Peterson were part of the compensation package offered upon
employment by AT&T to facilitate their relocation to New Jersey. (3) Two
executive, personal loans to Mr. Richard A. McGinn, Chief Executive Officer and
President. The largest aggregate principal amounts of such loans since October
1, 1996 were $800,000 and $119,402, respectively. The loans accrued interest
monthly at a rate equal to the monthly applicable federal short term rates
during their terms. Principal and all accrued interest on both loans have been
paid in full. A personal line of credit for Mr. McGinn was provided by Summit
Bank and guaranteed by the Company. The principal amount of this credit line,
which has been terminated, was not to exceed $3.6 million. Loan amounts accrued
interest at an annual rate equal to Summit Bank's floating base rate minus one
percent. The line of credit was due in a single payment on December 31, 2002.
Mr. McGinn and the Company entered into an indemnity agreement with respect to
this line of credit under which the officer agreed to reimburse the Company for
any amounts paid by the Company pursuant to the guarantee. All amounts borrowed
under the credit line have been repaid and the corporate loan
44
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
guarantee has been terminated. No payments were made by the Company under the
guarantee. (4) As part of the compensation package the Company offered to Mr.
Ben Verwaayen, a Chief Operating Officer of the Company, to join Lucent in
September 1997, and to facilitate his relocation to the United States, the
Company has guaranteed a portion of a loan provided by EAB Mortgage Company,
Inc. to Mr. Verwaayen. This loan is related to a purchase of, and is secured
by, a mortgage on Mr. Verwaayen's residence. The principal amount of the loan
guaranteed by the Company is $1.5 million. The loan is due in 2027 or, if
sooner, no later than 180 days after Mr. Verwaayen's employment with the
Company terminates. The largest amount guaranteed by the Company since October
1, 1996 under this arrangement was $1.5 million. Mr. Verwaayen and the Company
have entered into an indemnity agreement with respect to this loan under which
Mr. Verwaayen agrees to reimburse the Company for any amounts paid by the
Company pursuant to the guarantee.
The employment agreement entered into by Mr. Peterson and AT&T in
1995 provides that in the event his employment is terminated by the Company for
any reason other than for disability or for cause (as defined in the agreement)
prior to September 1, 1998, he will receive a severance benefit equal to 200%
of his annual base salary as of the date of termination.
In addition, Mr. Peterson's employment agreement required the Company
to establish a Special Deferred Compensation Account ("DCA") on his date of
hire in the amount of $190,000. Interest is compounded as of the end of each
calendar quarter for as long as any sums remain in the DCA, and the quarterly
rate of interest applied at the end of any calendar quarter is one-quarter of
the average 30-year Treasury Note rate for the previous quarter. The amounts
credited to the DCA will vest in the year 2009, or sooner in the event of the
termination of Mr. Peterson's employment as a result of death, disability or
Company initiated termination other than for cause. Vested amounts in the DCA
will be paid out following the termination of Mr. Peterson's employment with
the Company.
- --------------------------------------------------------------------------------
45
<PAGE>
LUCENT NOTICE OF 1998 ANNUAL MEETING AND PROXY STATEMENT
OTHER MATTERS
- --------------------------------------------------------------------------------
On the date this Proxy Statement went to press, management did not know of
any other matters to be brought before the Meeting other than those described
in this proxy statement. If any matters properly come before the Meeting that
are not specifically set forth on the proxy card and in this Proxy Statement,
the persons appointed as proxies will vote thereon in accordance with their
best judgment.
Whether or not you plan to attend the Meeting, please mark, sign, date and
promptly return the enclosed proxy in the enclosed envelope. No postage is
required for mailing in the United States. Or, if possible, vote your proxy by
telephone using the toll-free number on your proxy card.
Richard A. McGinn Henry B. Schacht
Chief Executive Officer Chairman
and President of the Board
December 22, 1997
- --------------------------------------------------------------------------------
46
<PAGE>
[Lucent Technologies logo]
[Recycle logo] [Soy Ink logo]
This Proxy Statement is printed entirely on
recycled and recyclable paper. Soy ink, rather
than petroleum-based ink, is used throughout.
<PAGE>
APPENDIX A
LUCENT TECHNOLOGIES INC.
------------------------
SHORT TERM INCENTIVE PLAN
-------------------------
as Amended July 18, 1997
1. PURPOSE. The purpose of the Lucent Short Term Incentive Plan (the
"Plan") is to provide Officers of Lucent Technologies Inc. (the "Company") and
its affiliates with incentive compensation based upon the level of achievement
of financial and other performance criteria. The Plan will enhance the ability
of the Company and its affiliates to attract individuals of exceptional
managerial talent upon whom, in large measure, the sustained progress, growth
and profitability of the Company depends.
2. DEFINITIONS. As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Award" shall mean a cash payment.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time and any successor thereto.
(d) "Committee" shall mean the Corporate Governance and Compensation
Committee of the Board (or any successor committee).
(e) "Covered Employee" shall mean a "covered employee" within the
meaning of Section 162(m) of the Code.
(f) "Net Income" shall mean the net income of the Company as determined
under generally accepted accounting principles, excluding (a) extraordinary
items (net of applicable taxes); (b) cumulative effects of changes in accounting
principles; (c) securities gains and losses (net of applicable taxes); and (d)
nonrecurring items (net of applicable taxes) including, but not limited to,
gains or losses on asset dispositions and sales of divisions, business units or
subsidiaries, restructuring charges, gains and losses from qualified benefit
plan curtailments and settlements, and income or expenses related to deferred
tax assets.
(g) "Officer" shall mean any manager of the Company or any affiliate
holding a position above the executive ("E Band") level or any salary grade
level that the Committee determines, in its sole discretion, is the equivalent
thereof.
<PAGE>
-2-
(h) "Outside Directors" shall mean those members of the Board who are
"outside directors" within the meaning of Section 162(m) of the Code.
(i) "Participant" shall mean any person selected by the Committee to
participate in the Plan.
(j) "Performance Year" shall mean the fiscal year in which a
Participant provides services on account of which the Award is made.
(k) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(l) "Target Award" shall mean an Award level that may be paid if
certain performance criteria are achieved in the Performance Year.
3. ELIGIBILITY. Persons employed by the Company or any of its
affiliates during a Performance Year in active service at an Officer level are
eligible to be Participants under the Plan for such Performance Year (whether or
not so employed or living at the date an Award is made) and may be considered by
the Committee for an Award. An Officer is not rendered ineligible to be a
Participant by reason of being a member of the Board.
4. AWARDS-GENERAL. The Committee will establish Target Awards for
Participants at the beginning of each Performance Year and the performance
criteria to be applicable to Awards for such Performance Year. The performance
criteria utilized by the Committee may be based on individual performance,
earnings per share, other Company and business unit financial objectives,
customer satisfaction indicators, operational efficiency measures, and other
measurable objectives tied to the Company's success or such other criteria as
the Committee shall determine. Awards will be made by the Committee following
the end of each Performance Year. Awards shall be paid as soon as practicable
after the Performance Year, except to the extent that a Participant has made an
election to defer the receipt of such Award pursuant to the Lucent Technologies
Inc. Deferred Compensation Plan or any successor plan having a similar function.
The Award amount with respect to a Participant shall be determined in the sole
discretion of the Committee, or, in the case of an Award to a Participant who is
not a Covered Employee, in the sole discretion of such person or committee
empowered by the Committee or Board. The determination of the Award amount for
each Participant shall be made at the end of each Performance Year and may be
less than (including no Award) or, in the case of a Participant who is not a
Covered Employee, greater than the Target Award.
5. AWARDS TO COVERED EMPLOYEES. (a) If the Committee determines at the
time a Target Award is established for a Participant that such Participant is,
or may be as of the end of the tax year for which the Company would claim a tax
<PAGE>
-3-
deduction in connection with such Award, a Covered Employee, then the Committee
may provide that this Section 5 is applicable to such Award under such terms as
the Committee shall determine.
(b) If an Award is subject to this Section 5, then the payment of cash
pursuant thereto shall be subject to the Company having a level of Net Income
for the applicable Performance Year set by the Committee within the time
prescribed by Section 162(m) of the Code or the regulations thereunder in order
for the level to be considered "pre-established". The Committee may, in its
discretion, reduce the amount of such an Award at any time prior to payment
based on such criteria as it shall determine, including but not limited to
individual merit and the attainment of specified levels of one or any
combination of the following: net cash provided by operating activities,
earnings per share from continuing operations, operating income, revenues, gross
margin, return on operating assets, return on equity, economic value added,
stock price appreciation, total shareowner return (measured in terms of stock
price appreciation and dividend growth), or cost control, of the Company or the
affiliate or division of the Company for or within which the Participant is
primarily employed.
(c) Notwithstanding any contrary provision of this Plan, the Committee
may not adjust upwards the amount payable pursuant to any Award subject to this
Section 5, nor may it waive the achievement of the Net Income requirement
contained in Section 5(b), except in the case of the death or disability of the
Participant.
(d) Prior to the payment of any Award subject to this Section 5, the
Committee shall certify in writing that the Net Income requirement applicable to
such Award was met.
(e) The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 5 as it may deem necessary or
appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m) (4) (C) of
the Code, the regulations promulgated thereunder, and any successors thereto.
6. OTHER CONDITIONS. (a) No person shall have any claim to an Award
under the Plan and there is no obligation for uniformity of treatment of
Participants under the Plan. Awards under the Plan may not be assigned or
alienated.
(b) Neither the Plan nor any action taken hereunder shall be construed
as giving to any Participant the right to be retained in the employ of the
Company or any affiliate.
(c) The Company or any affiliate shall have the right to deduct from
any Award to be paid under the Plan any federal, state or local taxes required
by law to be withheld with respect to such payment.
<PAGE>
-4-
(d) Awards under the Plan will, to the extent provided therein, be
included in base compensation or covered compensation under the retirement
programs of the company for purposes of determining pensions, retirement and
death related benefits.
(e) In the event an Award under the Plan is deferred under the Lucent
Technologies Inc. Deferred Compensation Plan or any successor thereto, it will
be reflected in the calculations of the above benefit plans as if it had been
paid as scheduled and not deferred.
(f) Notwithstanding any contrary provision of the Plan, the maximum
amount which may be paid to a Participant in any Performance Year is $9 million.
7. DESIGNATION OF BENEFICIARIES. A Participant may, if the Committee
permits, designate a beneficiary or beneficiaries to receive all or part of the
Award which may be made to the Participant, or may be payable, after such
Participant's death. A designation of beneficiary shall be made in accordance
with procedures specified by the Company and may be replaced by a new
designation or may be revoked by the Participant at any time. In case of the
Participant's death, an Award with respect to which a designation of beneficiary
has been made (to the extent it is valid and enforceable under applicable law)
shall be paid to the designated beneficiary or beneficiaries. Any Award granted
or payable to a Participant who is deceased and not subject to such a
designation shall be distributed to the Participant's estate. If there shall be
any question as to the legal right of any beneficiary to receive an Award under
the Plan, the amount in question may be paid to the estate of the Participant,
in which event the Company or its affiliates shall have no further liability to
anyone with respect to such amount.
8. PLAN ADMINISTRATION. (a) The Committee shall have full discretionary
power to administer and interpret the Plan and to establish rules for its
administration (including the power to delegate authority to others to act for
and on behalf of the Committee) subject to such resolutions, not inconsistent
with the Plan, as may be adopted by the Board, except that the Committee (or any
subcommittee thereof) shall have the exclusive authority to exercise any such
power with respect to Awards to which Section 5 is applicable. In making any
determinations under or referred to in the Plan, the Committee (and its
delegates, if any) shall be entitled to rely on opinions, reports or statements
of employees of the Company and its affiliates and of counsel, public
accountants and other professional or expert persons.
(b) The Plan shall be governed by the laws of the State of Delaware and
applicable Federal law.
9. MODIFICATION OR TERMINATION OF PLAN. The Board may modify or
terminate the Plan at any time, effective at such date as the Board may
determine. The Senior Vice President - Human Resources of the Company or his
delegate with the concurrence of the General Counsel of the Company or his
delegate (or, in each case,
<PAGE>
-5-
any successor to either of such officer's responsibilities), shall be authorized
to make minor or administrative changes in the Plan or changes required by or
made desirable by law or government regulation. Such a modification may affect
present and future Participants. For purposes of this Section, a change to the
Plan that affects any Award to a Covered Employee shall not be a minor or
administrative change.
<PAGE>
APPENDIX B
LUCENT TECHNOLOGIES INC. 1996 LONG TERM INCENTIVE PROGRAM
---------------------------------------------------------
Amended and Restated effective February 18, 1998
SECTION 1. PURPOSE. The purposes of the Lucent Technologies Inc. 1996
Long Term Incentive Program (the "Plan") are to encourage selected key employees
of Lucent Technologies Inc. (the "Company") and its Affiliates to acquire a
proprietary and vested interest in the growth and performance of the Company, to
generate an increased incentive to contribute to the Company's future success
and prosperity, thus enhancing the value of the Company for the benefit of
shareowners, and to enhance the ability of the Company and its Affiliates to
attract and retain individuals of exceptional managerial talent upon whom, in
large measure, the sustained progress, growth and profitability of the Company
depend.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall
have the meanings set forth below:
(a) "Affiliate" shall mean (i) any Person that directly, or through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company or (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share, Performance Unit, Dividend Equivalent, Other
Stock Unit Award, or any other right, interest, or option relating to Shares or
other securities of the Company granted pursuant to the provisions of the Plan.
(c) "Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Award granted by the Committee
hereunder and signed by both the Company and the Participant.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Change in Control" shall mean the happening of any of the
following events:
(i) An acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (an "Entity")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the following: (1) any
acquisition directly from the Company, other than an acquisition by virtue of
the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled
<PAGE>
-2-
by the Company, or (4) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of subsection (iii) of
this Section 2(e); or
(ii) A change in the composition of the Board during any two
year period such that the individuals who, as of the beginning of such two year
period, constitute the Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that for purposes of this definition, any individual
who becomes a member of the Board subsequent to the beginning of the two year
period, whose election, or nomination for election by the Company's shareowners,
was approved by a vote of at least a majority of those individuals who are
members of the Board and who were also members of the Incumbent Board (or deemed
to be such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; and provided further, however,
that any such individual whose initial assumption of office occurs as a result
of or in connection with either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of an Entity other than the Board shall not be so considered as
a member of the Incumbent Board; or
(iii) The approval by the shareowners of the Company of a
merger, reorganization or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (each, a "Corporate Transaction")
or, if consummation of such Corporate Transaction is subject, at the time of
such approval by shareowners, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding however, such a Corporate Transaction pursuant to which
(A) all or substantially all of the individuals and entities who are the
beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of the outstanding
shares of common stock, and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation or other Person which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries (a "Parent Company")) in
substantially the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, (B) no Entity (other than the Company, any employee
benefit plan (or related trust) of the Company, such corporation resulting from
such Corporate Transaction or, if reference was made to equity ownership of any
Parent Company for purposes of determining whether clause (A) above is satisfied
in connection with the applicable Corporate Transaction, such Parent Company)
will beneficially own, directly or indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the outstanding voting
securities of such corporation entitled to vote generally in the election of
directors unless such ownership resulted solely from ownership of securities of
the Company
<PAGE>
-3-
prior to the Corporate Transaction, and (C) individuals who were members of the
Incumbent Board will immediately after the consummation of the Corporate
Transaction constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction (or, if
reference was made to equity ownership of any Parent Company for purposes of
determining whether clause (A) above is satisfied in connection with the
applicable Corporate Transaction, of the Parent Company); or
(iv) The approval by the shareowners of the Company of a
complete liquidation or dissolution of the Company.
(f) "Change in Control Price" means the higher of (A) the highest
reported sales price, regular way, of a Share in any transaction reported on the
New York Stock Exchange Composite Tape or other national exchange on which
Shares are listed or on NASDAQ during the 60-day period prior to and including
the date of a Change in Control or (B) if the Change in Control is the result of
a tender or exchange offer or a Corporate Transaction, the highest price per
Share paid in such tender or exchange offer or Corporate Transaction; provided
however, that in the case of Incentive Stock Options and Stock Appreciation
Rights relating to Incentive Stock Options, the Change in Control Price shall be
in all cases the Fair Market Value of a Share on the date such Incentive Stock
Option or Stock Appreciation Right is exercised or deemed exercised. To the
extent that the consideration paid in any such transaction described above
consists all or in part of securities or other noncash consideration, the value
of such securities or other noncash consideration shall be determined in the
sole discretion of the Board.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(h) "Committee" shall mean the Corporate Governance and Compensation
Committee of the Board (or any successor committee).
(i) "Company" shall mean Lucent Technologies Inc., a Delaware
corporation.
(j) "Covered Employee" shall mean a "covered employee" within the
meaning of Section 162(m)(3) of the Code.
(k) "Dividend Equivalent" shall mean any right granted pursuant to
Section 14(h) hereof.
(l) "Employee" shall mean any employee of the Company or of any
Affiliate. Unless otherwise determined by the Committee in its sole discretion,
for purposes of the Plan, an Employee shall be considered to have terminated
employment and to have ceased to be an Employee if his or her employer ceases to
be an Affiliate, even if he or she continues to be employed by such employer.
<PAGE>
-4-
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(n) "Fair Market Value" shall mean, (i) with respect to Shares, the
average of the highest and lowest reported sales prices, regular way, of Shares
in transactions reported on the New York Stock Exchange on the date of
determination of Fair Market Value, or if no sales of Shares are reported on the
New York Stock Exchange for that date, the comparable average sales price for
the last previous day for which sales were reported on the New York Stock
Exchange, and (ii) with respect to any other property, the fair market value of
such property determined by such methods or procedures as shall be established
from time to time by the Committee.
(o) "Incentive Stock Option" shall mean an Option granted under Section
6 hereof that is intended to meet the requirements of Section 422 of the Code or
any successor provision thereto.
(p) "Net Income" shall mean the net income of the Company as determined
under generally accepted accounting principles, excluding (a) extraordinary
items (net of applicable taxes); (b) cumulative effects of changes in accounting
principles; (c) securities gains and losses (net of applicable taxes); and (d)
nonrecurring items (net of applicable taxes) including, but not limited to,
gains or losses on asset dispositions and sales of divisions, business units or
subsidiaries, restructuring charges, gains and losses from qualified benefit
plan curtailments and settlements, and income or expenses related to deferred
tax assets.
(q) "Nonstatutory Stock Option" shall mean an Option granted under
Section 6 hereof that is not intended to be an Incentive Stock Option.
(r) "Officer" shall mean any manager of the Company or any Affiliate
holding a position above the executive level (E band) or any future salary grade
that is the equivalent thereof.
(s) "Option" shall mean any right granted to a Participant under the
Plan allowing such Participant to purchase Shares at such price or prices and
during such period or periods as the Committee shall determine.
(t) "Other Stock Unit Award" shall mean any right granted to a
Participant by the Committee pursuant to Section 10 hereof.
(u) "Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.
(v) "Performance Award" shall mean any Award of Performance Shares or
Performance Units pursuant to Section 9 hereof.
(w) "Performance Period" shall mean that period, established by the
Committee at the time any Performance Award is granted or at any time
thereafter, during which
<PAGE>
-5-
any performance goals specified by the Committee with respect to such Award are
to be measured.
(x) "Performance Share" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated number of Shares, which
value may be paid to the Participant by delivery of such property as the
Committee shall determine, including, without limitation, cash, Shares, or any
combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish at the time of such grant or
thereafter.
(y) "Performance Unit" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated amount of property other
than Shares, which value may be paid to the Participant by delivery of such
property as the Committee shall determine, including, without limitation, cash,
Shares, or any combination thereof, upon achievement of such performance goals
during the Performance Period as the Committee shall establish at the time of
such grant or thereafter.
(z) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, limited
liability company, other entity or government or political subdivision thereof.
(aa) "Restricted Stock" shall mean any Share issued with the
restriction that the holder may not sell, transfer, pledge, or assign such Share
and with such other restrictions as the Committee, in its sole discretion, may
impose (including, without limitation, any restriction on the right to vote such
Share, and the right to receive any cash dividends), which restrictions may
lapse separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.
(bb) "Restricted Stock Award" shall mean an award of Restricted Stock
under Section 8 hereof.
(cc) "Shares" shall mean the shares of common stock, $.01 par value, of
the Company and such other securities of the Company as the Committee may from
time to time determine.
(dd) "Stock Appreciation Right" shall mean any right granted to a
Participant pursuant to Section 7 hereof to receive, upon exercise by the
Participant, the excess of (i) the Fair Market Value of one Share on the date of
exercise or, if the Committee shall so determine in the case of any such right
other than one related to any Incentive Stock Option, at any time during a
specified period before the date of exercise over (ii) the grant price of the
right on the date of grant, or if granted in connection with an outstanding
Option on the date of grant of the related Option, as specified by the Committee
in its sole discretion, which, other than in the case of Substitute Awards,
shall not be less than the Fair Market Value of one Share on such date of grant
of the right or the related Option, as the case may be. Any payment by the
Company in respect of such right may be made in cash, Shares, other property, or
any combination thereof, as the Committee, in its sole discretion, shall
determine.
<PAGE>
-6-
(ee) "Substitute Award" is defined in Section 4(a).
(ff) "Term" shall mean the period beginning on February 18, 1998, and
ending on February 28, 2003.
SECTION 3. ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall have full power and authority, subject to such
resolutions not inconsistent with the provisions of the Plan as may from time to
time be adopted by the Board, to: (i) select the Employees of the Company and
its Affiliates to whom Awards may from time to time be granted hereunder; (ii)
determine the type or types of Award to be granted to each Participant
hereunder; (iii) determine the number of Shares to be covered by each Award
granted hereunder; (iv) determine the terms and conditions, not inconsistent
with the provisions of the Plan, of any Award granted hereunder; (v) determine
whether, to what extent and under what circumstances Awards may be settled in
cash, Shares or other property or canceled or suspended; (vi) determine whether,
to what extent and under what circumstances cash, Shares and other property and
other amounts payable with respect to an Award under this Plan shall be deferred
either automatically or at the election of the Participant; (vii) interpret and
administer the Plan and any instrument or agreement entered into under the Plan;
(viii) establish such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (ix) make any
other determination and take any other action that the Committee deems necessary
or desirable for administration of the Plan. Decisions of the Committee shall be
final, conclusive and binding upon all Persons, including the Company, any
Participant, any shareowner, and any employee of the Company or of any
Affiliate.
SECTION 4. SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustment as provided in Section 4(b), the total number
of Shares available for Awards granted under the Plan on and after February 18,
1998 and on or prior to February 28, 2003 shall be thirty-two million
(32,000,000) Shares; provided, that if any Shares are subject to an Award
granted hereunder that is forfeited, settled in cash, expires, or otherwise is
terminated without issuance of Shares, the Shares subject to such Award shall
again be available for Awards under the Plan, if no Participant shall have
received any benefits of ownership in respect thereof; and provided further,
that no more than ten million (10,000,000) Shares shall be available for the
grant of Incentive Stock Options under the Plan during the Term; and provided
further, that no more than ten million (10,000,000) Shares shall be available
for the grant of Awards in the form of Stock Appreciation Rights pursuant to
Section 7 (excluding for this purpose any Stock Appreciation Right granted in
relation to an Incentive Stock Option or a Nonstatutory Stock Option),
Restricted Stock pursuant to Section 8, Performance Shares pursuant to Section
9, and Other Stock Unit Awards pursuant to Section 10 that are valued by
reference to Shares during the Term; and provided further, that no Participant
may be granted Awards with respect to more than five million (5,000,000) Shares
in the aggregate during the Term. In addition, Awards granted or Shares issued
by the Company through the assumption of, or in substitution
<PAGE>
-7-
or exchange for, employee benefit awards or the right or obligation to make
future employee benefit awards, in connection with the acquisition of another
corporation or business entity ("Substitute Awards") shall not reduce the Shares
available for grants under the Plan or to a Participant. Any Shares issued
hereunder may consist, in whole or in part, of authorized and unissued Shares or
treasury Shares.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, reverse stock split, spin-off or
similar transaction or other change in corporate structure affecting the Shares,
such adjustments and other substitutions shall be made to the Plan and to Awards
as the Committee in its sole discretion deems equitable or appropriate,
including without limitation such adjustments in the aggregate number, class and
kind of Shares which may be delivered under the Plan, in the aggregate or to any
one Participant, in the number, class, kind and option or exercise price of
Shares subject to outstanding Options, Stock Appreciation Rights or other Awards
granted under the Plan, and in the number, class and kind of Shares subject to
Awards granted under the Plan (including, if the Committee deems appropriate,
the substitution of similar options to purchase the shares of, or other awards
denominated in the shares of, another company) as the Committee may determine to
be appropriate in its sole discretion, provided that the number of Shares or
other securities subject to any Award shall always be a whole number.
SECTION 5. ELIGIBILITY. Any Employee (excluding any member of the
Committee) shall be eligible to be selected as a Participant.
SECTION 6. STOCK OPTIONS. Options may be granted hereunder to
Participants either alone or in addition to other Awards granted under the Plan.
Options may be granted for no consideration or for such consideration as the
Committee may determine. Any Option granted under the Plan shall be evidenced by
an Award Agreement in such form as the Committee may from time to time approve.
Any such Option shall be subject to the following terms and conditions and to
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The exercise price per Share under an Option shall be
determined by the Committee in its sole discretion; provided that except in the
case of an Option pursuant to a Substitute Award, such purchase price shall not
be less than the Fair Market Value of a Share on the date of the grant of the
Option.
(b) OPTION PERIOD. The term of each Option shall be fixed by the
Committee in its sole discretion; provided that no Incentive Stock Option shall
be exercisable after the expiration of ten years from the date the Option is
granted.
(c) EXERCISABILITY. Options shall be exercisable at such time or times
as determined by the Committee at or subsequent to grant. Unless otherwise
determined by the Committee at or subsequent to grant, no Incentive Stock Option
shall be exercisable during the year ending on the day before the first
anniversary date of the granting of the Incentive Stock Option.
<PAGE>
-8-
(d) METHOD OF EXERCISE. Subject to the other provisions of the Plan and
any applicable Award Agreement, any Option may be exercised by the Participant
in whole or in part at such time or times, and the Participant may make payment
of the option price in such form or forms, including, without limitation,
payment by delivery of cash, Shares or other consideration (including, where
permitted by law and the Committee, Awards) having a Fair Market Value on the
exercise date equal to the total option price, or by any combination of cash,
Shares and other consideration as the Committee may specify in the applicable
Award Agreement.
(e) INCENTIVE STOCK OPTIONS. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value (determined as of
the time of grant) of the Shares with respect to which Incentive Stock Options
held by any Participant which are exercisable for the first time by such
Participant during any calendar year under the Plan (and under any other benefit
plans of the Company or of any parent or subsidiary corporation of the Company)
shall not exceed $100,000 or, if different, the maximum limitation in effect at
the time of grant under Section 422 of the Code, or any successor provision, and
any regulations promulgated thereunder. The terms of any Incentive Stock Option
granted hereunder shall comply in all respects with the provisions of Section
422 of the Code, or any successor provision, and any regulations promulgated
thereunder.
(f) FORM OF SETTLEMENT. In its sole discretion, the Committee may
provide, at the time of grant, that the shares to be issued upon an Option's
exercise shall be in the form of Restricted Stock or other similar securities,
or may reserve the right so to provide after the time of grant.
SECTION 7. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be
granted hereunder to Participants either alone or in addition to other Awards
granted under the Plan and may, but need not, relate to a specific Option
granted under Section 6. The provisions of Stock Appreciation Rights need not be
the same with respect to each recipient. Any Stock Appreciation Right related to
a Nonstatutory Stock Option may be granted at the same time such Option is
granted or at any time thereafter before exercise or expiration of such Option.
Any Stock Appreciation Right related to an Incentive Stock Option must be
granted at the same time such Option is granted. In the case of any Stock
Appreciation Right related to any Option, the Stock Appreciation Right or
applicable portion thereof shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a Stock Appreciation
Right granted with respect to less than the full number of Shares covered by a
related Option shall not be reduced until the exercise or termination of the
related Option exceeds the number of Shares not covered by the Stock
Appreciation Right. Any Option related to any Stock Appreciation Right shall no
longer be exercisable to the extent the related Stock Appreciation Right has
been exercised. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem appropriate.
<PAGE>
-9-
SECTION 8. RESTRICTED STOCK. Restricted Stock Awards may be issued
hereunder to Participants, for no cash consideration or for such minimum
consideration as may be required by applicable law, either alone or in addition
to other Awards granted under the Plan. The provisions of Restricted Stock
Awards need not be the same with respect to each recipient. Any Restricted Stock
Award issued hereunder may be evidenced in such manner as the Committee in its
sole discretion shall deem appropriate, including, without limitation,
book-entry registration or issuance of a stock certificate or certificates. In
the event any stock certificate is issued in respect of a Restricted Stock
Award, such certificate shall be registered in the name of the Participant, and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Award. Except as otherwise determined by the
Committee, upon termination of employment for any reason during the restriction
period, any portion of a Restricted Stock Award still subject to restriction
shall be forfeited by the Participant and reacquired by the Company.
SECTION 9. PERFORMANCE AWARDS. Performance Awards in the form of
Performance Units or Performance Shares may be issued hereunder to Participants,
for no cash consideration or for such minimum consideration as may be required
by applicable law, either alone or in addition to other Awards granted under the
Plan. The performance criteria to be achieved during any Performance Period and
the length of the Performance Period shall be determined by the Committee upon
the grant of each Performance Award or at any time thereafter. Except as
provided in Section 11, Performance Awards will be distributed only after the
end of the relevant Performance Period. Performance Awards may be paid in cash,
Shares, other property or any combination thereof, in the sole discretion of the
Committee at the time of payment. The performance levels to be achieved for each
Performance Period and the amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Awards may be paid in a
lump sum or in installments following the close of the Performance Period.
SECTION 10. OTHER STOCK UNIT AWARDS. Other Awards of Shares and other
Awards that are valued in whole or in part by reference to, or are otherwise
based on, Shares or other property ("Other Stock Unit Awards") may be granted
hereunder to Participants, either alone or in addition to other Awards granted
under the Plan. Other Stock Unit Awards may be paid in Shares, other securities
of the Company, cash or any other form of property as the Committee shall
determine. Shares (including securities convertible into Shares) granted under
this Section 10 may be issued for no cash consideration or for such minimum
consideration as may be required by applicable law. Shares (including securities
convertible into Shares) purchased pursuant to a purchase right awarded under
this Section 10 shall be purchased for such consideration as the Committee shall
in its sole discretion determine, which shall not be less than the Fair Market
Value of such Shares or other securities as of the date such purchase right is
awarded. Subject to the provisions of the Plan, the Committee shall have sole
and complete authority to determine the Employees of the Company and its
Affiliates to whom and the time or times at which such Awards shall be made, the
number of Shares to be granted pursuant to such Awards, and all other conditions
of the Awards. The
<PAGE>
-10-
provisions of Other Stock Unit Awards need not be the same with respect to each
recipient.
SECTION 11. CHANGE IN CONTROL PROVISIONS.
(a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to
the contrary, unless the Committee shall determine otherwise at the time of
grant with respect to a particular Award, in the event of a Change in Control:
(i) Any Options and Stock Appreciation Rights outstanding as
of the date such Change in Control is determined to have occurred, and which are
not then exercisable and vested, shall become fully exercisable and vested.
(ii) The restrictions and deferral limitations applicable to
any Restricted Stock Awards shall lapse, and such Restricted Stock Awards shall
become free of all restrictions and limitations and become fully vested and
transferable.
(iii) All Performance Awards shall be considered to be earned
and payable in full, and any deferral or other restriction shall lapse and such
Performance Awards shall be immediately settled or distributed.
(iv) The restrictions and deferral limitations and other
conditions applicable to any Other Stock Unit Awards or any other Awards shall
lapse, and such Other Stock Unit Awards or such other Awards shall become free
of all restrictions, limitations or conditions and become fully vested and
transferable.
(b) CHANGE IN CONTROL CASH-OUT. Notwithstanding any other provision of
the Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), if the Committee shall determine at, or at any time after,
the time of grant, a Participant holding an Option shall have the right, whether
or not the Option is fully exercisable and in lieu of the payment of the
purchase price for the Shares being purchased under the Option and by giving
notice to the Company, to elect (within the Exercise Period) to surrender all or
part of the Option to the Company and to receive cash, within 30 days of such
notice, in an amount equal to the amount by which the Change in Control Price
per Share on the date of such election shall exceed the purchase price per Share
under the Option (the "Spread") multiplied by the number of Shares granted under
the Option as to which the right granted under this Section 11(b) shall have
been exercised.
(c) Notwithstanding any other provision of this Plan, if any right
granted pursuant to this Plan would make a Change in Control transaction
ineligible for pooling-of-interests accounting under APB No. 16 (or other
relevant accounting literature), which transaction (after giving effect to any
other actions taken to cause such transaction to be eligible for such
pooling-of-interests accounting treatment), but for the nature of such grant,
would otherwise be eligible for such accounting treatment, the Committee shall
have the ability to substitute for the cash payable pursuant to such right,
Shares with an equivalent Fair Market Value.
<PAGE>
-11-
SECTION 12. CODE SECTION 162(m) PROVISIONS.
(a) Notwithstanding any other provision of this Plan, if the Committee
determines at the time Restricted Stock, a Performance Award or an Other Stock
Unit Award is granted to a Participant that such Participant is, or may be as of
the end of the tax year for which the Company would claim a tax deduction in
connection with such Award, a Covered Employee, then the Committee may provide
that this Section 12 is applicable to such Award under such terms as the
Committee shall determine.
(b) If an Award is subject to this Section 12, then the lapsing of
restrictions thereon and the distribution of cash, Shares or other property
pursuant thereto, as applicable, shall be subject to the Company having a level
of Net Income for the fiscal year preceding lapse or distribution set by the
Committee within the time prescribed by Section 162(m) of the Code or the
regulations thereunder in order for the level to be considered
"pre-established". The Committee may, in its discretion, reduce the amount of
any Performance Award or Other Stock Unit Award subject to this Section 12 at
any time prior to payment based on such criteria as it shall determine,
including but not limited to individual merit and the attainment of specified
levels of one or any combination of the following: net cash provided by
operating activities, earnings per Share from continuing operations, operating
income, revenues, gross margin, return on operating assets, return on equity,
economic value added, stock price appreciation, total shareowner return
(measured in terms of stock price appreciation and dividend growth), or cost
control, of the Company or the Affiliate or division of the Company for or
within which the Participant is primarily employed.
(c) Notwithstanding any contrary provision of the Plan other than
Section 11, the Committee may not adjust upwards the amount payable pursuant to
any Award subject to this Section 12, nor may it waive the achievement of the
Net Income requirement contained in Section 12(b), except in the case of the
death or disability of a Participant.
(d) Prior to the payment of any Award subject to this Section 12, the
Committee shall certify in writing that the Net Income requirement applicable to
such Award was met.
(e) The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 12 as it may deem necessary or
appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m)(4)(C) of
the Code, the regulations promulgated thereunder, and any successors thereto.
SECTION 13. AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan, but no amendment, alteration, or discontinuation shall be
made that would impair the rights of an optionee or Participant under an Award
theretofore granted, without the optionee's or Participant's consent, or that
without the approval of the shareowners would:
<PAGE>
-12-
(a) except as is provided in Section 4(b) of the Plan, increase the
total number of shares reserved for the purpose of the Plan; or
(b) change the employees or class of employees eligible to participate
in the Plan.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without his consent. Except as provided in Section 4(b) and
Section 14(e), the Committee shall not have the authority to cancel any
outstanding Option and issue a new Option in its place with a lower exercise
price.
SECTION 14. GENERAL PROVISIONS.
(a) Unless the Committee determines otherwise at the time the Award is
granted, no Award, and no Shares subject to Awards described in Section 10 which
have not been issued or as to which any applicable restriction, performance or
deferral period has not lapsed, may be sold, assigned, transferred, pledged or
otherwise encumbered, except by will or by the laws of descent and distribution
and all Awards shall be exercisable, during the Participant's lifetime, only by
the Participant or, if permissible under applicable law, by the Participant's
guardian or legal representative; provided that, if so determined by the
Committee, a Participant may, in the manner established by the Committee,
designate a beneficiary to exercise the rights of the Participant with respect
to any Award upon the death of the Participant.
(b) The term of each Award shall be for such period of months or years
from the date of its grant as may be determined by the Committee; provided that
in no event shall the term of any Incentive Stock Option or any Stock
Appreciation Right related to any Incentive Stock Option exceed a period of ten
(10) years from the date of its grant.
(c) No Employee or Participant shall have any claim to be granted any
Award under the Plan and there is no obligation for uniformity of treatment of
Employees or Participants under the Plan.
(d) The prospective recipient of any Award under the Plan shall not,
with respect to such Award, be deemed to have become a Participant, or to have
any rights with respect to such Award, until and unless such recipient shall
have executed an agreement or other instrument evidencing the Award and
delivered a fully executed copy thereof to the Company, and otherwise complied
with the then applicable terms and conditions.
(e) Except as provided in Section 12, the Committee shall be authorized
to make adjustments in Performance Award criteria or in the terms and conditions
of other Awards in recognition of unusual or nonrecurring events affecting the
Company or its financial statements, or changes in applicable laws, regulations
or accounting principles. The Committee may correct any defect, supply any
omission or reconcile
<PAGE>
-13-
any inconsistency in the Plan or any Award in the manner and to the extent it
shall deem desirable. In the event the Company shall assume outstanding employee
benefit awards or the right or obligation to make future such awards in
connection with the acquisition of another corporation or business entity, the
Committee may, in its discretion, make such adjustments in the terms of Awards
under the Plan as it shall deem appropriate.
(f) The Committee shall have full power and authority to determine
whether, to what extent and under what circumstances any Award shall be canceled
or suspended. In particular, but without limitation, all outstanding Awards to
any Participant shall be canceled if the Participant, without the consent of the
Committee, while employed by the Company or after termination of such
employment, engages in any activity which is in competition with the Company, as
determined by the Committee, one or more Officers of the Company or a committee
of Officers of the Company to whom the authority to make such determination is
delegated by the Committee.
(g) All certificates for Shares delivered under the Plan pursuant to
any Award shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(h) Subject to the provisions of this Plan and any Award Agreement, the
recipient of an Award (including, without limitation, any deferred Award) may,
if so determined by the Committee, be entitled to receive, currently or on a
deferred basis, interest or dividends, or interest or dividend equivalents, with
respect to the number of Shares covered by the Award, as determined by the
Committee, in its sole discretion, and the Committee may provide that such
amounts (if any) shall be deemed to have been reinvested in additional Shares or
otherwise reinvested.
(i) Except as otherwise required in any applicable Award Agreement or
by the terms of the Plan, recipients of Awards under the Plan shall not be
required to make any payment or provide consideration other than the rendering
of services.
(j) To the extent permitted by law, the Committee may delegate to one
or more directors of the Company (who need not be members of the Committee) the
right to grant Awards to Employees who are not officers of the Company for
purposes of Section 16 of the Exchange Act or directors of the Company and to
amend, administer, interpret, waive conditions with respect to, cancel or
suspend Awards to Employees who are not such officers.
(k) The Committee is authorized to establish procedures pursuant to
which the payment of any Award may be deferred.
<PAGE>
-14-
(l) The maximum value of the property, including cash, that may be paid
or distributed to any Participant pursuant to grants of Performance Units and/or
Other Stock Unit Awards that are valued with reference to property other than
Shares made in any one calendar year is $9,000,000.
(m) The Company is authorized to withhold from any Award granted or
payment due under the Plan the amount of withholding taxes due in respect of an
Award or payment hereunder and to take such other action as may be necessary in
the opinion of the Company to satisfy all obligations for the payment of such
taxes. The Committee shall be authorized to establish procedures for election by
Participants to satisfy such withholding taxes by delivery of, or directing the
Company to retain, Shares.
(n) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
shareowner approval if such approval is otherwise required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
(o) The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the
laws of the State of Delaware and applicable Federal law.
(p) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
(q) Awards may be granted to Employees who are foreign nationals or
employed outside the United States, or both, on such terms and conditions
different from those specified in the Plan as may, in the judgment of the
Committee, be necessary or desirable in order to recognize differences in local
law or tax policy. The Committee also may impose conditions on the exercise or
vesting of Awards in order to minimize the Company's obligation with respect to
tax equalization for Employees on assignments outside their home country.
SECTION 15. EFFECTIVE DATE OF PLAN. The Plan first became effective on
October 1, 1996 and this amendment and restatement shall be effective on
February 18, 1998, subject to shareowner approval.
SECTION 16. TERM OF PLAN. No Award shall be granted pursuant to the
Plan after February 28, 2003, but any Award theretofore granted may extend
beyond that date.
<PAGE>
ADMISSION TICKET
Annual Meeting of Shareowners
February 18, 1998 9:30 a.m., E.S.T.
MEADOWLANDS EXPOSITION CENTER
(NOTE: THIS IS NOT THE MEADOWLANDS SPORT COMPLEX)
DIRECTIONS:
1) FROM NORTH (RTS. 80 & 95 & GEORGE WASHINGTON BRIDGE): Take NJ Turnpike South,
when it divides use the Eastern Spur, towards the Lincoln Tunnel. Take
Exit 17, stay right towards Secaucus immediately after paying toll. Go
straight through traffic light and over bridge. You are now on Harmon Meadow
Blvd. Go to first light and follow signs to designated Parking Areas.
2) FROM SOUTH (NEWARK AIRPORT): Take NJ Turnpike North. When it divides use the
Eastern Spur, towards the Lincoln Tunnel. Take Exit 16E, keep left toward
Secaucus. Go straight through traffic light and over bridge. You are now on
Harmon Meadow Blvd. Go to first light and follow signs to designated Parking
Areas.
3) FROM LINCOLN TUNNEL: Stay on main road (I-495) to Rt. 3 West. Do not take the
Turnpike. Keep right on Route 3 to service road. Take 2nd Exit for Millcreek
Mall (Millcreek Drive at Exxon Station). Caldor's and Millcreek Mall will be
on your left. At second stop sign follow signs to designated Parking Areas.
4) FROM WEST (RT. 3 EAST): Take Secaucus Exit on right (service lane) and exit
at Harmon Meadow Blvd. Go to first light and follow signs to designated
Parking Areas.
5) MASS TRANSPORTATION: Take NJ TRANSIT BUS 320 from NY Port Authority Bus
Terminal, Platform #71.
[GRAPHIC: MAP OF MEADOWLANDS EXPOSITION CENTER]
This ticket admits the named Shareowner(s) and one guest.
Shuttle Buses will be available to and from designated Parking Areas.
Complimentary Coffee and Tea will be available prior to the Meeting.
Proxy Card [GRAPHIC: LUCENT TECHNOLOGIES LOGO]
- --------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Henry B. Schacht, Donald K. Peterson and
Richard J. Rawson, (the "Proxy Committee") or any of them as proxies, with full
power of substitution, to vote as directed all Shares of Lucent Technologies
Inc. the undersigned is entitled to vote at the 1998 Annual Meeting of
Shareowners of Lucent Technologies Inc. to be held at the Meadowlands Exposition
Center in Secaucus, New Jersey at 9:30 a.m., E.S.T. on February 18, 1998. This
Proxy card also provides voting instructions for shares held in BuyDIRECT(SM)
and, if registrations are identical, Shares held in the various employee stock
purchase and savings plans as described in the Proxy Statement. This Proxy
authorize(s) each of them to vote at his or her discretion on any other matter
that may properly come before the Meeting or any adjournment thereof. If this
card contains no specific voting instructions, my (our) Shares will be voted in
accordance with the recommendation of the Board of Directors.
(Continued, and to be signed and dated on the reverse side.)
Comments:
------------------------ LUCENT TECHNOLOGIES INC.
P.O. BOX 1162
- ---------------------------------- NEWARK, N.J. 07101-9664
- ----------------------------------
- ----------------------------------
If you have written in the above
space, please mark the comments
notification box on the reverse
side.
<PAGE>
VOTE BY TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
CALL TOLL-FREE ON A TOUCH-TONE PHONE [GRAPHIC: LUCENT TECHNOLOGIES LOGO]
1-800-293-5876
Dear Shareowner:
Lucent Technologies Inc. offers you the convenience of telephone voting.
Your telephone vote authorizes the Proxy Committee to vote your Shares in the
same manner as if you marked and returned your proxy card. If you wish to
discontinue extra copies of Annual Reports you may stay on the line after
voting. To vote by telephone, please call the above number. You will be asked to
enter a number which is located in the box marked "Control Number." You will
then hear these instructions:
- --------------------------------------------------------------------------------
OPTION #1: To vote as the Board of Directors recommends on ALL matters,
press 1 now.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPTION #2: If you choose to vote on each item separately, press 0 now.
- --------------------------------------------------------------------------------
Item 1: To vote FOR all nominees, press 1; to WITHHOLD FOR ALL nominees,
press 9.
Item 2: To vote FOR this proposal, press 1; AGAINST, press 9; ABSTAIN,
press 0. The instructions are the same for all remaining items.
After you cast your vote, you will then hear: To confirm your vote, press 1 now.
-----------------------------------------
To withhold authority to vote for an
individual nominee, please mark, sign,
date and mail the proxy card.
If you vote by telephone there is no need
for you to mail back your proxy.
THANK YOU FOR VOTING!
-----------------------------------------
-----------------------------------------
CONTROL NUMBER
-----------------------------------------
YOUR VOTE IS IMPORTANT!!!
CALL 1-800-293-5876
THERE IS NO CHARGE FOR THIS CALL.
\/ DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE \/
-----
[ ] Proxy Card
-----
(The Board of Directors recommends a vote "FOR" Items 1, 2 and 3.)
1. Election of Directors
The Board of Directors recommends a vote "FOR" the nominees listed below:
Nominees: RICHARD A. McGINN, PAUL H. O'NEILL, FRANKLIN A. THOMAS
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions
--------------------------------------------------------------------
FOR all nominees WITHHOLD AUTHORITY
listed above. to vote for all nominees listed above. *EXCEPTIONS
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
2. Directors' Proposal - Approve the
Amended Lucent Technologies Inc. [ ] [ ] [ ]
Short Term Incentive Plan.
3. Directors' Proposal - Approve the
Amended Lucent Technologies Inc. [ ] [ ] [ ]
1996 Long Term Incentive Program.
(The Board of Directors recommends a vote "AGAINST" Items 4 and 5.)
FOR AGAINST ABSTAIN
4. Shareowner Proposal Number 1 -
Evelyn Y. Davis - Eliminate Classified [ ] [ ] [ ]
Board
5. Shareowner Proposal Number 2 -
Mark Seidenberg - Anti-Slave Labor [ ] [ ] [ ]
Policy
If you do not wish to
To include any comments receive an Annual Report
please mark this box and [ ] for this account, please [ ]
use reverse side. mark this box.
To change your address
please mark this box and [ ] I plan to attend [ ]
correct at left. the Annual Meeting.
Please sign exactly as name or names appear on this proxy.
When signing as attorney, executor, administrator, trustee, custodian,
guardian or corporate officer, give full title.
If more than one trustee, all should sign.
Dated: , 19
--------------------------------------------------------------- ------
- --------------------------------------------------------------------------------
Signature of Shareowner
- --------------------------------------------------------------------------------
Votes MUST be indicated (x) in Black or Blue ink. [X]
