<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1997
REGISTRATION NO. 333-38569
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
LUCENT TECHNOLOGIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3661 22-3408857
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
600 MOUNTAIN AVENUE
MURRAY HILL, NEW JERSEY 07974
(908) 582-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PAMELA F. CRAVEN
VICE PRESIDENT -- LAW
LUCENT TECHNOLOGIES INC.
600 MOUNTAIN AVENUE
MURRAY HILL, NEW JERSEY 07974
(908) 582-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
MICHAEL J. HOLLIDAY, ESQ. STEVEN E. BOCHNER, ESQ.
LUCENT TECHNOLOGIES INC. NEVAN C. ELAM, ESQ.
600 MOUNTAIN AVENUE WILSON SONSINI GOODRICH & ROSATI,
MURRAY HILL, NEW JERSEY 07974 PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC : As soon
as practicable after this Registration Statement becomes effective and all other
conditions to the merger (the "Merger") of LaSalle Acquisition, Inc., a
wholly-owned subsidiary of Lucent Technologies Inc., with and into Livingston
Enterprises, Inc. pursuant to the Agreement and Plan of Merger described in the
enclosed Proxy Statement/Prospectus have been satisfied or waived.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE PRICE(2) REGISTRATION FEE(4)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value(3)................... 7,666,129 shares (2) $28,363,000 $8,595
=========================================================================================================
</TABLE>
(1) Represents the estimated maximum number of shares of Lucent Common Stock
which are issuable upon consummation of the Merger, computed based on the
estimated maximum number of shares of Livingston Common Stock (15,904,832)
that may be converted into shares of Lucent Common Stock to be registered.
(2) Pursuant to Rule 457(f)(2) promulgated under the Securities Act of 1933, the
registration fee is based on the book value of the common stock, no par
value, of Livingston Enterprises, Inc. as of August 31, 1997.
(3) Includes associated Preferred Share Purchase Rights, which initially are
attached to and trade with the shares of Lucent Common Stock being
registered hereby. Value attributable to such Preferred Share Purchase
Rights, if any, is reflected in the market price of Lucent Common Stock.
(4) Already paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
LUCENT TECHNOLOGIES INC.
CROSS-REFERENCE TABLE
CROSS REFERENCE SHEET BETWEEN ITEMS OF FORM S-4 AND PROXY STATEMENT/PROSPECTUS
PURSUANT TO ITEM 501(B) OF REGULATION S-K.
<TABLE>
<CAPTION>
ITEM CAPTION OR LOCATION IN
NUMBER ITEM IN FORM S-4 PROXY STATEMENT/PROSPECTUS
- ------ ------------------------------------------ ------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Facing Page, Cross-Reference Table and
Outside Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Table of Contents, "Available Information"
and "Incorporation of Documents by
Reference"
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... "Summary" and "Risk Factors"
4. Terms of the Transaction.................. "Summary," "The Merger," "Terms of the
Merger" and "Comparison of the Rights of
Holders of Lucent Common Stock and the
Rights of Holders of Livingston Common
Stock"
5. Pro Forma Financial Information........... Not Applicable
6. Material Contacts with the Company Being
Acquired................................ "The Merger"
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Not Applicable
8. Interests of Named Experts and Counsel.... "Experts" and "Legal Matters"
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
10. Information with Respect to S-3
Registrants............................. "Incorporation of Documents by Reference,"
"Recent Developments" and "Certain
Information Concerning Lucent"
11. Incorporation of Certain Information by
Reference............................... "Incorporation of Documents by Reference"
and "Available Information"
12. Information with Respect to S-2 or S-3
Registrants............................. Not Applicable
13. Incorporation of Certain Information by
Reference............................... Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants....... Not Applicable
15. Information with Respect to S-3
Companies............................... Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................... Not Applicable
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies......... "Summary" and "Certain Information
Concerning Livingston"
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM CAPTION OR LOCATION IN
NUMBER ITEM IN FORM S-4 PROXY STATEMENT/PROSPECTUS
- ------ ------------------------------------------ ------------------------------------------
<C> <S> <C>
18. Information if Proxies, Consents or
Authorizations Are to Be Solicited...... "Incorporation of Documents by Reference,"
"Summary," "Livingston Special Meeting,"
"The Merger," "Certain Transactions,"
"Certain Information Concerning
Livingston" and "Dissenters' Rights"
19. Information if Proxies, Consents or
Authorizations Are Not to Be Solicited,
or in an Exchange Offer................. Not Applicable
</TABLE>
<PAGE> 4
[LIVINGSTON ENTERPRISES, INC.]
November 10, 1997
Dear Shareholder:
At our Special Meeting of Shareholders (the "Special Meeting") to be held
on December 12, 1997, you will be asked to vote upon the approval and adoption
of the Agreement and Plan of Merger dated as of October 14, 1997 (the "Merger
Agreement") among Lucent Technologies Inc. ("Lucent"), LaSalle Acquisition,
Inc., a wholly-owned subsidiary of Lucent ("Acquisition"), and Livingston
Enterprises, Inc. ("Livingston"), providing for the merger of Acquisition with
and into Livingston upon the terms and subject to the conditions of the Merger
Agreement (the "Merger"). The foregoing proposal is described more fully in the
accompanying Proxy Statement/Prospectus.
After careful consideration, Livingston's Board of Directors has
unanimously determined that the terms of the Merger Agreement and the Merger are
fair to, and in the best interests of, Livingston and its shareholders.
Accordingly, Livingston's Board of Directors has unanimously approved the Merger
Agreement and unanimously recommends that the shareholders of Livingston vote
FOR approval of the Merger Agreement and the Merger. The approval of the Merger
Agreement and the Merger requires the affirmative vote of holders of at least a
majority of the outstanding shares of the Common Stock of Livingston. In
connection with the execution of the Merger Agreement, Lucent entered into a
Voting Agreement with Steven M. Willens and Jerrold Livingston, the beneficial
holders of approximately 64% of the issued and outstanding shares of Livingston
Common Stock, pursuant to which they have agreed to vote in favor of the
approval of the Merger Agreement and the Merger and have granted certain
officers of Acquisition an irrevocable proxy and power of attorney to vote their
shares in favor of the approval of the Merger Agreement and the Merger.
Shareholders are urged to review carefully the information contained in the
Proxy Statement/Prospectus attached hereto prior to deciding how to vote their
shares at the Special Meeting.
Whether or not you expect to attend the Special Meeting in person, please
complete, sign and promptly return the enclosed proxy in the enclosed
postage-prepaid envelope to assure representation of your shares. You may revoke
your proxy at any time before it has been voted, and if you attend the Special
Meeting you may vote in person, even if you previously returned your proxy. Your
prompt cooperation will be greatly appreciated.
Sincerely,
STEVEN M. WILLENS
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 5
LIVINGSTON ENTERPRISES, INC.
4464 WILLOW ROAD
PLEASANTON, CALIFORNIA 94588
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 12, 1997
TO THE SHAREHOLDERS OF LIVINGSTON ENTERPRISES, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Livingston Enterprises, Inc., a California corporation
("Livingston"), will be held on December 12, 1997, at 10:00 a.m., local time, at
Livingston's principal offices at 4464 Willow Road, Pleasanton, California
94588.
At the Special Meeting you will be asked to consider and vote upon the
following proposal:
To approve and adopt the Agreement and Plan of Merger dated as of October
14, 1997 (the "Merger Agreement"), among Lucent Technologies Inc., a Delaware
corporation ("Lucent"), LaSalle Acquisition, Inc., a California corporation and
a wholly-owned subsidiary of Lucent ("Acquisition"), and Livingston, providing
for the merger of Acquisition with and into Livingston upon the terms and
subject to the conditions of the Merger Agreement (the "Merger").
Pursuant to the Merger Agreement (a) each share of Common Stock, no par
value per share, of Livingston ("Livingston Common Stock") issued and
outstanding at the effective time of the Merger will be converted into 0.482
("Exchange Ratio") of a fully paid and nonassessable share of common stock, par
value $.01 per share, of Lucent ("Lucent Common Stock"), and (b) each option to
purchase shares of Livingston Common Stock ("Livingston Option") that is not
exercised prior to the consummation of the Merger will be assumed by Lucent and
will thereafter represent an option to purchase a certain number of shares of
Lucent Common Stock at an exercise price proportionately adjusted to reflect the
Exchange Ratio.
THE BOARD OF DIRECTORS OF LIVINGSTON UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
Detailed information concerning the Merger Agreement and the Merger is
contained in the accompanying Proxy Statement/Prospectus; please read it
carefully.
For the Board of Directors,
STEVEN M. WILLENS
Chairman of the Board, President
and Chief Executive Officer
Pleasanton, California
November 10, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. A SHAREHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANY
TIME BEFORE IT IS EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO
LIVINGSTON, BY SUBSEQUENTLY FILING ANOTHER PROXY OR BY ATTENDING THE SPECIAL
MEETING AND VOTING IN PERSON.
HOLDERS OF LIVINGSTON COMMON STOCK SHOULD NOT SEND
STOCK CERTIFICATES WITH THEIR PROXIES.
<PAGE> 6
<TABLE>
<S> <C>
LUCENT TECHNOLOGIES INC. LIVINGSTON ENTERPRISES, INC.
600 MOUNTAIN AVENUE 4464 WILLOW ROAD
MURRAY HILL, NEW JERSEY 07974 PLEASANTON, CALIFORNIA 94588
</TABLE>
PROXY STATEMENT/PROSPECTUS
------------------------
This Proxy Statement/Prospectus constitutes the prospectus of Lucent
Technologies Inc., a Delaware corporation ("Lucent"), with respect to the
issuance of approximately 7,661,129 shares of common stock of Lucent, par value
$.01 per share (the "Lucent Common Stock"), together with the corresponding
percentage right (a "Lucent Right") to purchase shares of Lucent junior
preferred stock, par value $1.00 per share ("Lucent Junior Preferred Stock"),
issued pursuant to the Rights Agreement, dated as of April 4, 1996 (the "Rights
Agreement"), between Lucent and First Chicago Trust Company of New York (the
"Rights Agent") to be issued in a merger (the "Merger") between Livingston
Enterprises, Inc., a California corporation ("Livingston"), and LaSalle
Acquisition, Inc., a California corporation that is a wholly-owned subsidiary of
Lucent ("Acquisition"), upon the terms and subject to the conditions set forth
in the Agreement and Plan of Merger, dated as of October 14, 1997 (the "Merger
Agreement"), among Lucent, Acquisition and Livingston, with Livingston surviving
as a wholly-owned subsidiary of Lucent. Subject to the terms and conditions of
the Merger Agreement, each share of common stock, no par value per share, of
Livingston ("Livingston Common Stock") outstanding immediately prior to the time
the Merger is effective (other than the shares of Livingston Common Stock owned
by Lucent or Livingston which shall be canceled and other than Dissenting Shares
(as defined below)) will be converted into 0.482 (the" Exchange Ratio") of a
share of Lucent Common Stock. Cash will be paid in lieu of any fractional share
of Lucent Common Stock. Shares of Livingston which are not voted in favor of the
Merger and as to which the holders have properly demanded appraisal ("Dissenting
Shares") in accordance with the California Corporations Code (the "California
Code") will be entitled to receive such consideration as determined to be due in
accordance with the California Code.
The consummation of the Merger is subject, among other things, (i) to the
approval and adoption of the Merger Agreement by a majority of the outstanding
shares entitled to vote thereon at the Livingston Special Meeting (as defined
below), provided that a quorum is present and (ii) to the receipt of certain
regulatory approvals. Concurrent with the Merger Agreement, Lucent has entered
into a voting agreement with two Livingston shareholders who hold approximately
64% of the outstanding shares of Livingston Common Stock, pursuant to which such
shareholders have agreed to vote in favor of the Merger and have granted certain
officers of Acquisition an irrevocable proxy and power of attorney to vote their
shares in favor of the Merger. SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A
DESCRIPTION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY SHAREHOLDERS BEFORE
VOTING. A conformed copy of the Merger Agreement is attached hereto as Appendix
A.
Lucent Common Stock is listed for trading under the symbol "LU" on the New
York Stock Exchange (the "NYSE"). On October 14, 1997, the last trading day
prior to the public announcement of the Merger, the last reported sale price of
Lucent Common Stock, as reported on the NYSE Composite Transactions Tape, was
$88 per share. On November 6, 1997, the last trading day prior to the date of
this Proxy Statement/Prospectus, the last reported sale price of Lucent Common
Stock, as reported on the NYSE Composite Transactions Tape, was $84 13/16 per
share.
This Proxy Statement/Prospectus is being furnished to the shareholders of
Livingston in connection with the solicitation of proxies by the Board of
Directors of Livingston (the "Livingston Board") for use at a special meeting of
the shareholders of Livingston (the "Livingston Special Meeting") to be held on
December 12, 1997, at 10:00 a.m., local time, at Livingston's principal
executive offices located at 4464 Willow Road, Pleasanton, California 94588, and
at any adjournment thereof, for the purpose of considering and voting upon the
Merger.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY LUCENT OR
LIVINGSTON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT
IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF LUCENT, LIVINGSTON OR
ACQUISITION SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS OR THAT
INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THE DATES THEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is November 7, 1997.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF DOCUMENTS BY REFERENCE............................................... 1
SUMMARY............................................................................... 3
Risk Factors........................................................................ 3
The Companies....................................................................... 3
Accounting Treatment................................................................ 4
Livingston Special Meeting.......................................................... 4
Share Ownership of Management....................................................... 4
Quorum; Required Vote............................................................... 4
The Merger and the Merger Agreement................................................. 4
Other Related Matters............................................................... 6
Comparison of the Rights of Holders of Lucent Common Stock and the Rights of Holders
of Livingston Common Stock....................................................... 6
Market Prices and Dividends......................................................... 6
Summary Selected Financial Information.............................................. 7
RISK FACTORS.......................................................................... 10
Fixed Exchange Ratio Despite Changes in Lucent Stock Price.......................... 10
Necessity of Receiving Governmental Approvals Prior to the Merger................... 10
Conflicts of Interest............................................................... 10
Absence of Review of Adequacy of Merger Consideration............................... 10
Tax Risks Associated With the Merger................................................ 11
LIVINGSTON SPECIAL MEETING............................................................ 11
Date, Time, Place and Purpose....................................................... 11
Record Date; Voting Rights.......................................................... 11
Voting Agreements................................................................... 11
Share Ownership of Management....................................................... 12
Quorum; Required Vote............................................................... 12
Proxies............................................................................. 12
Solicitation of Proxies; Expenses................................................... 13
THE MERGER............................................................................ 13
General............................................................................. 13
Background of the Merger............................................................ 13
Recommendation of the Livingston Board.............................................. 15
Interests of Certain Persons in the Merger.......................................... 15
Lucent's Reasons for the Merger..................................................... 16
Livingston's Reasons for the Merger................................................. 17
Resales of Lucent Common Stock...................................................... 18
TERMS OF THE MERGER AGREEMENT......................................................... 18
Conversion of Shares in the Merger.................................................. 18
No Fractional Shares................................................................ 19
Adjustment of Exchange Ratio........................................................ 19
Exchange Agent; Procedures For Exchange of Certificates............................. 19
Effective Time of the Merger........................................................ 20
Dissenting Shares................................................................... 20
Representations and Warranties...................................................... 21
Conduct of Business Pending the Merger.............................................. 21
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reorganization...................................................................... 22
No Solicitation..................................................................... 22
Conditions to the Merger............................................................ 22
Stock Options; Unvested Restricted Stock............................................ 24
Indemnification..................................................................... 24
Termination......................................................................... 24
Fees and Expenses................................................................... 25
Amendment........................................................................... 25
Waiver.............................................................................. 25
OTHER RELATED MATTERS................................................................. 25
Regulatory Matters.................................................................. 25
Non-Competition Agreements.......................................................... 25
Accounting Treatment................................................................ 26
Certain Federal Income Tax Consequences............................................. 26
Stock Exchange Listing.............................................................. 27
DESCRIPTION OF LUCENT CAPITAL STOCK................................................... 27
DISSENTERS' RIGHTS.................................................................... 28
Rights of Dissenting Shareholders................................................... 28
Federal Income Tax Treatment........................................................ 29
COMPARISON OF THE RIGHTS OF HOLDERS OF LUCENT COMMON STOCK AND THE RIGHTS OF HOLDERS
OF LIVINGSTON COMMON STOCK.......................................................... 29
Certain Voting Rights............................................................... 30
Dividends........................................................................... 30
Election of Directors; Board of Directors........................................... 31
Removal of Directors; Filling Vacancies on the Board of Directors................... 31
Special Meetings of Shareholders; Shareholder Action By Written Consent............. 32
Inspection of Shareholders' List.................................................... 32
Shareholder Derivative Suits........................................................ 32
Amendment of Bylaws................................................................. 33
Amendment of Charter................................................................ 33
Dissenting or Appraisal Rights...................................................... 33
Certain Business Combinations and Reorganizations................................... 34
Loans to Officers and Employees..................................................... 34
Interested Director Transactions.................................................... 35
CERTAIN INFORMATION CONCERNING LUCENT................................................. 35
CERTAIN INFORMATION CONCERNING LIVINGSTON............................................. 35
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 36
Executive Compensation.............................................................. 41
Aggregated Option Exercises in Fiscal 1997 and Fiscal 1997 Year-End Option Values... 42
Livingston Stock Information........................................................ 43
Certain Transactions................................................................ 43
LEGAL MATTERS......................................................................... 44
EXPERTS............................................................................... 44
LIVINGSTON CONSOLIDATED FINANCIAL STATEMENTS.......................................... F-1
APPENDICES
Appendix A -- Agreement and Plan of Merger.......................................... A-1
Appendix B -- California Corporations Code -- Dissenters' Rights.................... B-1
</TABLE>
ii
<PAGE> 9
AVAILABLE INFORMATION
Lucent is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following Regional Offices of the
Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such materials relating to Lucent may also be inspected at the NYSE,
20 Broad Street, New York, New York 10005. The Commission maintains a World Wide
Website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov.
Lucent has filed with the Commission a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") under
the Securities Act of 1933 (the "Securities Act") with respect to the issuance
of shares of Lucent Common Stock in connection with the Merger. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is made to the
Registration Statement and the Exhibits thereto for further information.
Statements contained or incorporated by reference herein concerning the
provisions of any agreement or other document filed as an Exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete and reference is hereby made to the copy thereof so filed
for more detailed information, each such statement being qualified in its
entirety by such reference.
The information in this Proxy Statement/Prospectus concerning Lucent and
Acquisition has been furnished by Lucent; the information concerning Livingston
and its consolidated subsidiaries has been furnished by Livingston. Livingston
is not subject to the informational requirements of the Exchange Act.
All reports and other documents filed by Lucent pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Livingston Special Meeting,
and any and all adjustments thereof shall be deemed to be incorporated by
reference herein and to be a part hereof from the dates of filing of such
reports and documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document which
also is incorporated or deemed to be incorporated by reference herein, modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER
THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER OF LIVINGSTON COMMON STOCK, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST TO CORPORATE HEADQUARTERS, LUCENT
TECHNOLOGIES INC., 600 MOUNTAIN AVENUE, MURRAY HILL, NEW JERSEY 07974, TELEPHONE
NUMBER 1-888-4 LUCENT. IN ORDER TO ENSURE TIMELY DELIVERY OF DOCUMENTS, ANY
REQUEST THEREFOR SHOULD BE MADE NO LATER THAN DECEMBER 5, 1997.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to
the Securities Act and the Exchange Act are incorporated herein by reference
(Commission File No. 001-11639):
1. Lucent's Transition Report on Form 10-K for the transition period
from January 1, 1996 through September 30, 1996, filed with the Commission
on December 30, 1996;
<PAGE> 10
2. Lucent's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1996, March 31, 1997 (as amended by Form 10-Q/A filed May 21,
1997) and June 30, 1997;
3. The "Description of Capital Stock" section of Lucent's Registration
Statement on Form 10 filed with the Commission on February 26, 1996, as
amended by Amendment No. 1 thereto filed on Form 10/A on March 12, 1996,
Amendment No. 2 thereto filed on form 10/A on March 22, 1996 and Amendment
No. 3 thereto filed on Form 10/A on April 1, 1996; and
4. Lucent's Current Report on Form 8-K dated October 21, 1997.
As used herein, unless the context otherwise clearly requires: "Lucent"
refers to Lucent Technologies Inc. and its consolidated subsidiaries and
"Livingston" refers to Livingston Enterprises, Inc. and its consolidated
subsidiaries. Capitalized terms not defined in this Proxy Statement/Prospectus
have the respective meanings specified in the Merger Agreement.
2
<PAGE> 11
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/ Prospectus or in documents incorporated herein by
reference. This summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements included
or incorporated by reference in this Proxy Statement/Prospectus. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
------------------------
SHAREHOLDERS OF LIVINGSTON ARE URGED TO READ THIS PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES HERETO IN THEIR ENTIRETY AND SHOULD
CONSIDER CAREFULLY THE INFORMATION SET FORTH BELOW UNDER THE HEADING "RISK
FACTORS."
------------------------
RISK FACTORS
In considering whether to approve and adopt the Merger Agreement, the
shareholders of Livingston should consider that: (i) the Exchange Ratio between
the Livingston Common Stock and the Lucent Common Stock is a fixed ratio and
will not be adjusted in the event of any increase or decrease in the market
price of Lucent Common Stock prior to the time that the Merger becomes
effective; (ii) the consummation of the Merger is conditioned upon the receipt
of certain governmental approvals; (iii) no independent financial adviser to
Livingston has considered whether the consideration to be received by holders of
Livingston Common Stock in connection with the Merger is fair to such holders
from a financial point of view; (iv) certain directors and executive officers of
Livingston may be deemed to have conflicts of interest with respect to the
Merger; and (v) there is a risk that all the gain or loss realized by the
holders of Livingston Common Stock as a result of the Merger will be subject to
tax. See "RISK FACTORS."
THE COMPANIES
Lucent. Lucent is one of the world's leading designers, developers and
manufacturers of telecommunications systems, software and products. These
integrated systems and software applications enable network operators and
business enterprises to connect, route, manage and store information between and
within locations. Lucent is a global leader in the sale of public
telecommunications systems, and is a supplier of systems or software to the
world's largest networks. Lucent is also a global leader in the sale of business
communications systems and microelectronic components for communications systems
and computer manufacturers. Lucent was formed from the systems and technology
units that were formerly part of AT&T Corp. ("AT&T"), including the research and
development capabilities of Bell Laboratories. Lucent's principal executive
offices are located at 600 Mountain Avenue, Murray Hill, New Jersey 07974 and
its telephone number is (908) 582-8500.
Livingston. Livingston is a leading provider of integrated remote access
networking solutions for Internet Service Providers ("ISPs") worldwide. Used by
ISPs to connect their subscribers to the Internet, Livingston's remote access
servers deliver high performance at a low price per port, making them
particularly well-suited for the intensely competitive ISP marketplace.
Livingston also provides office routers and firewall routers that are resold by
ISPs to corporate customers for Internet connectivity and other remote access
networking applications. Since Livingston introduced its first remote access
server in 1990, over 2,000 ISPs have purchased Livingston's remote access
products. Its principal executive offices are located at 4464 Willow Road,
Pleasanton, California 94588 and its telephone number is (510) 737-2100.
Acquisition. Acquisition was incorporated in California on October 7, 1997
solely for the purpose of consummating the Merger. Acquisition has limited
assets and no business and has not carried on any activities other than those
which are directly related to its formation and its execution of the Merger
Agreement. Its principal executive offices are located at 211 Mt. Airy Road,
Basking Ridge, New Jersey 07920 and its telephone number is (908) 953-4900.
3
<PAGE> 12
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted
accounting principles. In connection with the Merger, it is anticipated that
Lucent will take a one-time charge associated with acquired in-process research
and development. Such charge is expected to be approximately $427 million and
will be taken in the fiscal quarter in which the Merger is consummated.
LIVINGSTON SPECIAL MEETING
Purpose. The Livingston Special Meeting will be held on December 12, 1997
at 10:00 a.m., local time, to consider and vote upon a proposal to approve and
adopt the Merger Agreement, which provides for the merger of Acquisition with
and into Livingston, with Livingston continuing as the surviving corporation
(the "Surviving Corporation") and a wholly-owned subsidiary of Lucent. See
"LIVINGSTON SPECIAL MEETING -- Purpose."
Record Date. Only holders of record of Livingston Common Stock at the
close of business on November 5, 1997 (the "Livingston Record Date") are
entitled to receive notice of and to vote at the Livingston Special Meeting. At
the close of business on the Livingston Record Date, there were approximately
12,414,495 shares of Livingston Common Stock outstanding, each of which entitles
the registered holder thereof to one vote. See "LIVINGSTON SPECIAL
MEETING -- Record Date; Voting Rights."
VOTING RIGHTS
In connection with the execution of the Merger Agreement, Lucent entered
into a Voting Agreement with Steven M. Willens and Jerrold Livingston,
beneficial owners of approximately 64% of the issued and outstanding Livingston
Common Stock, pursuant to which they have agreed to vote in favor of the
approval of the Merger Agreement and the Merger and have granted certain
officers of Acquisition an irrevocable proxy and power of attorney to vote such
shares in favor of approval of the Merger Agreement and the Merger. See
"LIVINGSTON SPECIAL MEETING -- Voting Agreements."
SHARE OWNERSHIP OF MANAGEMENT
As of the Livingston Record Date, the directors and executive officers of
Livingston beneficially owned approximately 12,016,900 (approximately 97%) of
the outstanding shares of Livingston Common Stock. See "THE MERGER -- Interests
of Certain Persons in the Merger."
QUORUM; REQUIRED VOTE
A majority of the shares of Livingston Common Stock entitled to vote on the
Merger Agreement, represented in person or by proxy at the Livingston Special
Meeting, is required in order for a quorum to be present. In the absence of a
quorum, the Livingston Special Meeting may be adjourned by the vote of a
majority of the shares represented.
Approval and adoption of the Merger Agreement will require the affirmative
vote of a majority of outstanding shares entitled to vote thereon at the
Livingston Special Meeting, provided that a quorum is present.
THE MERGER AND THE MERGER AGREEMENT
General. On October 14, 1997, Lucent, Acquisition and Livingston executed
the Merger Agreement. A copy of the Merger Agreement is attached as Appendix A
to this Proxy Statement/Prospectus and is incorporated herein by reference. At
the Effective Time (as defined below) of the Merger, Acquisition will be merged
with and into Livingston, with Livingston continuing as the Surviving
Corporation and a wholly-owned subsidiary of Lucent. As a result of the Merger,
the separate corporate existence of Acquisition will cease and Livingston will
succeed to all the rights and be responsible for all the obligations of
Acquisition in accordance with the California Code. Subject to the terms and
conditions of the Merger Agreement, each share of
4
<PAGE> 13
Livingston Common Stock outstanding immediately prior to the Effective Time
(other than shares owned directly or indirectly by Lucent or Livingston which
shall be canceled and other than Dissenting Shares) will be converted into 0.482
of a share of Lucent Common Stock, together with the corresponding percentage of
a Lucent Right. Cash will be paid in lieu of any fractional share of Lucent
Common Stock. At the Effective Time, all outstanding stock options to purchase
Livingston Common Stock ("Stock Options") will be assumed by Lucent and will
thereafter represent options to purchase a number of shares of Lucent Common
Stock at an exercise price proportionately adjusted to reflect the Exchange
Ratio ("Substitute Options"). Following the Merger, the Substitute Options will
continue to be subject to the terms and conditions of Livingston's 1994 Stock
Option Plan, as amended (the "1994 Stock Plan"), and the applicable option
agreements, including vesting restrictions, if any. The consideration for
Dissenting Shares, if any, will be paid in accordance with the provisions of the
California Code. The Exchange Ratio for Livingston Common Stock is subject to
adjustment in certain circumstances. See "THE MERGER -- General," "TERMS OF THE
MERGER AGREEMENT -- Conversion of Shares in the Merger," "-- No Fractional
Shares," "-- Adjustment of Exchange Ratio" and "-- Dissenting Shares" and
"DISSENTERS' RIGHTS."
Recommendation of the Livingston Board. The Livingston Board has
unanimously determined that the Merger is advisable and fair to, and in the best
interests of, Livingston and its shareholders and has approved the Merger
Agreement. THE LIVINGSTON BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
LIVINGSTON VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE
LIVINGSTON SPECIAL MEETING. For a discussion of the interests that certain
officers and directors of Livingston have with respect to the Merger in addition
to their interests as shareholders of Livingston generally see "THE
MERGER -- Interests of Certain Persons in the Merger." Such interests, together
with other relevant factors, were considered by the Livingston Board in making
its recommendation and approving the Merger Agreement. See "THE
MERGER -- Recommendation of the Livingston Board of Directors" and
"-- Livingston's Reasons for the Merger."
Interests of Certain Persons in the Merger. As of the Livingston Record
Date, the directors and executive officers of Livingston beneficially owned
approximately (i) 12,016,900 shares of Livingston Common Stock for which they
will receive the same consideration in connection with the Merger as other
Livingston shareholders and (ii) unexercised options to acquire 890,000 shares
of Livingston Common Stock which will be treated as described herein under
"TERMS OF THE MERGER AGREEMENT -- Stock Options; Unvested Restricted Stock."
Concurrent with the execution of the Merger Agreement, Lucent entered into an
employment agreement with Steven M. Willens, the President, Chief Executive
Officer, Chief Technology Officer and Chairman of Livingston, which provides
certain benefits to Mr. Willens. See "THE MERGER -- Interests of Certain Persons
in the Merger."
Effective Time of the Merger. The Merger will become effective at the time
(the "Effective Time") of the filing of an Agreement of Merger with the
Secretary of State of the State of California in accordance with the provisions
of the California Code, such later date as may be specified in the Agreement of
Merger or such later date as Lucent, Acquisition and Livingston may mutually
agree. The Agreement of Merger will be filed as soon as practicable following
the satisfaction or waiver of the conditions in the Merger Agreement. The
parties currently anticipate that the Merger will occur on or before December
31, 1997, although there can be no assurance as to whether or when the Merger
will occur. See "TERMS OF THE MERGER AGREEMENT -- Effective Time of the Merger."
Conditions of the Merger. The respective obligations of the parties to
consummate the Merger are subject to the satisfaction or waiver of certain
conditions including the approval and adoption of the Merger Agreement by the
requisite vote of the Livingston shareholders, the continued effectiveness of
the Registration Statement and the receipt of certain regulatory approvals. The
respective obligations of Lucent and Acquisition on the one hand and Livingston
on the other are also conditioned upon the satisfaction or waiver by the other
party of certain conditions including performance of obligations, no material
adverse change and receipt of certain consents. See "TERMS OF THE MERGER
AGREEMENT -- Conditions to the Merger."
5
<PAGE> 14
Termination. The Merger Agreement may be terminated (a) by mutual consent;
(b) by either Lucent or Livingston, if (i) the Effective Time does not occur by
March 31, 1998, subject to certain limitations or (ii) any court or governmental
authority having jurisdiction has permanently enjoined or prohibited the Merger;
or (c) by either Lucent or Livingston if the other materially breaches its
obligations under the Merger Agreement unless such failure is cured within 10
business days. See "TERMS OF THE MERGER AGREEMENT -- Termination."
OTHER RELATED MATTERS
Regulatory Matters. Lucent and Livingston filed on October 28, 1997 and
Steven M. Willens and Ronald H. Willens filed on October 31, 1997 with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Department of Justice") the notifications required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). Consummation of the Merger is subject to the expiration or the early
termination of the waiting period under the HSR Act. In addition, Lucent and
Livingston will make filings and applications with certain governmental
agencies, domestic and foreign, with respect to the transactions contemplated by
the Merger Agreement. See "OTHER RELATED MATTERS -- Regulatory Matters."
Certain Federal Income Tax Consequences. It is a condition to the
consummation of the Merger that Lucent and Livingston receive an opinion from
their respective tax counsel that, among other things, the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and no gain or loss will
be recognized by the shareholders of Livingston as a result of the Merger,
except with respect to cash, if any, received in lieu of fractional shares of
Lucent Common Stock. See "OTHER RELATED MATTERS -- Certain Federal Income Tax
Consequences," "TERMS OF THE MERGER AGREEMENT -- Conditions to the Merger" and
"DISSENTERS' RIGHTS -- Federal Income Tax Treatment."
COMPARISON OF THE RIGHTS OF HOLDERS OF LUCENT COMMON STOCK AND THE RIGHTS OF
HOLDERS OF LIVINGSTON COMMON STOCK
Livingston shareholders' rights are currently governed by California law,
the Restated Articles of Incorporation of Livingston (the "Livingston Articles")
and the Bylaws of Livingston, as amended (the "Livingston Bylaws"). Upon
consummation of the Merger, shareholders of Livingston receiving Lucent Common
Stock will become stockholders of Lucent and their rights as such will be
governed by Delaware law, the Restated Certificate of Incorporation of Lucent
(the "Lucent Certificate") and the Bylaws of Lucent (the "Lucent Bylaws"). See
"COMPARISON OF THE RIGHTS OF HOLDERS OF LUCENT COMMON STOCK AND THE RIGHTS OF
HOLDERS OF LIVINGSTON COMMON STOCK."
MARKET PRICES AND DIVIDENDS
Lucent Common Stock is listed and traded on the NYSE under the symbol "LU."
The table below indicates the high and low sales prices per share of Lucent
Common Stock as quoted reported on the NYSE Composite Transactions Tape and the
dividends declared per share, during the calendar quarters indicated. Dividends
are declared at the discretion of Lucent's Board of Directors (the "Lucent
Board") and may be
6
<PAGE> 15
discontinued at any time if the Lucent Board should determine that it is in the
best interests of Lucent to eliminate the payment of dividends.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
--- --- ---------
<S> <C> <C> <C>
1996
Second Quarter (from April 4, 1996)............................ 39 1/4 29 3/4 $.075
Third Quarter.................................................. 45 7/8 30 5/8 .075
Fourth Quarter................................................. 53 1/8 42 1/8 .075
1997
First Quarter.................................................. 60 5/8 44 3/4 .075
Second Quarter................................................. 74 3/16 49 7/8 .075
Third Quarter.................................................. 90 3/4 72 3/16 .075
Fourth Quarter (through November 5, 1997)...................... 90 3/16 72 7/16 --
</TABLE>
On October 14, 1997, the last full trading day prior to the public
announcement of the Merger, the last sale price per share of Lucent Common Stock
was $88. On November 6, 1997, the last full trading day for which information
was available prior to the date of this Proxy Statement/Prospectus, the last
sale price per share reported for Lucent Common Stock was $84 13/16. Because
there is no established trading market for shares of Livingston Common Stock,
information with respect to the market prices thereof and the equivalent per
share market prices of Lucent Common Stock has been omitted.
On October 5, 1997, the Lucent Board declared a cash dividend of $.075 per
share of Lucent Common Stock. The dividend is payable on December 1, 1997 to
holders of record of Lucent Common Stock on October 31, 1997. Holders of record
of Livingston Common Stock will not be entitled to receive this dividend on
Lucent Common Stock issued in the Merger.
SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR LUCENT
COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE MARKET PRICE OF LUCENT COMMON
STOCK AT OR AFTER THE EFFECTIVE TIME OF THE MERGER.
SUMMARY SELECTED FINANCIAL INFORMATION
Lucent. The following tables present summary historical financial
information for Lucent. This information is based upon the consolidated
financial statements of Lucent incorporated by reference and should be read in
conjunction therewith and the notes thereto for the periods presented. The
historical financial information set forth below may not be indicative of
Lucent's future performance and does not necessarily reflect what the financial
position and results of operations of Lucent would have been had Lucent operated
as a separate, stand-alone entity during the periods covered. Per share data for
net income and dividends for years prior to 1995 have not been presented because
Lucent's businesses were operated through various divisions and subsidiaries of
AT&T. See "INCORPORATION OF DOCUMENTS BY REFERENCE."
7
<PAGE> 16
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------
LUCENT HISTORICAL: 1996 1995 1995(1) 1994 1993 1992
------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues................................. $15,859 $13,986 $21,413 $19,765 $17,734 $17,312
Gross margin............................. 6,569 6,143 8,468 8,428 7,646 6,929
Operating income (loss).................. 487 434 (1,000) 971 669 404
Income (loss) before cumulative effect of
accounting changes..................... 224 150 (867) 482 430 179
Cumulative effects of accounting
change................................. -- -- -- -- (4,208) --
Net income (loss)........................ 224 150 (867) 482 (3,778) 179
Earnings per common
share -- Historical(2)................. 0.38 0.28 (1.65) n/a n/a n/a
Earnings per common share -- Pro
Forma(3)............................... 0.35 0.24 (1.36) n/a n/a n/a
Dividends per common share............... 0.15 -- -- n/a n/a n/a
FINANCIAL POSITION
Total assets............................. $22,626 $18,219 $19,722 $17,340 $17,109 $14,466
Working capital.......................... 2,068 188 (384) 246 1,773 (1,719)
Total debt............................... 3,997 4,192 4,014 3,164 3,195 3,942
Shareowners' equity...................... 2,686 2,783 1,434 2,476 2,580 3,098
OTHER INFORMATION
Sales, general and administrative
expenses as a percentage of revenues... 26.8% 28.9% 33.1% 27.1% 28.3% 27.8%
Research and development expenses as a
percentage of revenue.................. 11.6 12.0 11.1 10.6 11.1 9.9
Gross margin percentage.................. 41.4 43.9 39.5 42.6 43.1 40.0
</TABLE>
- ---------------
(1) Includes pretax restructuring and other charges of $2,801 ($1,847 after
taxes) recorded as $892 of costs, $1,645 of selling, general and
administrative expenses and $264 of research and development expenses.
(2) The calculation of earnings per share on a historical basis includes the
retroactive recognition to January 1, 1995 of the 524,624,894 shares owned
by AT&T.
(3) The calculation of earnings per share on a pro forma basis assumes that all
636,661,931 common shares outstanding on April 10, 1996 were outstanding
since January 1, 1995 and gives no effect to the use of proceeds from the
initial public offering of Lucent Common Stock.
(4) Beginning September 30, 1996, Lucent changed its fiscal year end from
December 31 to September 30, and reported results for the nine-month
transition period ended September 30, 1996.
Livingston. The following selected consolidated financial data should be
read in conjunction with Livingston's consolidated financial statements and the
notes thereto, and with the section captioned "CERTAIN INFORMATION CONCERNING
LIVINGSTON -- Management's Discussion and Analysis of Financial Condition." The
consolidated statement of operations data for the years ended August 31, 1997,
1996, 1995 and 1994 and the consolidated balance sheet data at August 31, 1997,
1996 and 1995 are derived from, and are qualified by reference to, the audited
consolidated financial statements of Livingston. The consolidated statement of
operations data should be read in conjunction with such audited financial
statements, the notes thereto and the audit report of KPMG Peat Marwick LLP,
independent certified public accountants. See "FINANCIAL STATEMENTS OF
LIVINGSTON." The consolidated statement of operations data for the years ended
August 31, 1994 and 1993 and the consolidated balance sheet data at August 31,
1994 and 1993 are derived from audited and unaudited consolidated financial
statements, respectively, which are not included in this Proxy
Statement/Prospectus. The unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary
8
<PAGE> 17
for a fair presentation of Livingston's financial position and results of
operations for such periods. The results of operations for the year ended August
31, 1997 may not be indicative of Livingston's future results.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------
LIVINGSTON HISTORICAL: 1997 1996 1995 1994 1993
------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Product revenues................................... $65,495 $43,229 $20,138 $6,180 $2,083
Royalty revenues................................... 7,329 2,878 323 -- --
------- ------- ------- ------- -------
Net revenues....................................... 72,824 46,107 20,461 6,180 2,083
Cost of revenues................................... 27,741 18,567 8,054 2,853 962
------- ------- ------- ------- -------
Gross profit..................................... 45,083 27,540 12,407 3,327 1,121
Operating expenses:
Research and development......................... 4,289 2,512 890 462 277
Selling and marketing............................ 17,798 8,670 2,831 673 327
General and administrative....................... 4,245 1,771 667 449 401
------- ------- ------- ------- -------
Total operating expenses...................... 26,332 12,953 4,388 1,584 1,005
------- ------- ------- ------- -------
Operating income................................... 18,751 14,587 8,019 1,743 116
Interest income (expense), net..................... 530 85 (20) (21) (9)
------- ------- ------- ------- -------
Income before income taxes......................... 19,281 14,672 7,999 1,722 107
Provision for income taxes......................... 6,850 5,827 3,095 695 21
------- ------- ------- ------- -------
Net income.................................... $12,431 $ 8,845 $ 4,904 $1,027 $ 86
======= ======= ======= ======= =======
Net income per share............................... $ .87 $ .64 $ .39 $ .08 $ .01
======= ======= ======= ======= =======
Shares used in per share computations(1)........... 14,334 13,844 12,569 12,150 12,150
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31,
------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------ ------ ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents............................. $11,054 $ 3,749 $1,486 $ 627 $ 46
Working capital....................................... 25,557 14,243 5,891 1,511 509
Total assets.......................................... 43,190 21,286 9,303 2,706 839
Total shareholders' equity............................ 28,363 15,323 6,283 1,379 352
</TABLE>
- ---------------
(1) See Note 1 of Notes to Livingston Consolidated Financial Statements for an
explanation of the determination of net income per share and shares used in
per share computations.
9
<PAGE> 18
RISK FACTORS
THE FOLLOWING RISK FACTORS OR INVESTMENT CONSIDERATIONS, IN ADDITION TO THE
OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, SHOULD BE CONSIDERED BY HOLDERS OF LIVINGSTON COMMON STOCK
IN EVALUATING WHETHER TO APPROVE THE MERGER AND THEREBY BECOME HOLDERS OF LUCENT
COMMON STOCK. THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER
INFORMATION INCLUDED OR INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT/PROSPECTUS.
This Risk Factors section and other sections of this Proxy
Statement/Prospectus contain forward-looking statements that are based on
current expectations, estimates and projections about the industries in which
Lucent and Livingston operate, their managements' beliefs and assumptions made
by their management. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. Lucent and Livingston undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. See "SUMMARY -- Market
Prices and Dividends."
FIXED EXCHANGE RATIO DESPITE CHANGES IN LUCENT STOCK PRICE
As a result of the Merger, each outstanding share of Livingston Common
Stock will be converted into 0.482 of a share of Lucent Common Stock, including
the corresponding Lucent Right. The Merger Agreement does not provide for
adjustment of the Exchange Ratio based on fluctuations in the price of Lucent
Common Stock prior to the Effective Time. Accordingly, the value of the
consideration to be received by shareholders of Livingston as a result of the
Merger will depend upon the market price of Lucent Common Stock at the Effective
Time. The closing price for Lucent Common Stock on the NYSE on October 14, 1997,
the last trading day prior to the public announcement of the Merger, was $88 per
share and on November 6, 1997, the last trading day before the date of this
Proxy Statement/Prospectus, was $84 13/16 per share. There can be no assurance
that the market price of Lucent Common Stock on and after the Effective Time
will not be lower than such prices. See "SUMMARY--Market Prices and Dividends."
NECESSITY OF RECEIVING GOVERNMENTAL APPROVALS PRIOR TO THE MERGER
The consummation of the Merger is conditioned upon the expiration or
earlier termination of the applicable waiting period under the HSR Act. In
addition, Lucent and Livingston will make filings and applications with certain
governmental agencies, domestic and foreign, with respect to the transactions
contemplated by the Merger Agreement. See "OTHER RELATED MATTERS -- Regulatory
Matters."
CONFLICTS OF INTEREST
In considering the recommendation to adopt and approve the Merger by the
Livingston Board, the shareholders of Livingston should be aware that certain
officers and directors of Livingston may be deemed to have conflicts of interest
with respect to the Merger; such interests, together with other relevant
factors, were considered by the Livingston Board in recommending the Merger to
the shareholders of Livingston and approving the Merger Agreement. See "THE
MERGER -- Interests of Certain Persons in the Merger."
ABSENCE OF REVIEW OF ADEQUACY OF MERGER CONSIDERATION
The Livingston Board has unanimously determined that the Merger is
advisable and fair to, and in the best interests of, Livingston and its
shareholders. The Board approved the Merger Agreement on October 13, 1997 and
has recommended to the Livingston shareholders that the Merger be approved. In
making its determination, the Livingston Board reviewed various other available
alternatives to the Merger, including the sale of Livingston to other potential
purchasers and an initial public offering of the Livingston Common Stock.
10
<PAGE> 19
However, no independent financial adviser to Livingston has considered whether
the consideration to be received by holders of Livingston Common Stock in
connection with the Merger is fair to such holders from a financial point of
view. See "THE MERGER -- Livingston's Reasons for the Merger."
TAX RISKS ASSOCIATED WITH THE MERGER
The Merger Agreement provides that Acquisition will be merged with and into
Livingston and Livingston will be the Surviving Corporation and a wholly-owned
subsidiary of Lucent. Although the parties intend the Merger to constitute a
tax-free reorganization, neither Lucent nor Livingston has sought or obtained a
ruling from the Internal Revenue Service (the "IRS"). There is therefore a risk
that all the gain or loss realized by a Livingston shareholder as a result of
the Merger will be subject to tax. However, even if the Merger does not
constitute a tax-free reorganization, neither Lucent nor its shareholders, as
such, will realize taxable income or loss in the Merger. See "OTHER RELATED
MATTERS -- Certain Federal Income Tax Consequences."
LIVINGSTON SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
This Proxy Statement/Prospectus is being furnished to Livingston
shareholders in connection with the solicitation of proxies by the Livingston
Board for use at the Livingston Special Meeting to be held on December 12, 1997
at 10:00 a.m., local time, at Livingston's principal executive offices located
at 4464 Willow Road, Pleasanton, California 94588. At the Livingston Special
Meeting, holders of Livingston Common Stock will be asked to consider and vote
upon a proposal to approve and adopt the Merger Agreement, a copy of which is
attached as Appendix A to this Proxy Statement/Prospectus, and the Merger of
Acquisition with and into Livingston upon the terms and subject to the
conditions of the Merger Agreement. After giving effect to the Merger,
Livingston will continue as the Surviving Corporation and will be a wholly-owned
subsidiary of Lucent.
THE LIVINGSTON BOARD HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF,
LIVINGSTON SHAREHOLDERS. ACCORDINGLY, THE LIVINGSTON BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE LIVINGSTON
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL
OF THE MERGER. CERTAIN MEMBERS OF THE LIVINGSTON BOARD MAY BE DEEMED TO HAVE A
CONFLICT OF INTEREST IN RECOMMENDING SHAREHOLDER APPROVAL OF THE MERGER. SEE
"-- SHARE OWNERSHIP AND MANAGEMENT" AND "THE MERGER -- INTERESTS OF CERTAIN
PERSONS IN THE MERGER."
The Lucent Board has unanimously approved the Merger and the issuance of
Lucent Common Stock in connection with the Merger. Lucent, as the sole
shareholder of Acquisition, and the Board of Directors of Acquisition, have each
approved the Merger Agreement and the Merger. No approval by stockholders of
Lucent is required to effect the Merger.
RECORD DATE; VOTING RIGHTS
Only shareholders of record of Livingston Common Stock at the close of
business on November 5, 1997, will be entitled to notice of, and to vote at, the
Livingston Special Meeting. At the close of business on the Livingston Record
Date, there were approximately 12,414,495 shares of Livingston Common Stock
outstanding. Each share of Livingston Common Stock entitles the registered
holder thereof to one vote.
VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, Lucent entered
into a Voting Agreement with Steven M. Willens and Jerrold Livingston,
beneficial holders of approximately 64% of the issued and outstanding shares of
Livingston Common Stock, pursuant to which they have agreed to vote in favor of
approval of the Merger Agreement and the Merger and have granted certain
officers of Acquisition an
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irrevocable proxy and power of attorney to vote their shares in favor of
approval of the Merger Agreement and the Merger.
SHARE OWNERSHIP OF MANAGEMENT
As of the Livingston Record Date, the directors and executive officers of
Livingston beneficially owned approximately 12,016,900 (approximately 97%) of
the outstanding shares of Livingston Common Stock. See "THE MERGER -- Interests
of Certain Persons in the Merger."
QUORUM; REQUIRED VOTE
A majority of the shares of Livingston Common Stock entitled to vote on the
Merger Agreement, represented in person or by proxy at the Livingston Special
Meeting, is required in order for a quorum to be present. In the absence of a
quorum, the Livingston Special Meeting may be adjourned by the vote of a
majority of the shares represented.
Approval and adoption of the Merger Agreement will require the affirmative
vote of a majority of outstanding shares entitled to vote thereon at the
Livingston Special Meeting, provided that a quorum is present. See "-- Voting
Agreements."
PROXIES
Each of the persons named as proxies in the proxy is an officer of
Livingston. All shares of Livingston Common Stock that are entitled to vote and
that are represented at the Livingston Special Meeting either in person or by
properly executed proxies received prior to or at the Livingston Special Meeting
and not duly and timely revoked will be voted at the Livingston Special Meeting
in accordance with the instructions indicated on such proxies. If no such
instructions are indicated, such proxies will be voted for the approval of the
Merger. If the Livingston Special Meeting is postponed or adjourned for any
reason, at any subsequent reconvening of the Livingston Special Meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the Livingston Special Meeting (except for any
proxies that have been effectively revoked or withdrawn).
The Livingston Board knows of no matter other than the adoption of the
Merger Agreement and the approval of the Merger that is to be presented at the
Livingston Special Meeting. If any other matter upon which a vote may properly
be taken should be presented at the Livingston Special Meeting, shares
represented by all proxies received by the Livingston Board will be voted with
respect thereto in accordance with the judgment of the persons named as proxies
in the proxies.
Execution of a proxy does not in any way affect a shareholder's right to
attend the Livingston Special Meeting and vote in person. Any proxy may be
revoked by a shareholder at any time before it is exercised by delivering a
written revocation or a later-dated proxy to the Secretary of Livingston, or by
attending the Livingston Special Meeting and voting in person. Any written
notice of revocation or subsequent proxy should be sent so as to be delivered to
Livingston Enterprises, Inc. at 4464 Willow Road, Pleasanton, California 94588,
Attention: Secretary, or hand-delivered to the Secretary of Livingston, in each
case, at or before the taking of the vote at the Livingston Special Meeting.
Every person entitled to vote for directors, or on any other matter, will
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the Secretary of Livingston.
A proxy will be deemed signed if the shareholder's name or other authorization
is placed on the proxy (whether by manual signature, typewriting, telegraphic or
electronic transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
written notice to Livingston at its principal executive offices that the proxy
is revoked or by executing a subsequent proxy and presenting it to the meeting
or by attendance at such meeting and voting in person, or (ii) written notice of
the death or incapacity of the maker of that proxy is received by Livingston
before the vote pursuant to that proxy is counted; provided that no
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proxy will be valid after the expiration of eleven (11) months from the date
thereof, unless otherwise provided in the proxy. The dates contained on the
forms of proxy presumptively determine the order of execution, regardless of the
postmark dates on the envelopes in which they are mailed. The revocability of a
proxy that states on its face that it is irrevocable will be governed by the
provisions of Sections 705(e) and 705(f) of the California Code.
SOLICITATION OF PROXIES; EXPENSES
All costs of solicitation of proxies will be borne by Livingston.
Livingston will solicit proxies via first class U.S. mail to the shareholders of
record as of the Livingston Record Date. In addition, proxies may also be
solicited by certain directors, officers and employees of Livingston personally
or by telephone or facsimile following the original solicitation by mail. Such
directors, officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith.
THE MERGER
This section of the Proxy Statement/Prospectus describes certain aspects of
the proposed Merger. A significant portion of the description included in this
section and under the caption "The Merger Agreement," relates to the Merger
Agreement, which is attached as Appendix A to this Proxy Statement/Prospectus
and is incorporated herein by reference. ALL SHAREHOLDERS OF LIVINGSTON ARE
URGED TO READ THE MERGER AGREEMENT, AS WELL AS THE OTHER APPENDICES, IN THEIR
ENTIRETY.
GENERAL
At the Effective Time of the Merger, Acquisition will be merged with and
into Livingston, with Livingston continuing as the Surviving Corporation and as
a wholly-owned subsidiary of Lucent. As a result of the Merger, the separate
corporate existence of Acquisition will cease and Livingston will succeed to all
the rights and be responsible for all the obligations of Acquisition in
accordance with the California Code. Subject to the terms and conditions of the
Merger Agreement, each share of Livingston Common Stock outstanding immediately
prior to the Effective Time (other than shares owned directly or indirectly by
Lucent or Livingston which shall be canceled and other than Dissenting Shares)
will be converted into 0.482 of a share of Lucent Common Stock, together with
the corresponding percentage of a Lucent Right. Cash will be paid in lieu of any
fractional share of Lucent Common Stock. At the Effective Time, all outstanding
Stock Options will be assumed by Lucent and will thereafter represent Substitute
Options. Following the Merger, the Substitute Options will continue to be
subject to the terms and conditions of the 1994 Stock Plan and the applicable
option agreements, including vesting restrictions, if any. The consideration for
Dissenting Shares will be in accordance with the provisions of the California
Code. The Exchange Ratio for Livingston Common Stock is subject to adjustment in
certain circumstances. See "TERMS OF THE MERGER AGREEMENT -- Conversion of
Shares in the Merger;" "-- No Fractional Shares," "-- Adjustment of Exchange
Ratio," "-- Dissenting Shares," "-- Stock Options; Unvested Restricted Stock"
and "DISSENTERS' RIGHTS."
BACKGROUND OF THE MERGER
Prior to 1997, the companies' relationship was one of vendor and customer.
Lucent had sold to Livingston, since 1995, certain modem chips, telecom chips
and power components. Total revenues from such sales for the fiscal years 1995,
1996 and 1997 were approximately $400,000, $2,600,000 and $4,800,000,
respectively. Such sales were not made pursuant to any contract and it is likely
that Lucent would continue to provide these products to Livingston on similar
terms and conditions whether or not the Merger is consummated. In 1997, the
companies began to explore expanding their business relationship.
On January 27, 1997, Eric Hager, the Livingston Key Accounts Manager and
Cary Jackson, a Livingston Systems Engineer, met with Lucent representatives to
discuss a resale or OEM arrangement between Livingston and Lucent relating to
some or all of Livingston's product line.
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On February 4, 1997, Lucent and Livingston entered into a letter of intent
regarding a proposed cooperative product compatibility and interoperability
testing, technical development, cooperative marketing and product distribution
arrangement with respect to Lucent's 56Kbps modem chipsets and Livingston's
remote access products.
In late March 1997, Mitch Auster, Lucent's Manager, Remote Access and
Internetworking Products, contacted Mr. Hager and discussed a non-disclosure
agreement between Lucent and Livingston. Messrs. Auster and Hager also scheduled
a meeting between representatives of Lucent and Livingston to discuss, in
greater detail, a possible business relationship between the two companies.
On April 22, 1997, Messrs. Auster and Hager spoke again. Mr. Auster
requested that Livingston provide Lucent with certain remote access products for
demonstration and evaluation.
On May 1, 1997, Lucent and Livingston executed a non-disclosure agreement.
On May 7, 1997, Lucent representatives met with Steven M. Willens, President,
Chief Executive Officer and Chairman of Livingston, Mr. Hager, and other
representatives of Livingston in Las Vegas, Nevada and discussed potential joint
venture and joint development arrangements between Lucent and Livingston.
Messrs. Auster and Hager spoke again on May 30, 1997. Mr. Hager advised Mr.
Auster that, within the next several days, Livingston would file a registration
statement on Form S-1 with the Commission in anticipation of an initial public
offering. Mr. Hager stated that if Livingston decided not to pursue a public
offering but were to seek to be acquired, Lucent would be a logical purchaser.
On July 1, 1997, Mr. Auster and other Lucent representatives met with
Messrs. Hager and Jackson in Liberty Corner, New Jersey. At the meeting, the
parties discussed certain products being produced by each company that could be
of interest or benefit to the other. The parties also discussed terms of a
possible strategic alliance and what form that alliance might take. Among the
possibilities considered were a joint venture, joint product development and
Lucent acquiring an equity position in Livingston.
On July 17, 1997, Messrs. S. Willens, Hager, Jackson, Ronald H. Willens,
Vice President of Operations, Executive Vice President and Secretary of
Livingston and other representatives of Livingston met with Lucent
representatives to discuss an arrangement in which Lucent would resell
Livingston's remote access servers.
On July 21, 1997, Robert Hawk, a director of Livingston, met with William
O'Shea, President of Lucent's Business Communications Systems. Mr. Hawk
suggested that it would be advisable for Mr. O'Shea to meet with Mr. S. Willens
to discuss a strategic business relationship between the two companies.
On July 23, 1997, Messrs. Auster and Hager met in Denver, Colorado to
negotiate a Memorandum of Understanding setting forth the terms of a joint
development and OEM relationship. The Memorandum of Understanding was not
executed.
On August 5, 1997, Messrs. S. Willens and O'Shea met at Lucent's offices in
Basking Ridge, New Jersey, to discuss, among other matters, Livingston's
business plan, operating results, market strategy and the status of its proposed
initial public offering. They also discussed Lucent's interests in expanding its
data networking business. At the conclusion of this meeting, Mr. Willens and Mr.
O'Shea agreed that each of their respective companies would continue to explore
a potential business combination and that it would be appropriate to commence
due diligence investigations in furtherance thereof.
During the period from August 8, 1997 through September 19, 1997, Lucent
and Livingston conducted their respective due diligence efforts, including, but
not limited to (i) exchanging business and operational information, (ii) face to
face meetings in Pleasanton, California, (iii) discussions and evaluations
conducted by key technical personnel regarding current and future products, (iv)
conference calls between Lucent representatives and Livingston's legal and
financial advisors and (v) a comprehensive review of all information pertaining
to Livingston's business operations. In addition, during this period, a number
of phone conversations and written communications took place between the
executive and technical teams of Lucent and Livingston.
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On August 14, 1997, Livingston's financial advisors, Morgan Stanley & Co.,
met with Mr. S. Willens and Steven A. Hess, Chief Financial Officer of
Livingston, to discuss market valuations, possible merger scenarios, and other
alternative strategic business transactions that might be available to
Livingston. Messrs. Willens and Hess weighed the relative benefits and risks of
a potential merger compared with Livingston's plans to complete an initial
public offering and decided to continue discussions with Lucent regarding a
possible merger.
From September 22, 1997 through September 24, 1997, Mr. O'Shea, Harry
Bosco, Lucent's President of Broadband Networking, and William Viqueira,
Lucent's Business Development Vice President, had a number of meetings with
Messrs. S. Willens, R. Willens and Hess to discuss the principal terms of the
acquisition of Livingston by Lucent. The parties discussed the general framework
for the proposed merger but the parties were unable to agree upon a definitive
agreement and structure.
In a series of telephone conferences on September 24, 1997, Mr. Willens and
Mr. O'Shea agreed to a general framework for the merger. This proposed framework
was contingent upon additional due diligence inquiries and negotiation of
definitive agreements. During the period from September 29, 1997 to October 10,
1997, the companies continued to perform additional technical, legal and
financial due diligence.
On October 2, 1997, the Livingston Board met to discuss a merger with
Lucent. The members of the Board inquired as to the status of the negotiations
and the preparation of definitive agreements. Although no formal action was
taken, the Board authorized the officers of Livingston to continue negotiations
and finalize the terms and conditions of the merger.
On October 4, 1997, Lucent's Board of Directors approved the Livingston
merger. Between October 11, 1997 and October 14, 1997 a series of telephone
conferences were held by the parties and their respective counsel in which final
terms of the merger were agreed upon.
On October 13, 1997, the Livingston Board adopted and approved the Merger
Agreement and the Merger and on October 14, 1997, the Board of Directors of
Acquisition adopted and approved the Merger Agreement and the Merger.
On October 14, 1997, (i) Lucent, Acquisition and Livingston executed the
Merger Agreement, (ii) Mr. S. Willens executed an employment agreement with
Lucent which is effective upon the Closing of the Merger, (iii) each of Messrs.
S. Willens, Jerrold Livingston, a director of Livingston, and R. Willens
executed a non-competition agreement in favor of Lucent and Livingston and (iv)
each of Messrs. S. Willens and Livingston executed a voting agreement pursuant
to which each of them agreed to vote his shares of Livingston Common Stock in
favor of the Merger and granted to certain officers of Acquisition an
irrevocable proxy and power of attorney to vote their shares in favor of the
Merger.
The terms of the Merger were publicly announced on October 15, 1997.
RECOMMENDATION OF THE LIVINGSTON BOARD
The Livingston Board has unanimously determined that the terms of the
Merger Agreement and the Merger are fair to, and in the best interests of,
Livingston shareholders. Accordingly, the Livingston Board has unanimously
approved the Merger Agreement and unanimously recommends that the Livingston
shareholders vote FOR approval and adoption of the Merger Agreement and approval
of the Merger. See "-- Livingston's Reasons for the Merger." Certain members of
the Livingston Board may be deemed to have a conflict of interest in
recommending shareholder approval of the Merger. See "-- Interests of Certain
Persons in the Merger" and "-- Share Ownership of Management."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Livingston Board with respect to
the approval and adoption of the Merger and Merger Agreement, the Livingston
shareholders should be aware that certain members of the management of
Livingston and the Livingston Board may have certain interests in the Merger
that are different from, or in addition to, the interests of Livingston
shareholders generally.
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Share Ownership. Following the Merger, Livingston will continue as the
Surviving Corporation and as a wholly-owned subsidiary of Lucent. As of the
Livingston Record Date, the directors and executive officers of Livingston
beneficially owned (as determined in accordance with the rules and regulations
of the Commission) approximately (i) 12,016,900 shares of Livingston Common
Stock for which they will receive the same consideration in connection with the
Merger as other Livingston shareholders and (ii) 890,000 unexercised Stock
Options which will be treated as described below in "TERMS OF THE MERGER
AGREEMENT -- Stock Options; Unvested Restricted Stock."
Non-competition Agreements. Lucent and Livingston have entered into
non-competition agreements (the "Non-Competition Agreements") with the following
persons: (a) Steven M. Willens, the President, Chief Executive Officer, Chief
Technology Officer and Chairman of Livingston, (b) Ronald H. Willens, the Vice
President of Operations, Executive Vice President, Secretary and Director of
Livingston and (c) Jerrold Livingston, a director and co-founder of Livingston.
Under the terms of the Non-Competition Agreements, the foregoing persons have
agreed that, for a period of three years, they will not (i) directly or
indirectly, participate in a business or activity that competes in any material
manner with the business of selling, manufacturing, designing, developing or
distributing remote access servers and related successor products or (ii)
interfere with such business or with the customers (or potential customers),
clients (or potential clients), suppliers or employees of such business. Steven
M. Willens, Ronald H. Willens and Jerrold Livingston will not receive any
consideration for entering into the Non-Competition Agreements other than the
Lucent Common Stock issuable to them in connection with the Merger.
Employment Contract. Steven M. Willens has entered into an employment
contract with Lucent (the "Employment Contract") which provides that, for a
period of three years, Mr. Willens will serve as the President of Lucent's
Remote Access business unit and will report to the President of Lucent's
Business Communications Systems business unit. In consideration for his
services, Mr. Willens will receive a base salary of $250,000 per annum and will
participate in Lucent's standard executive compensation plans which may provide
additional compensation based on the achievement of certain specific performance
criteria. The Employment Contract is effective upon the Closing of the Merger.
1994 Stock Option Plan. In connection with its approval of the Merger
Agreement, the Livingston Board approved an amendment to the 1994 Stock Plan
(the "Amendment"). Pursuant to the Amendment, each outstanding unvested option
to purchase Livingston Common Stock that will be assumed by Lucent under the
Merger Agreement, may be subject to full acceleration following the Effective
Time in the event that an optionee is terminated in connection with a
reorganization or other restructuring of Livingston or in the event that an
optionee elects to terminate his or her employment as a result of (i) such
optionee's base salary being reduced by more than 20% or (ii) such optionee
being required to relocate to another workplace more than fifty (50) miles from
his or her current workplace. On the Livingston Record Date, the officers and
directors of Livingston held options to purchase approximately 890,000 shares of
Livingston Common Stock.
Change of Control Agreement. Livingston and Steven A. Hess, the Chief
Financial Officer of Livingston, have entered into a Change of Control Agreement
dated as of February 19, 1996. Under the terms of the Change of Control
Agreement, Mr. Hess will be entitled to full acceleration with respect to a
portion of his unvested options to purchase 225,000 shares of Livingston Common
Stock in the event Mr. Hess' employment with Livingston terminates as a result
of certain changes in the conditions of Mr. Hess' employment within twenty
months following the Merger.
LUCENT'S REASONS FOR THE MERGER
Lucent believes that the Merger will enable it to expand its product
capability in the data networking area. Lucent believes that Livingston's
products and product offerings currently under development will complement and
enhance Lucent's existing Internet and data networking product line and that, as
a result of the Merger, Lucent will be better able to provide Internet and data
networking products and services to small, local and regional ISPs as well as
large service providers.
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LIVINGSTON'S REASONS FOR THE MERGER
The Livingston Board believes that the following are reasons the Merger
will be beneficial to Livingston and for its shareholders to vote FOR the
Merger:
- The Merger may result in greater customer demand for Livingston's
products, a higher market profile and greater financial strength that may
present greater opportunities for marketing Livingston's products to a
larger and more diverse group of ISPs, such as the large ISP and local
telephone company customers. In particular, Livingston believes that, as
a result of the Merger, Livingston may increase customer confidence in
its maintenance and support capabilities.
- The consideration to be paid to the Livingston shareholders in the Merger
will be shares of Lucent Common Stock, securities that are publicly
traded on the New York Stock Exchange and are more readily marketable
than shares of Livingston Common Stock.
- The Merger may permit Livingston to utilize Lucent's research and
development capabilities in developing new products as well as product
offerings currently under development and greater functionality for
existing remote access products and may thereby enhance Livingston's
ability to compete more effectively against larger competitors in the
remote access market.
- The Merger will permit Livingston and Lucent to develop and refine
complementary technologies.
- The addition of Lucent's sales and marketing resources and its
established relationships with potential customers may increase the
ability of Livingston to market its current products and next-generation
products.
In the course of its deliberations during meetings held on October 2, 1997
and October 13, 1997, the Livingston Board reviewed with Livingston management
and Livingston's legal and financial advisors a number of additional factors
that the Board deemed relevant to the Merger, including, but not limited to: (i)
historical information concerning Livingston's and Lucent's businesses,
prospects, strategic business plans, financial performance and condition,
results of operations, technology position, current state of research and
development and management structure, (ii) Livingston management's view as to
the financial condition, results of operations and business of Livingston before
and after giving effect to the Merger, (iii) Livingston management's view as to
the prospects of Livingston continuing as an independent company, including the
anticipated market value of Livingston as an independent public company, (iv)
Livingston management's view as to Livingston's ability to gain access to the
necessary capital to meet its strategic business goals in both the near-term and
long-term and the relative costs associated with obtaining such capital, (v)
current financial conditions and historical market prices, volatility and
trading information with respect to Lucent Common Stock, (vi) Livingston
management's view as to the potential for other third parties to enter into
strategic relationships with or to acquire Livingston, (vii) Livingston
management's view as to the effect of the Merger on the core business of
Livingston including its research and development efforts, potential synergy of
Lucent's technologies with Livingston's technologies, Lucent's breadth of
product offerings and Livingston's sales and marketing infrastructure, (viii)
the impact of the Merger on Livingston's customer base and employees, (ix)
reports from Livingston management and Livingston's legal and financial advisors
as to the results of their due diligence efforts and (x) Livingston's right to
terminate the Merger Agreement under certain circumstances described in the
Merger Agreement.
During the course of its deliberations concerning the Merger, the
Livingston Board also identified and considered a variety of potentially
negative factors that could materialize as a result of the Merger, including,
but not limited to: (i) the risk that the potential benefits sought in the
Merger might not be fully realized, (ii) the possibility that the Merger might
not be consummated and the effect of the public announcement of the Merger on
Livingston's customers, employees and future business relationship with Lucent,
(iii) the risks associated with obtaining the necessary governmental, regulatory
and other approvals required to complete the Merger, (iv) the effects of the
diversion of management resources necessary to respond to due diligence
inquiries and the negotiation and consummation of the Merger, and (v) and the
other risks described under "RISK FACTORS."
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The Livingston Board concluded that the risks associated with the Merger
were outweighed by the potential benefits of the Merger and unanimously
determined that the Merger is fair to, and in the best interest of, Livingston
and its shareholders. Certain directors of the Livingston Board may be deemed to
have a conflict of interest in the Board's approval of the Merger and
recommending shareholder approval of the Merger. See "-- Interests of Certain
Persons in the Merger."
The foregoing discussion of the potential benefits and negative factors
considered by the Livingston Board in connection with its evaluation of the
Merger is not intended to be an exhaustive list but does include substantially
all the factors the Board deemed material to its deliberations regarding the
Merger. In view of the wide variety of factors considered by the Livingston
Board, the directors did not find it practical to, and did not, quantify or
otherwise assign relative weights to the specific factors discussed above.
RESALES OF LUCENT COMMON STOCK
All shares of Lucent Common Stock issued in exchange for the Livingston
Common Stock will be freely transferable, except (i) that shares received by any
person who may be deemed to be an "affiliate" (as used in paragraphs (c) and (d)
of Rule 145 under the Securities Act, including directors and certain executive
officers) of Livingston for purpose of such Rule 145 may not be resold except in
transactions permitted by such Rule 145 or as otherwise permitted under the
Securities Act and (ii) for shares issued by Lucent in respect of Unvested
Restricted Stock (as defined below) of Livingston. See "TERMS OF THE MERGER
AGREEMENT -- Conditions to the Merger" and "-- Stock Options; Unvested
Restricted Stock."
Livingston has agreed to prepare and deliver to Lucent a list identifying
each person who may be deemed to be an "affiliate" (as used in the preceding
paragraph) of Livingston and to use its reasonable best efforts to cause each
person so identified to deliver to Lucent on or prior to the Effective Time a
written agreement, in the form previously approved by Lucent and Livingston,
providing that such person will not sell, pledge, transfer or otherwise dispose
of, or in any other way reduce such person's risk relative to, any shares of
Livingston Common Stock or any shares of Lucent Common Stock issued to such
person in connection with the Merger, except pursuant to an effective
registration statement or in compliance with such Rule 145 or another exemption
from the registration requirements of the Securities Act.
At the Effective Time, Lucent will assume certain Restricted Stock
Agreements (each a "Restricted Stock Agreement") to which Livingston is a party
with respect to restricted shares of Livingston Common Stock that are
outstanding and unvested ("Unvested Restricted Stock"). Holders of Unvested
Restricted Stock will remain subject to the restrictions set forth in their
respective Restricted Stock Agreements. Livingston has agreed to use its
reasonable best efforts to terminate the right of any holder of Stock Options
under the 1994 Stock Plan who is not a party to a Restricted Stock Agreement to
enter into such an Agreement.
TERMS OF THE MERGER AGREEMENT
CONVERSION OF SHARES IN THE MERGER
At the Effective Time, by virtue of the Merger, (a) each issued and
outstanding share of capital stock of Acquisition shall be converted into one
validly issued, fully paid and nonassessable share of Livingston Common Stock,
(b) each share of Livingston Common Stock held in the treasury of Livingston and
each share of Livingston Common Stock owned by any subsidiary of Livingston, by
Acquisition or Lucent, will be canceled without any conversion or payment made
with respect thereto and (c) each share of Livingston Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares canceled
in accordance with subparagraph (b) and other than Dissenting Shares) will be
converted into 0.482 of a share of Lucent Common Stock including the
corresponding percentage of a Lucent Right. Cash will be paid in lieu of any
fractional share of Lucent Common Stock. See "-- No Fractional Shares."
The Exchange Ratio is subject to adjustment under certain circumstances.
See "-- Adjustment of Exchange Ratio."
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All shares of Livingston Common Stock converted as provided in subparagraph
(c) above will automatically be canceled and retired, and each holder of a
certificate representing any such shares will cease to have any rights with
respect thereto other than (i) the right to receive shares of Lucent Common
Stock to be issued in consideration for such Livingston Common Stock upon the
surrender of such certificate, (ii) certain dividends and other distributions
and (iii) any cash, without interest, to be paid in lieu of any fractional
shares of Lucent Common Stock. See "-- Exchange Agent; Procedures for Exchange
of Certificates."
NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Lucent Common
Stock will be issued upon the surrender for exchange of certificates which
represent outstanding shares of Livingston Common Stock (the "Certificates") and
such a fractional share will not entitle its record or beneficial owner to vote
or to any other rights of a Lucent stockholder. In lieu of receiving any
fractional share of Lucent Common Stock, each holder of Livingston Common Stock
who would otherwise have been entitled to a fractional share upon the surrender
of Livingston certificates for exchange will receive cash (without interest) in
an amount rounded to the nearest whole cent, determined by multiplying (a) the
per share closing price of Lucent Common Stock (as reported in the NYSE
Composite Transactions) on the date on which the Effective Time occurs (or, if
the Lucent Common Stock does not trade on the NYSE on such date, the first day
of trading in Lucent Common Stock on the NYSE thereafter) by (b) the fractional
share to which such holder would otherwise be entitled.
ADJUSTMENT OF EXCHANGE RATIO
If, prior to the Effective Date, any stock split, combination,
reclassification or stock dividend with respect to the Lucent Common Stock, any
change or conversion of Lucent Common Stock into other securities or any other
dividend or distribution with respect to the Lucent Common Stock (other than
regular quarterly dividends) occurs or, if a record date with respect to any of
the foregoing occurs, appropriate and proportionate adjustments will be made to
the Exchange Ratio.
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES
Lucent will designate a commercial bank or trust company reasonably
acceptable to Livingston to act as the exchange agent (the "Exchange Agent")
under the Merger Agreement. As of the Effective Time, Lucent will deposit with
the Exchange Agent for the benefit of the holders of shares of Livingston Common
Stock, certificates representing shares of the Lucent Common Stock to be issued
pursuant to the Merger in accordance with the Merger Agreement.
Promptly after the Effective Time, the Exchange Agent will send to each
person or entity (a "Person") who was, at the Effective Time, a holder of record
of Certificates the shares represented by which were converted into the right to
receive Lucent Common Stock, a letter of transmittal which (a) will specify that
delivery of Lucent Common Stock will be effected and risk of loss and title to
such Certificates will pass, only upon actual delivery of such Certificates to
the Exchange Agent and (b) will contain instructions for use in effecting the
surrender of the Certificates. Upon surrender to the Exchange Agent of
Certificates for cancellation, together with such letter of transmittal duly
executed, such holder will be entitled to receive in exchange (i) a certificate
representing the number of whole shares of Lucent Common Stock into which the
Livingston Common Stock represented by the surrendered Certificate was converted
at the Effective Time, (ii) cash in lieu of any fractional share of Lucent
Common Stock and (iii) certain dividends and distributions described in the next
paragraph, and the Certificates so surrendered will then be canceled.
No dividends or other distributions declared or made after the Effective
Time with respect to the Lucent Common Stock with a record date after the
Effective Time will be paid to any holder entitled by reason of the Merger to
receive Lucent Common Stock and no cash payment in lieu of a fractional share of
Lucent Common Stock will be paid to any such holder until such holder has
surrendered its Certificates as described above. Subject to applicable law,
following surrender of any such Certificate, such holder will be paid, in each
case, without interest, (a) the amount of any dividends or other distributions
previously paid with respect to
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the shares of Lucent Common Stock represented by the Lucent certificate received
by such holder and having a record date on or after the Effective Time and a
payment date prior to such surrender and (b) at the appropriate payment date, or
as promptly as practicable thereafter, the amount of any dividends or other
distributions payable with respect to such shares of Lucent Common Stock and
having a record date on or after the Effective Time but prior to such surrender
and a payment date on or after such surrender.
If any certificate representing shares of Lucent Common Stock or any cash
is to be issued or paid to any Person other than the registered holder of the
Certificate surrendered in exchange therefor, it will be a condition to such
exchange that such surrendered Certificate will be properly endorsed and
otherwise in proper form for transfer and such Person either (a) will pay to the
Exchange Agent any transfer or other taxes required as a result of the issuance
of such certificates of Lucent Common Stock and the distribution of such cash
payment to such Person or (b) will establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Lucent or the Exchange
Agent will be entitled to deduct and withhold from the consideration payable
pursuant to the Merger Agreement to any holder of Livingston Common Stock such
amounts as Lucent or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by Lucent
or the Exchange Agent, such withheld amounts will be treated for all purposes of
the Merger Agreement as having been paid to the holder of the shares of
Livingston Common Stock in respect of which such deduction and withholding was
made by Lucent or the Exchange Agent. All amounts in respect of taxes received
or withheld by Lucent will be disposed of by Lucent in accordance with the Code
or such state, local or foreign tax law, as applicable.
At the close of business on the day on which the Effective Time occurs, the
stock transfer books of Livingston will be closed and thereafter there will be
no further registration of transfers of shares of Livingston Common Stock on the
records of Livingston. From and after the Effective Time, the holders of shares
of Livingston Common Stock outstanding immediately prior to the Effective Time
will cease to have any rights with respect to such shares except as otherwise
provided herein or by applicable law. After the Effective Time, and until
surrendered for shares of Lucent Common Stock as described above, Certificates
which prior to the Effective Time represented Livingston Common Stock converted
in the Merger will be deemed for all purposes, other than the right to receive
payments of dividends and distributions and cash in lieu of any fractional share
of Lucent Common Stock, to represent only the right to receive, upon such
surrender, the number of shares of Lucent Common Stock into which such
Livingston Common Stock was converted.
SHAREHOLDERS OF LIVINGSTON SHOULD NOT FORWARD THEIR CERTIFICATES WITH THE
ENCLOSED PROXY, NOR SHOULD THEY RETURN THEIR LIVINGSTON CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL LETTER.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the time of a filing of an Agreement of
Merger with the Secretary of State of the State of California in accordance with
the provisions of the California Code, such date as may be specified in the
Agreement of Merger or such later date as the parties may agree. The parties
intend to make such filing as promptly as practicable following the Livingston
Special Meeting provided that the Merger is approved by the affirmative vote of
a majority of the outstanding shares entitled to vote thereon and any other
conditions precedent to the consummation of the Merger are satisfied or waived.
See "-- Conditions to the Merger." The parties currently anticipate that the
Merger will occur on or before December 31, 1997, although there can be no
assurance as to whether or when the Merger will occur. Lucent and Livingston
each have the right to terminate the Merger Agreement if the Merger has not been
consummated on or before March 31, 1998. See "-- Termination."
DISSENTING SHARES
Shares of Livingston Common Stock that are outstanding immediately prior to
the Effective Time and which are held by shareholders who have not voted in
favor of or consented in writing to the Merger and who
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have demanded properly in writing appraisal for such shares in accordance with
the California Code (collectively, the "Dissenting Shares") will not be
converted into or represent the right to receive the consideration set forth
above. Such shareholders will be entitled to receive such consideration as is
determined to be due with respect to such Dissenting Shares in accordance with
the provisions of the California Code.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Lucent, Livingston and Acquisition relating, among other things, to (a) their
incorporation, existence, good standing, corporate power and similar corporate
matters; (b) their capitalization; (c) their authorization, execution, delivery
and performance and the enforceability of the Merger Agreement and related
matters; (d) the absence of conflicts, violations and defaults under their
corporate charters and by-laws and certain other agreements and documents; (e)
their pending or threatened litigation; and (f) the absence of any occurrence or
event that could reasonably be expected to have a material adverse effect on the
assets, business, financial condition, operations or prospects (a "Material
Adverse Effect") of Livingston, Lucent or Acquisition, as applicable.
Livingston has provided certain additional representations and warranties,
relating among other things, to (i) certain of its audited financial statements;
(ii) the absence of undisclosed liabilities; (iii) ownership of its properties;
(iv) material contracts and no defaults thereunder; (v) its licenses and
permits; (vi) its Intellectual Property Rights; (vii) tax matters; (viii) its
employee benefit plans; (ix) certain employee matters; (x) environmental
matters; (xi) capitalization of subsidiaries; (xii) the accuracy and
completeness of certain information provided to Lucent; (xiii) basis of
preparation of financial projections; and (xiv) accuracy and completeness of
information contained in this Proxy Statement/Prospectus.
Lucent and Acquisition have also provided certain additional
representations and warranties as to documents and reports filed by Lucent with
the Commission and the accuracy and completeness thereof.
All representations and warranties of Lucent, Livingston and Acquisition,
except for the representations referred to in "OTHER RELATED MATTERS -- Certain
Federal Income Tax Consequences," expire at the Effective Time.
CONDUCT OF BUSINESS PENDING THE MERGER
Livingston has agreed that during the period from the date of the Merger
Agreement through the Effective Time, it will maintain its existence; maintain
the general character of its business and properties and conduct its business in
the ordinary and usual manner consistent with past practices, except as
expressly permitted by the Merger Agreement; maintain its business and
accounting records consistent with past practices and use its reasonable best
efforts to preserve intact its business, to keep available the services of its
officers and employees and to preserve the goodwill of its suppliers, customers
and others having business relations with Livingston or its subsidiaries. Each
of Lucent and Livingston has agreed to promptly advise the other orally and in
writing of any change or event having, or which would reasonably be expected to
have, a Material Adverse Effect on Lucent or Livingston, as the case may be.
Without limiting the generality of the foregoing, and except as expressly
permitted by the Merger Agreement, Livingston has agreed that it will not, among
other matters, (a) amend or otherwise change the Livingston Articles or the
Livingston By-laws; (b) issue, sell or authorize for issuance or sale, or grant
any options or make other agreements with respect to, any shares of its capital
stock or any other of its securities, except for arrangements with the Exchange
Agent in furtherance of the Merger Agreement and except as described in clause
(j) below; (c) declare, make or pay any dividend or other distribution of any
kind with respect to any of its capital stock; (d) reclassify, combine, split,
subdivide, redeem, purchase or otherwise acquire, directly or indirectly, any of
its capital stock; (e) (i) acquire any corporation, partnership, other business
organization or any division thereof or any material amount of assets; (ii)
incur or guarantee any indebtedness or make any loans or advances, except in the
ordinary course of business and consistent with past practice; (iii) enter into
any contract or agreement resulting in obligations to Livingston in excess of
$250,000 other than in the ordinary course of business, consistent with past
practice; (iv) authorize any capital commitment which is in excess of $100,000
or capital expenditures which are, in the aggregate, in excess of
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$200,000; or (v) enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this subparagraph (e); (f)
subject to a lien or security interest, any of its assets or properties or agree
to do so except for certain permitted liens; (g) assume, guarantee or otherwise
become responsible for the obligations of any other Person; (h) (i) increase the
compensation payable or to become payable to its officers or employees, except
for increases in accordance with past practices in salaries or wages of
employees of Livingston who are not officers of Livingston; (ii) grant any
severance or termination pay to, or enter into any severance agreement with, any
director, officer or other employee of Livingston, except for severance or
termination pay to employees of Livingston in an amount not to exceed $100,000
in the aggregate; or establish, adopt, enter into or amend any employment,
termination, benefit or collective bargaining agreement, or arrangement for the
benefit of any director, officer or employee; (i) take any action, other than in
the ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures; (j) enter into or agree to enter into any
employment agreement, except for agreements with newly hired employees in the
ordinary course of business, which contain terms and conditions that are
consistent with industry standards and do not in the aggregate grant options
representing more than 2,500 shares of Livingston Common Stock; (k) make any tax
election or settle or compromise any material federal, state, local or foreign
income tax liability; (l) settle or compromise any pending or threatened suit,
action or claim which is material or which relates to any of the transactions
contemplated by the Merger Agreement; (m) pay, discharge or satisfy any claim,
liability or obligation, other than (i) the payment, discharge or satisfaction,
in the ordinary course of business, of liabilities reflected or reserved against
in Livingston's most recent audited balance sheet or subsequently incurred in
the ordinary course of business and consistent with past practice or (ii) as
contemplated by the Merger Agreement; or (n) except in connection with the sale
of Livingston's products in the ordinary course of business and consistent with
past practice, sell, assign, transfer, license, sublicense, pledge or otherwise
encumber any of its Intellectual Property Rights.
REORGANIZATION
Each of Lucent and Livingston has agreed to use its best efforts to cause
the business combination to be effected by the Merger to be qualified as a
"reorganization" described in Section 368(a) of the Code and Lucent has agreed
that, after the Effective Date, it will not take any action that would have the
effect of causing the Merger to fail to so qualify.
NO SOLICITATION
Livingston has agreed that, from and after the date of the Merger
Agreement, it will not authorize or permit any of its affiliates or any officer,
director, employee or representative of Livingston, (a) to solicit, initiate, or
encourage the submission of, any Acquisition Proposal (as defined below), (b) to
enter into any agreement with respect to any Acquisition Proposal or (c) to take
any action to facilitate any inquiries or the making of, any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal.
Livingston has agreed to advise Lucent promptly of any Acquisition Proposal and
inquiries with respect to any Acquisition Proposal. As used in this Proxy
Statement/Prospectus, "Acquisition Proposal" means any proposal for a merger or
other business combination involving Livingston or any of its affiliates or any
proposal or offer to acquire in any manner, directly or indirectly, an equity
interest in Livingston or any of its affiliates, any voting securities of
Livingston or any of its affiliates or a substantial portion of the assets of
Livingston (other than sales of Livingston's products and services in the
ordinary course of business consistent with past practice).
CONDITIONS TO THE MERGER
The respective obligations of Lucent, Livingston and Acquisition to effect
the Merger are subject, among other things, to the satisfaction of the following
conditions on or prior to the Closing (as defined below): (a) approval and
adoption of the Merger Agreement by the requisite vote of the shareholders of
Livingston; (b) the listing on the NYSE, upon official notice, of the shares of
Lucent Common Stock to be issued in exchange for the shares of Livingston Common
Stock and the shares of Lucent Common Stock issuable upon the exercise of
Substitute Options (as defined below); (c) the expiration or earlier termination
of the waiting
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period (including any extension) applicable to the consummation of the Merger
under the HSR Act and the obtaining of all authorizations, consents, orders,
declarations or approvals of, or the making of all filings with, or termination
or expiration of all waiting periods imposed by, any governmental or regulatory
authority, which the failure to obtain, make or occur would have the effect of
making the Merger or any of the transactions contemplated under the Merger
Agreement illegal or would have a Material Adverse Effect on Lucent or
Livingston assuming the Merger had taken place; (d) the Registration Statement
of which this Proxy Statement/Prospectus is a part will have become effective in
accordance with the provisions of the Securities Act and no stop order or
proceedings for that purpose will have been initiated or, threatened by the
Commission; (e) receipt of all necessary state securities authorizations; (f)
receipt by each of Lucent and Livingston of (i) a letter of representation from
the other party relating to certain tax matters and (ii) a written opinion from
its counsel to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code; and (g) no court or other body
will have issued a temporary restraining order, preliminary or permanent
injunction or other legal restraint or prohibition preventing the consummation
of the Merger or any of the transactions contemplated by the Merger Agreement.
The respective obligations of Lucent and Acquisition to effect the Merger
are also subject to the fulfillment of certain additional conditions including:
(i) Livingston having performed and complied in all material respects with all
agreements and conditions contained in the Merger Agreement that are required to
be performed or complied with by it prior to or at the closing of the
transactions contemplated by the Merger Agreement (the "Closing"); (ii) each of
Livingston's representations and warranties contained in the Merger Agreement to
the extent it is qualified by Material Adverse Effect will be true and correct
and each of Livingston's representations and warranties to the extent it is not
so qualified by Material Adverse Effect will be true and correct except as would
have a Material Adverse Effect, in each case, on and as of the Closing with the
same effect as though such representations and warranties were made on and as of
the Closing, except for changes permitted by the Merger Agreement and except to
the extent that such representations and warranties expressly relate to an
earlier date, in which case such representations and warranties are as of such
earlier date; (iii) receipt by Lucent of a favorable written opinion of Wilson
Sonsini Goodrich & Rosati Professional Corporation, counsel to Livingston, in
form satisfactory to Lucent and Acquisition; (iv) receipt by Lucent of the
written resignation of each director and officer of Livingston as requested by
Lucent; (v) no material adverse change in the assets, business, financial
condition or operations of Livingston and no event or events will have occurred
that could reasonably be expected to have a Material Adverse Effect (other than
(A) conditions affecting the internetworking industry generally and (B)
resulting from the announcement of the Merger) on Livingston; (vi) Livingston
having received all necessary consents, in form and substance satisfactory to
Lucent and Acquisition, from the other parties (i) to certain scheduled consents
and (ii) to all other contracts, leases or other agreements to which Livingston
is a party, except where the failure to receive such consent would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on Livingston, impair the ability of Livingston to perform its
obligations hereunder or to prevent or delay the consummation of the
transactions contemplated hereunder; (vii) Steven M. Willens having entered into
an employment agreement with Lucent; (viii) Steven M. Willens, Ronald H. Willens
and Jerrold Livingston having entered into a Non-Competition Agreement with the
Surviving Corporation; and (ix) Lucent having received written agreements from
each Livingston Rule 145 Affiliate described herein under "THE MERGER -- Resales
of Lucent Common Stock."
The obligation of Livingston to effect the Merger is also subject to the
fulfillment of the following additional conditions: (A) Acquisition and Lucent
having performed and complied in all material respects with all agreements and
conditions contained in the Merger Agreement that are required to be performed
or complied with by them prior to or at the Closing, each of the representations
and warranties of Acquisition and Lucent contained in the Merger Agreement to
the extent it is qualified by Material Adverse Effect will be true and correct
and each of the representations and warranties of Acquisition and Lucent to the
extent it is not so qualified by Material Adverse Effect will be true and
correct except as would have a Material Adverse Effect, in each case, on and as
of the Closing with the same effect as though such representations and
warranties were made on and as of the Closing except for changes permitted by
the Merger Agreement and except to the extent that such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties are as of such earlier date; (B) Livingston
having received the favorable written
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opinions of Sidley & Austin, special counsel to Acquisition and Lucent, and
internal counsel to Acquisition and Lucent, each in form satisfactory to
Livingston; and (C) no material adverse change in the assets, business,
financial condition or operations of Lucent and no event or events will have
occurred that could reasonably be expected to have a Material Adverse Effect
(other than (i) conditions affecting the internetworking industry generally and
(ii) resulting from the announcement of this transaction) on Lucent.
STOCK OPTIONS; UNVESTED RESTRICTED STOCK
Not later than the Effective Time, each Stock Option which is outstanding
immediately prior to the Effective Time pursuant to the 1994 Stock Plan will be
assumed by Lucent and become and represent a Substitute Option to purchase the
number of shares of Lucent Common Stock (decreased to the nearest full share)
determined by multiplying (a) the number of shares of Livingston Common Stock
subject to such Stock Option immediately prior to the Effective Time by (b) the
Exchange Ratio. The exercise price of each Substitute Option will be
proportionately adjusted to reflect the Exchange Ratio. After the Effective
Time, except as provided herein, each Substitute Option will be exercisable upon
the same terms and conditions as were applicable under the related Stock Option
immediately prior to the Effective Time. Livingston has agreed that it will not
grant any stock appreciation rights or limited stock appreciation rights and
will not permit cash payments to holders of Stock Options in lieu of the
substitution therefor of Substitute Options. Lucent will pay cash to each holder
of Stock Options in lieu of issuing a fractional share of Lucent Common Stock
upon the exercise of Substitute Options for shares of Lucent Common Stock.
At the Effective Time, certain Restricted Stock Agreements will be assumed
by Lucent and each share of Unvested Restricted Stock which is outstanding and
unvested thereunder immediately prior to the Effective Time pursuant to the 1994
Stock Plan will become the right to 0.482 of a share of Lucent Common Stock
subject to the same restrictions and vesting as set forth in such Restricted
Stock Agreement (the "Substitute Restricted Stock"). Lucent will pay cash to
each holder of shares of Unvested Restricted Stock in lieu of issuing a
fractional share of Lucent Common Stock as soon as practicable after the date on
which all Substitute Restricted Stock under such shareholder's Restricted
Purchase Agreement shall vest. Livingston will use its reasonable best efforts
to terminate the right of any holder of Stock Options who is not a party to a
Restricted Stock Agreement to enter into such an Agreement.
As soon as practicable after the Effective Time, Lucent will prepare and
file with the Commission a registration statement on Form S-8 (or another
appropriate form) registering a number of shares of Lucent Common Stock equal to
the number of shares subject to the Substitute Options. Such registration
statement will be kept effective (and the current status of the prospectus
required thereby will be maintained) at least for so long as any Substitute
Options remain outstanding.
INDEMNIFICATION
Lucent will fulfill the obligations of Livingston to indemnify each person
who is or was a director or an officer (an "Indemnified Party") of Livingston
pursuant to any indemnification provision under any agreement between Livingston
and an Indemnified Party or the Livingston Articles or the Livingston Bylaws as
each is in effect on the date of the Merger Agreement. All rights to such
indemnification in favor of any Indemnified Party, as provided in the Livingston
Articles and the Livingston Bylaws in effect on the date of the Merger Agreement
will survive the Merger and will continue in full force and effect, without
amendment thereto, for a period of six years from the Effective Time to the
extent such indemnification is consistent with the California Code.
TERMINATION
The Merger Agreement may be terminated, and the Merger may be abandoned at
any time prior to the Effective Time whether before or after the approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the shareholders of Livingston or the shareholders of Acquisition: (a) by the
mutual agreement of Lucent and Livingston; (b) by Lucent, Acquisition or
Livingston if (i) the Effective Time will not have occurred by March 31, 1998;
provided that the right to so terminate will not be available to
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any party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of, or resulted in, the failure of the Effective Time to occur on
or before such date; or (ii) any court of competent jurisdiction or other
governmental authority will have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action will have become final and nonappealable;
(c) by Livingston, in the event Lucent or Acquisition materially breaches its
obligations under the Merger Agreement, unless such breach is cured within 10
business days after notice to Lucent by Livingston; or (d) by Lucent or
Acquisition, in the event Livingston materially breaches its obligations under
the Merger Agreement, unless such breach is cured within 10 business days after
notice by Lucent or Acquisition.
FEES AND EXPENSES
Except for printing expenses and filing fees, which will be shared equally,
Lucent and Livingston will each pay its own costs and expenses in connection
with the Merger Agreement and the transactions contemplated thereby, whether or
not the Merger is consummated.
AMENDMENT
The Merger Agreement may be amended by the parties thereto upon the taking
of requisite corporate action by the parties thereto.
WAIVER
At any time prior to the Effective Time, the Merger Agreement permits a
party by appropriate action, to extend the time for compliance by or waive
performance of any representation, warranty, agreement, condition or obligation
of any other party.
OTHER RELATED MATTERS
REGULATORY MATTERS
Under the HSR Act, the Merger may not be consummated until notice and
specified information has been furnished to the Department of Justice and the
FTC, and certain waiting period requirements have been satisfied. Lucent and
Livingston filed such notice and information with the Department of Justice and
the FTC on October 28, 1997 and Steven M. Willens and Ronald H. Willens filed
such notice and information on October 31, 1997. In addition, Lucent and
Livingston will make filings and applications with certain governmental
agencies, domestic and foreign, with respect to the transactions contemplated by
the Merger Agreement.
NON-COMPETITION AGREEMENTS
Lucent and Livingston have entered into Non-Competition Agreements with the
following persons: (a) Steven M. Willens, the President, Chief Executive
Officer, Chief Technology Officer and Chairman of Livingston, (b) Ronald H.
Willens, the Vice President of Operations, Executive Vice President, Secretary
and Director of Livingston and (c) Jerrold Livingston, a director and co-founder
of Livingston. Under the terms of the Non-Competition Agreements, the foregoing
persons have agreed that, for a period of three years, they will not (i)
directly or indirectly participate in any business or activity that competes in
any material manner with the business of selling, manufacturing, designing,
developing or distributing remote access servers and related successor products
or (ii) interfere with such business or with the customers (or potential
customers), clients (or potential clients), suppliers or employees of such
business. Steven M. Willens, Ronald H. Willens and Jerrold Livingston will not
receive any consideration for entering into the Non-Competition Agreements other
than the Lucent Common Stock issuable to them in connection with the Merger.
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ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted
accounting principles. In connection with the Merger, it is anticipated that
Lucent will take a one-time charge associated with acquired in-process research
and development. Such charge is expected to be approximately $427 million and
will be taken in the fiscal quarter in which the Merger is consummated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the conversion of shares of Livingston Common Stock
into Lucent Common Stock pursuant to the Merger that are generally applicable to
holders of Livingston Common Stock. This discussion is based on currently
existing provisions of the Code, existing and proposed Treasury Regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to Lucent, Acquisition, Livingston or
Livingston's shareholders as described herein. Further, this discussion assumes
the correctness of certain factual representations to be made by Lucent,
Acquisition, Livingston, and certain Livingston shareholders with respect to the
requirements to qualify the Merger as a "reorganization" for federal income tax
purposes.
Livingston shareholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to certain
Livingston shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, who are subject to the alternative
minimum tax provision of the Code, who are foreign persons, who do not hold
their Livingston Common Stock as capital assets, who acquired their shares in
connection with stock option or other compensatory transactions or who dissent
from the Merger. See "DISSENTERS' RIGHTS -- Federal Income Tax Treatment." In
addition, the following discussion does not address the tax consequences of the
Merger under foreign, state or local tax laws, the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
Merger (whether or not any such transactions are undertaken in connection with
the Merger), including without limitation any transaction in which shares of
Livingston Common Stock are acquired or shares of Lucent Common Stock are
disposed of, or the tax consequences of the assumption by Lucent of the Stock
Options and Unvested Restricted Stock. ACCORDINGLY, LIVINGSTON SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES.
The Merger is intended to constitute a "reorganization" within the meaning
of section 368(a) of the Code, in which case, subject to the limitations and
qualifications referred to herein, the Merger will generally result in the
following federal income tax consequences:
(a) No gain or loss will be recognized by holders of Livingston Common
Stock solely as a result of the conversion of their shares of Livingston Common
Stock into shares of Lucent Common Stock in the Merger. However, a shareholder
of Livingston who receives cash in lieu of a fractional share of Lucent Common
Stock will be deemed to receive the fractional share and exchange it for the
cash received. Therefore, gain or loss will be recognized by such shareholder to
the extent the amount of the cash received exceeds or is less than the basis of
the fractional share of Lucent Common Stock deemed distributed to such
shareholder. The basis of the fractional share of Lucent Common Stock deemed
distributed to such shareholder will be an allocable portion of the aggregate
basis of the Lucent Common Stock received by such shareholder, as determined in
paragraph (b), below. The gain or loss recognized will be long-term capital gain
or loss, if the Livingston Common Stock deemed exchanged for the fractional
share of Lucent Common Stock was held for more than one year, and will be
short-term capital gain or loss otherwise.
(b) The aggregate tax basis of the Lucent Common Stock received by
Livingston shareholders in the Merger will be the same as the aggregate tax
basis of the Livingston Common Stock converted pursuant to the Merger.
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(c) The holding period of the Lucent Common Stock received by each
Livingston shareholder in the Merger will include the period for which the
Livingston Common Stock surrendered in exchange therefor was considered to be
held, provided that the Livingston Common Stock so surrendered is held as a
capital asset at the time of the Merger.
(d) Lucent, Acquisition and Livingston will not recognize any gain or loss
solely as a result of the Merger.
The parties are not requesting a ruling from the IRS in connection with the
Merger. The obligations of each of Lucent, Acquisition and Livingston to effect
the Merger are contingent on receipt by each party of an opinion from its
counsel (which opinions will be based, in part, upon certain factual
representations from each party) to the effect that the Merger will qualify as a
"reorganization" for federal income tax purposes within the meaning of section
368(a) of the Code. These opinions will neither bind the IRS nor preclude the
IRS from adopting a contrary position. In addition, the opinions will be subject
to certain assumptions and qualifications and will be based on the truth and
accuracy of the representations made by the parties, and their respective
managements. Of particular importance are those assumptions and representations
relating to the "continuity of interest" requirement for a "reorganization."
To satisfy the continuity of interest requirement, Livingston shareholders
must not, pursuant to a plan or intent existing at or prior to the Effective
Time, dispose of or transfer so much of either (i) their Livingston Common Stock
in anticipation of the Merger or (ii) the Lucent Common Stock to be received in
the Merger (collectively, "Planned Dispositions"), such that Livingston
shareholders, as a group, would no longer have a significant equity interest in
the Livingston business being conducted after the Merger. Livingston
shareholders will generally be regarded as having a significant equity interest
as long as the number of shares of Lucent Common Stock received in the Merger
less the number of shares subject to Planned Dispositions (if any) represents,
in the aggregate, a substantial portion of the entire consideration received by
the Livingston shareholders in the Merger. No assurance can be made that the
continuity of interest requirement will be satisfied, and if such requirement is
not satisfied, that the Merger would not be treated as a "reorganization."
A successful IRS challenge to the reorganization status of the Merger (as a
result of a failure to satisfy the continuity of interest requirement or
otherwise) would result in Livingston shareholders recognizing taxable gain or
loss with respect to each share of Livingston Common Stock surrendered equal to
the difference between each shareholder's basis in such share and the fair
market value, as of the Effective Time, of the Lucent Common Stock received in
exchange therefor. In such event, a Livingston shareholder's aggregate basis in
the Lucent Common Stock so received would equal its fair market value, and the
shareholder's holding period for such stock would begin the day after the
Effective Time.
STOCK EXCHANGE LISTING
Lucent has agreed to apply to list on the NYSE, subject to official notice
of issuance, the shares of Lucent Common Stock issuable in connection with the
Merger.
DESCRIPTION OF LUCENT CAPITAL STOCK
The statements set forth under this heading with respect to the Lucent
Certificate, the Lucent Bylaws and the Rights Agreement are brief summaries
thereof and do not purport to be complete; such statements are subject to the
detailed provisions of the Lucent Certificate, the Lucent Bylaws and the Rights
Agreement. See "INCORPORATION BY REFERENCE."
The total authorized shares of capital stock of Lucent consists of (a)
3,000,000,000 shares of Lucent Common Stock and (b) 250,000,000 shares of Lucent
Junior Preferred Stock. At the close of business on September 30, 1997,
642,070,130 shares of Lucent Common Stock were issued and outstanding and no
shares of Lucent Junior Preferred Stock were issued and outstanding.
The Lucent Board is authorized to provide for the issue from time to time
of Lucent Junior Preferred Stock in series and, as to each series, to fix the
designation, the dividend rate (and whether cumulative) and
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the preferences, if any, which dividends on such series will have with respect
to any other class or series of capital stock of Lucent, the voting rights, if
any, the voluntary and involuntary liquidation prices, the conversion or
exchange privileges, if any, applicable thereto and the redemption price or
prices and the other terms of redemption, if any, applicable thereto. Cumulative
dividends, dividend preferences and conversion, exchange and redemption
provisions, to the extent that some or all of these features may be present when
shares of Lucent Junior Preferred Stock are issued, could have an adverse effect
on the availability of earnings for distribution to the holders of Lucent Common
Stock or for other corporate purposes.
DISSENTERS' RIGHTS
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of Livingston who dissent from the Merger by complying with
the procedures set forth in Chapter 13 of the California Code ("Chapter 13")
would be entitled to receive an amount equal to the fair market value of their
shares as of October 14, 1997, the last trading day before the public
announcement of the Merger. A copy of Chapter 13 is attached hereto as Appendix
B and should be read for more complete information concerning dissenters'
rights. THE REQUIRED PROCEDURE SET FORTH IN CHAPTER 13 MUST BE FOLLOWED EXACTLY
OR ANY DISSENTERS' RIGHTS MAY BE LOST. The information set forth below is a
general summary of dissenters' rights as they apply to Livingston shareholders
and is qualified in its entirety by reference to Appendix B.
In order to be entitled to exercise dissenters' rights, a shareholder of
Livingston must vote "AGAINST" the Merger. Thus, any shareholder who wishes to
dissent and executes and returns a proxy in the accompanying form must specify
that his or her shares are to be voted "AGAINST" the Merger. If the shareholder
returns a proxy without voting instructions or with instructions to vote "FOR"
the Merger, his or her shares will automatically be voted in favor of the Merger
and the shareholder will lose any dissenters' rights. In addition, if the
shareholder abstains from voting his or her shares, the shareholder will lose
his or her dissenters' rights.
If the Merger is approved by the shareholders, Livingston will have ten
days after such approval to send to those shareholders who have voted against
the approval of the Merger written notice of such approval accompanied by a copy
of Sections 1300, 1301, 1302, 1303 and 1304 of Chapter 13, a statement of the
price determined by Livingston to represent the fair market value of the
dissenting shares as of October 14, 1997, and a brief description of the
procedure to be followed if a shareholder desires to exercise dissenters'
rights. In order to preserve his or her dissenters' rights, a shareholder must
make a written demand upon Livingston for the purchase of dissenting shares and
payment to such shareholder of their fair market value, specifying the number of
shares held of record by such shareholder and a statement of what the
shareholder claims to be the fair market value of those shares as of October 14,
1997. Such demand must be addressed to Livingston Enterprises, Inc., 4464 Willow
Road, Pleasanton, California; Attention: Secretary, and must be received by
Livingston not later than thirty days after the date on which the notice of
approval of the Merger is mailed to the shareholder. A vote "Against" the Merger
does not constitute such written demand.
Furthermore, within 30 days after the date on which the notice of the
approval of the Merger is mailed, the dissenting shareholder must surrender to
Livingston at the office designated in the notice of approval, the certificates
representing the dissenting shares to be stamped or endorsed with a statement
that they are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed. Any shares of Livingston Common
Stock that are transferred prior to their submission for endorsement lose their
status as dissenting shares.
If Livingston and the dissenting shareholder agree that the surrendered
shares are dissenting shares and agree upon the price of the shares, the
dissenting shareholder will be entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of the agreement. Payment
of the fair market value of the dissenting shares will be made within 30 days
after the amount thereof has been agreed upon or 30 days after any statutory or
contractual conditions to the Merger have been satisfied, whichever is later,
subject to the surrender of the certificates therefor, unless provided otherwise
by agreement.
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If Livingston denies that the shares surrendered are dissenting shares, or
Livingston and the dissenting shareholder fail to agree upon a fair market value
of such shares of Livingston Common Stock, then the dissenting shareholder of
Livingston must, within six months after the notice of approval is mailed, file
a complaint in the Superior Court of the proper county requesting the court to
make such determination or intervene in any pending action brought by any other
dissenting shareholder. If the complaint is not filed or intervention in a
pending action is not made within the specified six-month period, the
dissenters' rights are lost. If the fair market value of the dissenting shares
is at issue, the court will determine, or will appoint one or more impartial
appraisers to determine, such fair market value. The costs of the action will be
assessed or apportioned as the Superior Court considers equitable, but if the
"fair market value" is determined to exceed the price offered by Livingston to
the shareholder, Livingston shall pay such costs (including, in the discretion
of the Superior Court, attorneys' fees, fees of expert witnesses and interest at
the legal rate on judgments, if such "fair market value" is determined to exceed
125% of the price offered by Livingston).
A dissenting shareholder may not withdraw his or her dissent or demand for
payment unless Livingston consents to such withdrawal.
FEDERAL INCOME TAX TREATMENT
Any shareholder of Livingston who effectively dissents from the Merger and
who receives cash for his or her shares of Livingston Common Stock will
recognize a gain or loss for federal income tax purposes equal to the amount by
which the cash received for those shares exceeds or is less than the
shareholder's tax basis for the shares. The amount of that gain or loss, if any,
will be treated as ordinary income or loss, long-term capital gain or loss or
short-term capital gain or loss depending on the length of time the shares are
held by the dissenting shareholder, whether the shares are held as a capital
asset, and whether the dissenting shareholder is deemed to own shares of
Livingston Common Stock pursuant to the attribution rules of Section 318 of the
Code. In certain circumstances, a dissenting shareholder can be deemed for tax
purposes to own shares that are actually owned by a non-dissenting shareholder
that is related to the dissenting shareholder, with the possible result that the
cash received in the exercise of the dissenting shareholder's rights could be
treated as a dividend received pursuant to a corporate distribution rather than
an amount received pursuant to a sale or exchange of Livingston Common Stock.
Further, a dissenting shareholder may be subject to foreign, state or local
income taxation. Because the tax treatment of dissenting shareholders depends
upon their individual circumstances, such shareholders are urged to consult
their own tax advisors.
COMPARISON OF THE RIGHTS OF HOLDERS OF LUCENT COMMON STOCK
AND THE RIGHTS OF HOLDERS OF LIVINGSTON COMMON STOCK
Lucent is incorporated under the laws of the State of Delaware and
Livingston is incorporated under the laws of the State of California.
Shareholders whose rights as shareholders are currently governed by California
law and the Livingston Articles and Livingston Bylaws, will, in the event that
such shareholders receive Lucent Common Stock as full or partial consideration
in the Merger, become shareholders of Lucent, and their rights as such will be
governed by Delaware law and the Lucent Certificate and Lucent Bylaws. Certain
differences between the rights of holders of shares of Lucent Common Stock and
shares of Livingston Common Stock are summarized below.
The following summary does not purport to be a complete statement of the
rights of shareholders under the applicable California laws and the Livingston
Articles and Livingston Bylaws as compared with the rights of Lucent
shareholders under the applicable Delaware laws, the Lucent Certificate and
Lucent Bylaws or a complete description of the specific provisions referred to
herein. The identification of specific differences is not meant to indicate that
other equally or more significant differences do not exist. The summary is
qualified in its entirety by reference to the General Corporation Law of the
State of Delaware ("DGCL") and the California Code and the governing corporate
instruments of Lucent and Livingston, to which such shareholders are referred.
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CERTAIN VOTING RIGHTS
California law generally requires approval of any reorganization (which
includes a merger, certain exchange reorganizations and certain sale-of-asset
reorganizations) or sale of all or substantially all the assets of a corporation
by the affirmative vote of the holders of a majority (unless the articles of
incorporation require a higher percentage) of the outstanding shares of each
class of capital stock of the corporation entitled to vote thereon. The
Livingston Articles do not require a higher percentage.
Under Delaware law, any merger, consolidation or sale of all or
substantially all the assets of a corporation requires the approval of the
holders of a majority (unless the certificate of incorporation requires a higher
percentage) of the outstanding shares of such corporation entitled to vote
thereon. The Lucent Certificate does not require a higher percentage.
In general, under California law, no approval of a reorganization is
required by the holders of the outstanding shares in the case of any corporation
if such corporation, or its shareholders immediately before such reorganization,
or both, own, immediately after such reorganization, equity securities (other
than warrants or rights) of the surviving or acquiring corporation, or the
parent of either of the constituent corporations, possessing more than
five-sixths of the voting power of such surviving or acquiring corporation or
such parent.
Delaware law provides that (unless required by the certificate of
incorporation) no authorization by stockholders of a surviving or acquiring
corporation is necessary for a merger if (1) the merger does not amend the
certificate of incorporation of the corporation, (2) each share of stock of the
corporation outstanding prior to the merger remains identical after the merger,
and (3) either no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into such shares are to be issued
or delivered under the plan of merger or the authorized unissued shares or the
treasury shares of common stock of the corporation to be issued or delivered
under the merger plus shares issuable upon conversion of any other shares,
securities or obligations to be issued or delivered under the merger do not
exceed 20% of the shares of common stock of the corporation outstanding prior to
the merger. The Lucent Certificate does not require stockholder authorization
for mergers of the type described in the preceding sentence.
Under California law, a parent corporation may, without shareholder
approval, merge into itself a subsidiary of which it owns at least 90% of the
outstanding shares of each class of stock. In such mergers, known as short-form
mergers, minority shareholders are given the same right to dissent and receive
in cash the fair market value of their shares as in other mergers. Similarly,
Delaware law permits a merger of a 90% owned subsidiary corporation into its
parent without stockholder approval so long as the resolution of the board of
directors of the parent providing for the merger states the terms and conditions
of the merger, including the consideration to be given by the parent in exchange
for the subsidiary shares not owned by the parent.
DIVIDENDS
Generally, a California corporation may transfer cash or property to its
shareholders without consideration, whether by way of dividend or otherwise out
of retained earnings or if, after giving effect thereto, (1) the sum of the
assets (excluding goodwill and certain other assets) of the corporation is at
least equal to 1 1/4 times its liabilities (excluding certain deferred credits)
and (2) the current assets of such corporation are at least equal to (A) its
current liabilities or (B) if the average of the earnings of such corporation
before taxes and interest expense for the two preceding fiscal years was less
than the average of the interest expense of such corporation for such fiscal
years, 1 1/4 times its current liabilities. In addition, the ability of a
California corporation to pay dividends is restricted by certain limitations for
the benefit of certain preference shares. Each dividend other than one
chargeable to retained earnings is required to be identified in a notice to
shareholders as being made from a source other than retained earnings, stating
the accounting treatment thereof.
Under Delaware law, a corporation may pay dividends out of surplus or, in
the event that no surplus exists, out of its net profits for the fiscal year in
which the dividend is declared or its net profits for the preceding fiscal year,
subject to certain limitations for the benefit of certain preference shares. The
Lucent
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Bylaws provide that the Lucent Board may, in accordance with applicable law and
the Certificate of Incorporation, declare dividends.
ELECTION OF DIRECTORS; BOARD OF DIRECTORS
Under California law (unless a listed corporation's articles of
incorporation or bylaws provide otherwise), any shareholder of a corporation is
entitled to cumulate his or her votes for the election of directors provided
that at least one shareholder has given notice at the meeting prior to the
voting, of such shareholder's intention to cumulate his or her votes. Cumulative
votes may only be cast for candidates who have been nominated before the voting.
Livingston is not a listed corporation and therefore cannot eliminate cumulative
voting.
Delaware law permits cumulative voting in the election of directors of a
corporation if the certificate of incorporation of such corporation provides for
cumulative voting. The Lucent Certificate does not provide for cumulative
voting.
Under California law, a company which is not a listed corporation (such as
Livingston) is not permitted to classify its board of directors into different
classes.
Under Delaware law, Lucent is permitted to provide in its certificate of
incorporation or in an initial bylaw or in a bylaw adopted by a vote of the
stockholders for classification of its Board into up to three classes. The
Lucent Certificate provides that the Lucent Board consists of three classes. The
directors in each class serve on the Lucent Board for approximately three years
each. Notwithstanding the foregoing, the directors who currently serve in class
one will serve through the 2000 Lucent stockholders' meeting, the directors who
currently serve in class two will serve through the 1998 Lucent stockholders'
meeting and the directors who currently serve in class three will serve through
the 1999 Lucent stockholders' meeting. This method of electing directors makes a
change in the composition of the board of directors, and a potential change in
control of a corporation, a lengthier and more difficult process.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under California law, the holders of at least 10% of the number of
outstanding shares of any class of stock may initiate a court action to remove
any director for cause. In addition, any or all of the directors of a California
corporation may be removed without cause by the affirmative vote of a majority
of the outstanding shares entitled to vote. However, no director may be removed
(unless the entire board is removed) when the votes cast against removal would
be sufficient to elect the director if voted cumulatively at an election at
which the same total number of votes were cast and the entire number of the
directors authorized at the time of the director's most recent election were
then being elected. If the articles provide that the holders of the shares of
any class or series, voting as such, are entitled to elect one or more
directors, any director so elected may only be removed by the vote of the holder
of the shares of that class or series.
Under Delaware law, any or all directors of a corporation may be removed,
with or without cause, by the holders of a majority of the shares entitled to
vote at an election of directors. However, in the case of a corporation whose
board is classified, stockholders may remove directors only for cause, and in
the case of a corporation having cumulative voting, if less than the entire
board is to be removed, no director may be removed without cause if the votes
cast against his removal would be sufficient to elect him if then cumulatively
voted at an election of the entire board of directors, or, if there are classes
of directors, at an election of the class of directors of which he or she is a
part.
Under California law (unless otherwise provided in the articles of
incorporation or bylaws and except for a vacancy created by the removal of a
director), vacancies on the board of directors, including any vacancy resulting
from an increase in the authorized number of directors, may be filled by
approval of the board. If the number of directors is less than a quorum, a
vacancy may be filled by the unanimous written consent of the directors then in
office, by the affirmative vote of a majority of the directors at a meeting held
pursuant to notice or waivers of notice or by a sole remaining director. In
addition, any vacancy not filled by the directors may be filled by the vote of
the majority of shares entitled to vote at an annual or special meeting. Neither
the Livingston Articles nor the Livingston Bylaws provide otherwise. Under
Delaware law (unless otherwise
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provided in the articles of incorporation or bylaws), vacancies and
newly-created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors in office. Neither the
Lucent Certificate nor the Lucent Bylaws provides otherwise.
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
Under California law, a special meeting of shareholders may be called by
the board of directors, the chairman of the board, the president or the holders
of shares entitled to cast not less than 10% of the votes at the meeting or such
additional persons as may be provided in the articles of incorporation or
bylaws. Neither the Livingston Articles nor the Livingston Bylaws permit any
other person to call a special meeting.
Under Delaware law, a special meeting of shareholders may be called by the
board of directors or such other persons as may be authorized by the certificate
of incorporation or by-laws. The Lucent Bylaws provide that a special meeting
may be called by the board of directors pursuant to a resolution stating the
purpose or purposes of the meeting and approved by a majority of the total
number of directors of the board (assuming if no vacancies) (the "Whole Board")
or by the Chairman of the board of directors.
Under California law (unless otherwise provided in the articles), any
action which may be taken at a meeting of shareholders may also be taken by the
written consent of the holders of at least the same proportion of outstanding
shares as would be necessary to take such action at a meeting at which all
shares entitled to vote were present and voted, except that California law
provides that the election of directors by written consent generally requires
the unanimous consent of all shares entitled to vote for the election of
directors. The Livingston Articles do not provide otherwise.
Under Delaware law (unless otherwise provided in the certificate of
incorporation), any action which is required to be taken or may be taken at a
meeting of stockholders, may be taken by a written consent signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting. However, the Lucent
Certificate provides that such action may not be effected by any consent in
writing of the holders but must be effected at a duly called annual or special
meeting of the stockholders.
INSPECTION OF SHAREHOLDERS' LIST
Both the California Code and the DGCL allow any shareholder to inspect the
shareholders' list for a purpose reasonably related to such person's interest as
a stockholder. The California Code provides, in addition, for an absolute right
to inspect and copy the corporation's shareholder list by persons holding an
aggregate of five percent or more of a corporation's voting shares, or
shareholders holding an aggregate of one percent or more of such shares who have
filed a Schedule 14A with the Commission relating to the election of directors.
This absolute right may not be limited by the articles or the bylaws. The right
applies to any domestic corporation and to any foreign corporation having its
principal executive office or customarily holding meetings of its board in
California. The DGCL does not provide for any such absolute right of inspection,
and no such right is granted under the Lucent Charter or Lucent Bylaws. Lack of
access to shareholder records could result in impairment of a shareholders'
ability to coordinate opposition to management proposals.
SHAREHOLDER DERIVATIVE SUITS
Generally, under California law, a derivative action on behalf of a
corporation may not be sustained unless the plaintiff was a shareholder at the
time of the alleged wrongdoing and the plaintiff alleges in the complaint with
particularity plaintiff's efforts to obtain from the board of directors redress
for such wrongdoing, or the reasons for not making such effort. However,
California law recognizes an exception to this contemporaneous ownership
requirement that gives a shareholder standing to institute a derivative action
where the shareholder acquires shares prior to disclosure of any alleged
wrongdoing provided certain other conditions are satisfied.
Under the DGCL, a stockholder may only bring a derivative action on behalf
of the corporation if the stockholder was a stockholder of the corporation at
the time of the transaction in question or his or her stock
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thereafter devolved upon him or her by operation of law. The California Code
also provides that the corporation or the defendant in a derivative suit may
make a motion to the court for an order requiring the plaintiff shareholder to
furnish a security bond. Delaware law does not have a similar bonding
requirement.
AMENDMENT OF BYLAWS
Under California law, bylaws may be adopted, amended or repealed either by
the vote of a majority of the outstanding shares entitled to vote thereon or
(subject to any restrictions in the articles of incorporation or bylaws) by the
approval of the board of directors, except that amendments to the bylaws
specifying or changing a fixed number of directors or the maximum or minimum
number or changing from a fixed to a variable board or vice versa may only be
adopted by approval of the affirmative vote of a majority of the outstanding
shares entitled to vote. There are no such further restrictions in the
Livingston Articles or Livingston Bylaws.
Under Delaware law, the power to adopt, amend or repeal by-laws is vested
in the stockholders entitled to vote unless the certificate of incorporation
confers the power to adopt, amend or repeal by-laws upon the directors as well.
The Lucent Certificate provides that the Lucent Bylaws may be altered or
repealed and new bylaws may be adopted (i) at any annual or special meeting of
stockholders, by the affirmative vote of the holders of a majority of the voting
power of the stock issued and outstanding and entitled to vote at such meeting,
provided, that any proposed alteration or repeal of, or the adoption of any
Bylaw inconsistent with Sections 2.2, 2.7 or 2.10 of the Lucent Bylaws (relating
to special meetings of stockholders, notice of stockholder business and
nominations and actions by written consent of stockholders, respectively) or
with Sections 3.2, 3.9 or 3.11 of the Lucent Bylaws (relating to the number and
tenure of the directors, vacancies on the board of directors and removal of
directors, respectively) by the stockholders requires the affirmative vote of
the holders of a least 80% of the voting power of all shares of Lucent entitled
to vote generally in the election of directors ("Voting Stock") then
outstanding, voting together as a single class or (ii) by the majority of the
Whole Board.
AMENDMENT OF CHARTER
Under both California and Delaware laws, amendments to the articles or
certificate of incorporation of a corporation generally require approval by vote
of the board of directors and the holders of a majority of outstanding shares
entitled to vote thereon and, where their rights are affected, by the holders of
a majority of the outstanding shares of a class, whether or not such class is
entitled to vote thereon by the provision of the charter. The Lucent Certificate
provides that the affirmative vote of the holders of at least 80% of the Voting
Stock then outstanding, voting together as a single class, is required to alter,
amend, adopt any provision inconsistent with or repeal Articles V, VII or VIII
of the Lucent Certificate (relating to stockholder action, the board of
directors and the Lucent Bylaws, respectively).
DISSENTING OR APPRAISAL RIGHTS
Under California law, in connection with the merger of a corporation for
which the approval of outstanding shares is required, dissenting shareholders of
such corporation who follow prescribed statutory procedures are entitled to
receive payment of the fair market value of their shares. For a more complete
description of such rights, see "DISSENTERS RIGHTS" and "TERMS OF THE MERGER
AGREEMENT -- Dissenting Shares."
Under Delaware law, appraisal rights are generally available for the shares
of any class or series of stock of a corporation in a merger or consolidation;
provided that no appraisal rights are available for the shares of any class or
series of stock which, at the record date for the meeting held to approve such
transaction, were either (1) listed on a national securities exchange or (2)
held of record by more than 2,000 stockholders; and further provided that no
appraisal rights are available to stockholders of the surviving corporation if
the merger did not require their approval. Notwithstanding the foregoing,
appraisal rights are available for such class or series if the holders thereof
receive in the merger or consolidation anything except: (1) shares of stock of
the corporation surviving or resulting from such merger or consolidation; (2)
shares of stock of any other
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corporation which at the effective date of the merger or consolidation is either
listed on a national securities exchange or held of record by more than 2,000
stockholders; (3) cash in lieu of fractional shares; or (4) any combination of
the foregoing.
CERTAIN BUSINESS COMBINATIONS AND REORGANIZATIONS
Under California law, if a tender offer or written proposal to acquire a
corporation by a reorganization or certain sales of assets is made to a
corporation's shareholders by an Interested Party (as hereinafter defined) (each
an "Interested Party Proposal"), (1) an affirmative opinion in writing as to the
fairness of the consideration to the shareholders of such corporation must be
delivered to shareholders of such corporation (or, in the event that no
shareholder approval is required for the consummation of the transaction, to the
corporation's board of directors) and (2) such shareholders must be (A) informed
of certain later tender offers or written proposals for a reorganization or sale
of assets made by other persons and (B) afforded a reasonable opportunity to
withdraw any vote, consent or proxy previously given or shares previously
tendered in connection with the Interested Party Proposal. For the purposes of
this paragraph, "Interested Party" shall mean a person who is a party to the
transaction and (x) directly or indirectly controls the corporation that is the
subject of the tender offer or proposal; (y) is, or is directly or indirectly
controlled by, an officer or director of the subject corporation; or (z) is an
entity in which a material financial interest (as defined in Section 310 of the
California Code) is held by any director or executive officer of the subject
corporation.
In addition, in connection with any merger transaction, California law
generally requires that, unless all shareholders of a class or series consent
(and except with respect to fractional shares), each share of such class or
series must be treated equally with respect to any distribution of cash,
property, rights or securities. California law also provides generally that if a
corporation that is party to a merger, or its parent, owns more than 50% but
less than 90% of the voting power of the other corporation that is party to such
merger, the nonredeemable shares of common stock of the controlled corporation
may be converted only into nonredeemable shares of the surviving corporation or
a parent party unless all of the shareholders of the class consent. If the buyer
in an asset sale is in control of or under common control with the seller of
such assets, the principal terms of the sale must be approved by at least 90% of
the voting power of the corporation unless the sale is to a domestic or foreign
corporation in consideration of the nonredeemable common shares of the
purchasing corporation or its parent.
Generally, Delaware law would prevent an "Interested Stockholder" (defined
as a person beneficially owning 15% or more of a corporation's outstanding
voting stock) from engaging in a Business Combination (as defined in Section 203
of the DGCL) with a corporation for three years following the date such person
became an Interested Stockholder unless: (1) before such person became an
Interested Stockholder, the board of directors of such corporation approved
either the business combination or the transaction in which the Interested
Stockholder became an Interested Stockholder; (2) upon consummation of the
transaction which resulted in the Interested Stockholder becoming an Interested
Stockholder, the Interested Stockholder owned at least 85% of the voting stock
of such corporation outstanding at the time the transaction commenced (excluding
stock held by (A) directors who are also officers and (B) employee stock
ownership plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (3) at or subsequent to such time,
the Business Combination is (x) approved by the board of directors of such
corporation and (y) authorized at a meeting of stockholders by the affirmative
vote of the holders of at least 66 2/3% of the outstanding voting stock of such
corporation not owned by the Interested Stockholder.
LOANS TO OFFICERS AND EMPLOYEES
Under California law, any loan or guaranty to or for a director or officer
of the corporation or its parent requires approval of a majority of a
corporation's shareholders entitled to act thereon, unless such loan or guaranty
is authorized under an employee benefit plan approved by a majority of the
shareholders entitled to act thereon (after disclosure to such shareholders that
such plan authorizes such loans or guaranties to or for officers and directors).
In addition, California law provides that, notwithstanding the foregoing, if the
corporation has outstanding shares held of record by 100 or more shareholders on
the date such loan or
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guaranty is approved by the board of directors, and the corporation has a bylaw
approved by shareholders authorizing the board alone to approve such loan or
guaranty, such a loan or guaranty may be approved by the board alone (excluding
the vote of any interested director) if the board determines that any such loan
or guaranty may reasonably be expected to benefit the corporation. The
Livingston Bylaws authorize the board to grant such loans or guaranties. Under
Delaware law, a corporation may make loans to, guarantee the obligations of or
otherwise assist its officers or other employees and those of its subsidiaries
(including directors who are also officers or employees) when such action, in
the judgment of the directors, may reasonably be expected to benefit the
corporation.
INTERESTED DIRECTOR TRANSACTIONS
Under both the California Code and the DGCL, certain contracts or
transactions in which one or more of a corporation's directors has an interest
are not void or voidable because of such interest provided that certain
conditions, such as obtaining the required approval and fulfilling the
requirements of good faith and full disclosure, are met. Under the California
Code, however, if shareholder approval of the interested transaction is sought,
the interested director is not entitled to vote his shares at a shareholder
meeting with respect to the transaction and if board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
Under the DGCL, if board approval is sought, the contract or transaction must be
approved by a majority of the disinterested directors (even though less than a
majority of a quorum). Therefore, certain transactions that the Lucent Board
might not be able to approve because of the number of interested directors could
be approved by a majority of the disinterested directors of Lucent, although
less than a majority of a quorum.
CERTAIN INFORMATION CONCERNING LUCENT
Lucent is one of the world's leading designers, developers and
manufacturers of telecommunications systems, software and products. These
integrated systems and software applications enable network operators and
business enterprises to connect, route, manage and store information between and
within locations. Lucent is a global leader in the sale of public
telecommunications systems, and is a supplier of systems or software to the
world's largest networks. Lucent is also a global leader in the sale of business
communications systems and microelectronic components for communications systems
and computer manufacturers. Lucent was formed from the systems and technology
units that were formerly part of AT&T, including the research and development
capability of Bell Laboratories..
Lucent was incorporated in Delaware in November 1995. Lucent was a
wholly-owned subsidiary of AT&T prior to its initial public offering on April
10, 1996 and became completely separate from AT&T when the remaining shares of
Lucent Common Stock held by AT&T were distributed to AT&T's stockholders on
September 30, 1996. See "INFORMATION INCORPORATED BY REFERENCE."
CERTAIN INFORMATION CONCERNING LIVINGSTON
Livingston is a leading provider of remote access networking solutions for
ISPs worldwide. Used by ISPs to connect their subscribers to the Internet,
Livingston's remote access servers deliver high performance at a low price per
port, making them particularly well-suited for the intensely competitive ISP
marketplace. Livingston also provides office routers and firewall routers that
are resold by ISPs to corporate customers for Internet connectivity and other
remote access networking applications. Since Livingston introduced its first
remote access server in 1990, over 2,000 ISPs have purchased Livingston's remote
access products. In November 1996, Livingston introduced the PortMaster 3 access
concentrator, its remote access platform, which Livingston believes positions it
to better address the needs of large ISPs and local telephone companies, and to
maintain its leadership position with Livingston's established base of local and
regional ISP customers.
35
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Livingston is a leading provider of remote access networking solutions for
ISPs worldwide. In 1990, Livingston introduced its first PortMaster
communications server incorporating its proprietary ComOS operating system,
which was developed specifically for remote access applications. In 1991,
Livingston introduced its remote access routers which are resold by ISPs to
corporate customers for Internet connectivity and other remote access networking
applications. In November 1996, Livingston began shipping its PortMaster 3
access concentrator which incorporates Livingston's enhanced ComOS, support for
high speed digital connections such as ISDN PRI and T1/E1, and up to 60 digital
modems. Because this remote access solution includes modem functionality, the
PortMaster 3 has a substantially higher selling price than Livingston's earlier
generation products. The PortMaster 3 has been designed to be easily upgraded to
support emerging technologies such as 56K modem functionality. Livingston has
announced its offer to provide this upgrade, when and if available, to existing
PortMaster 3 customers, upon request, at no additional charge (other than
shipping costs). Livingston accrues for the cost of providing the 56K upgrade at
the time of sale. Sales of the PortMaster 3 have increased significantly since
its introduction while sales of Livingston's earlier generation communications
servers have declined.
In 1994, Livingston entered into an OEM Software License and Development
Agreement ("USR Agreement") with US Robotics Access Corp, Inc. ("USR"), pursuant
to which Livingston receives software license royalties related to sales by USR
of products that incorporate the Livingston's ComOS operating system. Royalty
payments are normally received by Livingston sixty days after USR's quarter end,
and are recorded as royalty revenue at that time. As of fiscal 1997, cumulative
royalties from USR totaled $10.5 million. On December 17, 1996, Livingston and
USR settled a lawsuit related to the USR Agreement ("Settlement") and in
connection with such settlement, the parties entered into Amendment No. 1 to the
USR Agreement (the "Amendment"). Pursuant to the Amendment, the parties agreed
that USR's right and license to Livingston's ComOS source code will terminate on
December 31, 1998. Under the terms of the USR Agreement, USR may, in its sole
discretion terminate the USR Agreement upon 30 days notice. As a result of the
Settlement, Livingston expects royalty revenues from USR to terminate in fiscal
1998, if not earlier.
On September 23, 1997, Livingston filed a claim against USR requesting
declaratory and injunctive relief with respect to a patent owned by USR. USR has
not filed an answer to the complaint. On October 2, 1997, USR filed a complaint
against Livingston claiming that Livingston is infringing the same patent.
Livingston has not filed an answer to the complaint. Livingston believes that
the patent may be invalid, however, there can be no assurance that Livingston
will prevail in its suit or that it will be successful in defending the patent
infringement suit. Furthermore, there can be no assurance that USR, or other
third parties, will not assert additional patent claims in the future with
respect to Livingston's products.
On September 29, 1997, Livingston filed a claim against USR for copyright
infringement, misappropriation of trade secrets, breach of written contract, and
unfair competition. These claims arise from the Settlement. Livingston believes
that USR has violated the terms of the settlement agreement and is seeking to
enforce its rights under such agreement. USR has not filed an answer to the
complaint.
International sales accounted for 29.7% and 41.7% of Livingston's product
revenues in fiscal 1996 and fiscal 1997, respectively. Livingston expects that
international sales will continue to account for a significant portion of its
product revenues in future periods. Although Livingston's international sales
are currently denominated in U.S. dollars, fluctuations in currency exchange
rates could cause Livingston's products to become relatively more expensive to
customers in a particular country, leading to a reduction in sales or
profitability in such country. Furthermore, future international activity may
result in foreign currency denominated sales, and, in such event, gains and
losses on the conversion to U.S. dollars of accounts receivable and accounts
payable arising from international operations may cause material fluctuations in
Livingston's results of operations.
36
<PAGE> 45
Historically, the majority of Livingston's sales have been made to local
and regional ISPs through Livingston's reseller channel. In connection with the
introduction of the PortMaster 3, Livingston began to significantly expand its
direct sales force in order to better address the needs of large ISPs and local
telephone companies. Recently, Livingston has expanded its direct sales force
and has established eight branch offices in North America, a European
headquarters in France and a branch office in the United Kingdom. In response to
growth in the ISP demand and Livingston's expanded base of customers, Livingston
has significantly increased its research and development activities. Livingston
has also expanded its technical support operations and manufacturing capacity.
These activities, and the expansion of Livingston's infrastructure to support
them, have resulted in significantly higher operating expenses in fiscal 1996
and fiscal 1997.
Livingston typically provides certain post contract customer support
("PCS") in connection with the sale of its products. Prior to the second quarter
of fiscal 1996, PCS consisted principally of telephone support and minor
maintenance for its PortMaster 2 products. During this period, Livingston
recognized revenue at the time of product shipment and accrued the estimated
costs of providing PCS. During the second quarter of fiscal 1996, Livingston
decided to provide significant feature enhancements to ComOS, free of charge, to
Livingston's customers. Accordingly, Livingston recognized the portion of
product revenue attributable to the value of PCS ratably over 12 months, the
period during which PCS is expected to be provided. In November 1996, Livingston
began selling PortMaster 3, which is accompanied by a one year hardware and
software warranty. The portion of the PortMaster 3 selling price that is
attributable to PCS is recognized ratably over the 12 month support period.
Additional warranty and support coverage is made available to PortMaster 3
customers as a purchase option. PCS revenues to date have not been significant.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenues (except for
gross-margin on product revenues), certain statement of operations data for the
period indicated:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Product revenues........................................ 98.4% 93.8% 89.9%
Royalty revenues........................................ 1.6 6.2 10.1
----- ----- -----
Net revenues............................................ 100.0% 100.0% 100.0%
Cost of revenues........................................ 39.4 40.3 38.1
----- ----- -----
Gross profit.......................................... 60.6 59.7 61.9
Operating expenses:
Research and development.............................. 4.3 5.5 5.9
Selling and marketing................................. 13.8 18.8 24.4
General and administrative............................ 3.3 3.8 5.8
----- ----- -----
Total operating expenses...................... 21.4 28.1 36.1
----- ----- -----
Operating income........................................ 39.2 31.6 25.8
Interest income (expense), net.......................... (0.1) 0.2 0.7
----- ----- -----
Income before income taxes.............................. 39.1 31.8 26.5
Provision for income taxes.............................. 15.1 12.6 9.4
----- ----- -----
Net income.................................... 24.0% 19.2% 17.1%
===== ===== =====
Gross margin on product revenues........................ 60.0% 57.0% 57.6%
</TABLE>
YEAR ENDED AUGUST 31, 1997 COMPARED TO YEAR ENDED AUGUST 31, 1996
Net Revenues. Net revenues increased 58.0% to $72.8 million for fiscal
1997 as compared to $46.1 million for fiscal 1996. The increased net revenues
reflect the introduction and increased sales of Livingston's PortMaster 3
product and increased royalties, partially offset by declining sales of the
PortMaster 2 products. Specifically, sales of Livingston's PortMaster 2 products
declined by 55.0% from fiscal 1996, while royalty
37
<PAGE> 46
revenues increased 155% from fiscal 1996. Royalty revenues were $7.3 million and
$2.9 million in fiscal 1997 and in fiscal 1996, respectively. Sales to
international customers accounted for approximately 41.7% of product revenues
for fiscal 1997 compared to 29.7% for fiscal 1996.
Gross Profit. Livingston's gross profit in fiscal 1997 increased to $45.1
million from $27.5 million in fiscal 1996. This increase was attributable to the
introduction and increased sales of the PortMaster 3 products and to increased
royalties, partially offset by $2.3 million in charges for obsolete PortMaster 2
product and component inventory. Gross margin on product revenues increased to
57.6% in fiscal 1997, compared to 57.0% in fiscal 1996. The higher gross margin
was due to increased sales of the higher margin PortMaster 3 products offset by
a charge for obsolete PortMaster 2 inventory and approximately $3.4 million
reserved to provide, when and if available, Livingston's 56K modem solution,
upon request, for PortMaster 3 products sold during the period.
Research and Development. Research and development expenses consist
primarily of employee compensation, amounts paid for outside services, and costs
of materials utilized in product development. Research and development expenses
increased to $4.3 million, or 5.9% of net revenues in fiscal 1997, from $2.5
million, or 5.5% of net revenues in fiscal 1996. The increase was due primarily
to the addition of personnel for the development of PortMaster 3, enhancement of
the ComOS operating system and development of future products. Livingston
believes that significant research and development efforts are necessary in
order for it to compete in the evolving market for remote access products.
Accordingly, Livingston expects its research and development expenditures to
increase in absolute dollars and as a percentage of net revenues.
Selling and Marketing. Selling and marketing expenses consist primarily of
base and incentive compensation paid to sales, customer support and marketing
personnel, travel and related expenses, and costs associated with promotional
and trade show activities. Selling and marketing expenses increased to $17.8
million, or 24.4% of net revenues, in fiscal 1997 from $8.7 million, or 18.8% of
net revenues, in fiscal 1996. The increase reflects significant hiring of direct
sales personnel in North America and Europe and technical support personnel in
North America, as well as increased incentive compensation due to increased
sales volume. Also included are charges relating to a marketing program to
promote Livingston's presence in Europe. Livingston expects selling and
marketing expenses to increase both in absolute dollars and as a percentage of
net revenues as Livingston pursues its strategy of expanding its direct sales
force.
General and Administrative. General and administrative expenses consist
primarily of compensation paid to administrative personnel and related overhead.
General and administrative expenses increased to $4.2 million, or 5.8% of net
revenues, in fiscal 1997 from $1.8 million, or 3.8% of net revenues, in fiscal
1996 as Livingston continued to build its infrastructure to support growth in
its manufacturing, research and development, and selling and marketing
functions. Livingston expects that general and administrative expenses will
increase in absolute dollars as Livingston continues to expand its operations.
Provision for Income Taxes. Livingston's effective tax rate for fiscal
1997 was 35.5% compared to 39.7% in fiscal 1996. See Notes 1 and 4 of Notes to
the Livingston Consolidated Financial Statements.
YEAR ENDED AUGUST 31, 1996 COMPARED TO THE YEAR ENDED AUGUST 31, 1995
Net Revenues. Net revenues increased 125% to $46.1 million for fiscal
1996, as compared to $20.5 million for fiscal 1995. This increase was due
primarily to higher sales of Livingston's communication servers and routers.
Royalty revenues were $2.9 million and $323,000 in fiscal 1996 and fiscal 1995,
respectively. Sales to international customers accounted for 29.7% of product
revenues in fiscal 1996 compared to 16.9% in fiscal 1995. This increase in
international sales was the result of an expansion of Livingston's reseller
relationships in Japan and Europe.
Gross Profit. Livingston's gross profit for fiscal 1996 increased to $27.5
million from $12.4 million for fiscal 1995. This increase was due primarily to
higher unit sales and increased royalties. Gross margin on product revenues
(excluding royalty revenues) declined to 57.0% in fiscal 1996 compared to 60.0%
in fiscal 1995 as a result of a charges of $1.3 million taken in the second half
of fiscal 1996 related to Livingston's establishment of an inventory reserve in
connection with the PortMaster 2 product line.
38
<PAGE> 47
Research and Development. Research and development expenses increased to
$2.5 million, or 5.5% of net revenues, in fiscal 1996 compared to $890,000, or
4.3% of net revenues, in fiscal 1995, due primarily to the addition of personnel
for the development of the PortMaster 3 and for enhancements and feature
upgrades to ComOS. Research and development expenses in fiscal 1996 included
$632,000 for purchased in-process research and development, primarily related to
modem technology.
Selling and Marketing. Selling and marketing expenses increased to $8.7
million, or 18.8% of net revenues, in fiscal 1996 compared to $2.8 million, or
13.8% of net revenues, in fiscal 1995. The increase was due primarily to
increased staffing levels in sales intended to broaden the geographic reach for
Livingston's products, increased marketing expenses related to trade show
participation and development of collateral materials, and increased staffing of
technical support operations in response to a growing installed base of
products.
General and Administrative. General and administrative expenses increased
to $1.8 million, or 3.8% of net revenues, in fiscal 1996 compared to $667,000,
or 3.3% of net revenues, in fiscal 1995 due to increased personnel and overhead
costs and increased use of outside professional services as Livingston began to
build its infrastructure to support growth in its manufacturing, research and
development, and selling and marketing functions.
Provision for Income Taxes. Livingston's effective tax rate in fiscal 1996
was 39.7% compared to 38.7% in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Livingston has financed its operations primarily through
cash flows from operating activities. As of August 31, 1997, Livingston's
principal sources of liquidity consisted of $11.1 million of cash and cash
equivalents and an unsecured $5 million line of credit. The line of credit bears
interest at the bank's prime rate and specifies financial and operating
covenants, including restrictions on Livingston's ability to purchase its own
stock and a prohibition on payment of cash dividends. There have been no
borrowings under the line of credit.
Livingston's operating activities in fiscal 1997, 1996 and 1995 provided
cash flows of $15.8 million, $3.4 million and $1.2 million, respectively. Cash
provided by operating activities during these periods was attributable primarily
to increases in net income, partially offset by increases in accounts receivable
and inventories. As of August 31, 1997, Livingston's working capital was $25.6
million, which included $9.7 million and $5.7 million of accounts receivable and
inventory, respectively.
Livingston's investing activities have consisted primarily of purchases of
property and equipment. Cash used in investing activities increased to $1.9
million in the year ended August 31, 1997 from $803,000 in the year ended August
31, 1996, due primarily to purchases of furniture and fixtures for the new
headquarters facility which Livingston moved into in November 1996. Cash used in
investing activities totaled $2.1 million, $881,000 and $348,000 in fiscal 1997,
1996 and 1995, respectively.
Livingston expects to use approximately $2.5 million for capital
expenditures over the next twelve months. Livingston believes that available
funds, its existing bank line of credit and cash flows expected to be generated
from operations will be sufficient to meet its anticipated cash needs at least
through fiscal 1998.
39
<PAGE> 48
MANAGEMENT OF LIVINGSTON
Executive Officers and Directors
The following table sets forth certain information with respect to the
executive management and directors of Livingston:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ---------------------------------------------
<S> <C> <C>
Steven M. Willens............................ 38 President, Chief Executive Officer, Chief
Technology Officer and Chairman
Ronald H. Willens............................ 65 Vice President of Operations, Executive Vice
President, Secretary and Director
Joseph E. Sasek.............................. 38 Vice President of Sales and Marketing
Steven A. Hess............................... 45 Chief Financial Officer
Jurgen Obermann.............................. 34 Managing Director of Europe, the Middle East
and Africa
Paul L. Harvey............................... 45 Director of Customer Service
Jerrold Livingston........................... 67 Director
Albert A. Pimentel(1)(2)..................... 42 Director
Robert C. Hawk(1)(2)......................... 57 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Steven Willens co-founded Livingston in 1986 and joined Livingston on a
full-time basis in 1989, serving as Vice President of Engineering. In October
1994, he was appointed President and Chief Executive Officer. In October 1995,
he was appointed Chairman of the Board of Directors. Mr. Willens also served as
Secretary of Livingston from 1986 to October 1994. From 1984 to 1989, Mr.
Willens held several management positions in engineering and marketing at Sun
Microsystems. From 1981 to 1984, he was a Product Manager at Hewlett Packard.
Dr. Ronald Willens co-founded Livingston in 1986, has served as Vice
President of Operations since 1988, as Executive Vice President of Livingston
since September 1995 and as Secretary of Livingston since October 1994. From
1962 to 1988, Dr. Willens served in various technical management capacities with
AT&T Labs in Murray Hill, New Jersey.
Mr. Sasek joined Livingston in July 1994 as Director of Sales, was promoted
to Vice President of Sales in August 1995 and to Vice President of Sales and
Marketing in June 1996. From 1990 to 1992, Mr. Sasek held several field sales
management positions, and from February 1992 to July 1994 was field sales
director for Telebit Corporation, a dial-up networking company.
Mr. Hess joined Livingston in February 1996 as Chief Financial Officer.
From January 1995 to February 1996, he was Vice President of Finance and Chief
Financial Officer at Asante Technologies, Inc., a manufacturer of local area
networking equipment. From 1988 to October 1995, Mr. Hess held executive
management positions, primarily as Chief Financial Officer for Telebit
Corporation, a dial-up networking company.
Mr. Obermann joined Livingston in September 1996, as Managing Director of
Livingston's Europe, Middle East and Africa operations. From April 1993 to
September 1996, Mr. Obermann was the Director of Marketing for Cisco responsible
for Europe, the Middle East and Africa. Prior to that, from July 1991 to April
1993, he was product manager for LAN, WAN and Internet products at PanDacom
GmbH, a German company which distributes telecommunications and internetworking
equipment.
Mr. Harvey joined Livingston in February 1997 as Director of Customer
Service. From May 1992 to February 1997, Mr. Harvey was Director of Worldwide
Customer Support Center of Amdahl Corporation, a manufacturer of mainframe
computers. From 1976 to April 1992, he held a variety of customer support
positions with Amdahl Corporation.
40
<PAGE> 49
Mr. Livingston co-founded Livingston in 1986, and served as its President
and Chief Executive Officer until September 1994 and as its Chairman until
October 1995 at which time he retired. From 1983 to 1986, Mr. Livingston was
Director, Environmental Medical Services with Litton Industries. From 1971 to
1983 he served as Director of Environmental Safety for ITEK, a defense
contractor.
Mr. Pimentel has served as a member of Livingston's Board of Directors
since November 1995. Mr. Pimentel has been Senior Vice President of Finance and
Chief Financial Officer with WebTV Networks, Inc., an Internet appliance and
service company, since November 1996. From July 1992 to October 1996, Mr.
Pimentel was Senior Vice President and Chief Financial Officer with LSI Logic
Corporation, a semiconductor company. From 1990 to June 1992, Mr. Pimentel was
Vice President of Finance and Chief Financial Officer for Momenta Corporation, a
pen-based PC company.
Mr. Hawk has served as a member of Livingston's Board of Directors since
February 1997. Mr. Hawk is currently retired. From May 1996 to April 1997, Mr.
Hawk was President and Chief Executive Officer of US West Multimedia Group, a
Denver, Colorado-based RBOC. From 1986 to April 1996, Mr. Hawk served as
President of the Carrier and Information Provider division of US West
Communications. Mr. Hawk currently serves as a director of Premisys
Communications, Inc., PairGain Technologies, Inc. and Xylan Corporation.
Dr. Ronald Willens is father of Mr. Steven Willens, and Jerrold Livingston
is Steven Willens' father-in-law. Other than those relationships, there are no
other family relationships among any of the directors and executive officers of
Livingston.
DIRECTOR COMPENSATION
Directors receive no cash compensation for services provided in that
capacity but are reimbursed for out-of-pocket expenses incurred in connection
with attendance at meetings of the Board of Directors. Upon joining the Board of
Directors, Mr. Pimentel was granted an option to purchase 150,000 shares of
Livingston's Common Stock at a price of $.25 per share and Mr. Hawk was granted
an option to purchase 35,000 shares of Livingston's Common Stock at a price of
$10.50 per share, pursuant to the 1994 Stock Plan.
EXECUTIVE COMPENSATION
The following table shows the compensation received in the fiscal year
ended August 31, 1997 by Livingston's Chief Executive Officer and Livingston's
other executive managers who earned in excess of $100,000 during such fiscal
year (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
OPTIONS (#)
ANNUAL COMPENSATION LONG-TERM
-------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) AWARDS COMPENSATION
- ------------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Steven M. Willens................................ $236,058 $50,000 -- --
Chairman, President and Chief Executive Officer
Ronald H. Willens................................ $236,058 $50,000 -- --
Vice President of Operations, Executive Vice
President and Secretary
Joseph E. Sasek.................................. $120,000 $40,000 -- $ 81,154(2)
Vice President of Sales and Marketing
Steven A. Hess................................... $140,000 $20,000 -- --
Chief Financial Officer
Jurgen Obermann.................................. $156,000 $25,000 -- $ 52,000(3)
Managing Director of Europe, the Middle East
and Africa
</TABLE>
- ---------------
(1) Earned for services during the year.
41
<PAGE> 50
(2) Represents $79,058 in sales commissions and $2,096 for health and life
insurance premiums paid by Livingston.
(3) Represents $25,000 in sales commissions, $18,000 as an auto allowance, and
$9,000 for health insurance premiums paid by Livingston.
OPTIONS GRANTS IN FISCAL 1997
The following table sets forth information for the Named Executive Officers
with respect to grants of options to purchase Common Stock of Livingston made
during the fiscal year ended August 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE
------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ------------------------------ ---------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Willens............. -- -- -- -- -- --
Ronald H. Willens............. -- -- -- -- -- --
Joseph E. Sasek............... -- -- -- -- -- --
Steven A. Hess................ -- -- -- -- -- --
Jurgen Obermann............... 45,000 6.1% 10.50 1/21/07 $297,158 $753,165
10,000 1.4% 17.50 5/09/07 $110,075 $278,950
</TABLE>
- ---------------
(1) Consists of stock options granted pursuant to the 1994 Stock Plan. Each
option became exercisable immediately, subject to a right of repurchase
which lapses according to a vesting schedule of 25% at the end of one year
following the vesting commencement date as determined by the Board of
Directors and 1/36 of the remaining amount per month thereafter as long as
each optionee remains an employee with, consultant to or director of
Livingston. The maximum term of each option granted is ten years from the
date of grant. The exercise price is equal to the fair market value of the
stock on the date of grant as determined by the Board of Directors.
(2) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Commission and do not
represent Livingston's estimate or projection of the future Common Stock
price. Actual gains, if any, on stock option exercises are dependent on the
future financial performance of Livingston, overall market conditions and
the option holders' continued employment through the vesting period. This
table does not take into account any appreciation in the price of the Common
Stock from the date of grant to the date of this Proxy Statement/Prospectus,
other than the columns reflecting assumed rates of appreciation of 5% and
10%.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL 1997 YEAR-END OPTION
VALUES
The following table sets forth information for the Named Executive Officers
with respect to exercises of options to purchase Common Stock of Livingston in
the fiscal year ended August 31, 1997.
<TABLE>
<CAPTION>
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ---------- -------------
(#) ($)
<S> <C> <C> <C> <C> <C> <C>
Steven M. Willens............. -- -- -- -- -- --
Ronald H. Willens............. -- -- -- -- -- --
Joseph E. Sasek............... -- -- 375,000 -- $6,500,253 --
Steven A. Hess................ -- -- 225,000 -- $3,561,750 --
Jurgen Obermann............... -- -- 55,000 -- $ 315,000 --
</TABLE>
- ---------------
(1) Based on the fair market value of Livingston's Common Stock at August 31,
1997 ($17.50 per share as determined by the Board of Directors) less the
exercise price payable for such shares.
42
<PAGE> 51
LIVINGSTON STOCK INFORMATION
The following table sets forth information known to Livingston with respect
to the beneficial ownership of its Common Stock as of September 30, 1997 for (i)
each person who is known by Livingston to own beneficially more than five
percent of the Common Stock, (ii) each of Livingston's directors, (iii) each
Named Executive Officer and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OF CLASS(2)
------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Steven M. Willens........................................... 4,050,000 32.6%
Ronald H. Willens........................................... 4,050,000 32.6%
Jerrold Livingston.......................................... 4,050,000(3) 32.6%
Joseph E. Sasek............................................. 375,000(4) 2.9%
Steven A. Hess.............................................. 225,000(5) 1.8%
Albert A. Pimentel.......................................... 150,000(6) 1.2%
Jurgen Obermann............................................. 110,000(7) *
Robert C. Hawk.............................................. 35,000 *
All directors and executive officers as a group (9
persons).................................................. 13,075,000(8) 97.1%
</TABLE>
- ---------------
* Less than one percent.
(1) Except as otherwise indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Livingston Common
Stock. Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with
respect to securities. Options under the 1994 Stock Plan are immediately
exercisable in full but subject to a right of repurchase by Livingston which
lapses according to a vesting schedule. All shares of Common Stock subject
to options exercisable are deemed outstanding for computing the percentage
of the person holding such options but are not deemed outstanding for
computing the percentage of any other person.
(2) Based on 12,408,195 shares outstanding as of September 30, 1997.
(3) Includes 72,460 shares held by the Randall Scott Livingston Trust, 17,390
shares held by the Joshua Matthew Livingston Trust, 17,390 shares held by
the Travis Michael Livingston Trust, 17,390 shares held by the Rebecca
Roseann Livingston Trust, 14,490 shares held by the Rhonda Denise Willens
Trust, 14,490 shares held by the Melissa Leanne Willens Trust and 14,490
shares held by the Mark Daniel Willens Trust.
(4) Includes 375,000 shares issuable under stock options held by Mr. Sasek
exercisable within 60 days of September 30, 1997.
(5) Includes 225,000 shares issuable under stock options held by Mr. Hess
exercisable within 60 days of September 30, 1997.
(6) Includes 150,000 shares issuable under stock options held by Mr. Pimentel
exerciseable within 60 days of September 30, 1997.
(7) Includes 110,000 shares issuable under stock options held by Mr. Obermann
exerciseable within 60 days of September 30, 1997.
(8) Includes 890,000 shares issuable under stock options held by such directors
and executive officers exerciseable within 60 days of September 30, 1997 and
168,100 shares of which Mr. Livingston is deemed to be the beneficial owner.
CERTAIN TRANSACTIONS
Livingston and Jerrold Livingston entered into a Deferred Compensation Plan
dated May 2, 1996, as amended (the "Compensation Plan"). Under the terms of the
Compensation Plan, Mr. Livingston is entitled
43
<PAGE> 52
to receive an aggregate annual amount of $110,000 in recognition of past
services rendered to Livingston. The Compensation Plan will terminate upon the
earliest of (i) January 1, 2005, (ii) the termination of the lock-up period in
connection with the closing of an initial public offering of the Livingston's
Common Stock and (iii) the closing of a merger or sale of Livingston.
LEGAL MATTERS
The legality of the Lucent Common Stock offered by this Proxy
Statement/Prospectus will be passed upon for Lucent by Pamela F. Craven, Vice
President -- Law and certain federal tax consequences of the Merger for Lucent
will be passed upon by William R. Carapezzi, Jr., Vice President -- Taxes and
Tax Counsel. As of September 30, 1997, Pamela F. Craven owned 274 shares of
Lucent Common Stock and options and stock units for 85,301 shares of Lucent
Common Stock and William R. Carapezzi, Jr. owned options and stock units for
75,266 shares of Lucent Common Stock.
Certain federal income tax consequences of the Merger for Livingston and
its shareholders will be passed upon for Livingston by its counsel Wilson
Sonsini Goodrich & Rosati, Professional Corporation.
EXPERTS
The consolidated financial statements and financial statement schedule of
Lucent incorporated into this Proxy Statement/Prospectus by reference to
Lucent's Transition Report on Form 10-K for the transition period from January
1, 1996 through September 30, 1996 have been audited by Coopers & Lybrand
L.L.P., independent public accountants, as indicated in their report dated
October 24, 1996, accompanying such financial statements, and are incorporated
by reference in this Proxy Statement/Prospectus in reliance upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Livingston as of August 31, 1997 and 1996 and
for each of the years in the three-year period ended August 31, 1997, have been
included in this Proxy Statement/Prospectus in reliance upon the report of KPMG
Peat Marwick LLP, independent public accountants, appearing elsewhere herein and
upon the authority of said firm as experts in accounting and auditing.
44
<PAGE> 53
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Shareholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Livingston Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Livingston
Enterprises, Inc. and subsidiaries as of August 31, 1996 and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended August 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Livingston
Enterprises, Inc. and subsidiaries at August 31, 1996 and 1997, and the results
of operations and its cash flows for each of the years in the three-year period
ended August 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Palo Alto, California
September 26, 1997, except as to Notes 10 and 11,
which are as of October 14, 1997
F-2
<PAGE> 55
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
AUGUST 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 3,749 $11,054
Short term investments................................................. -- 6,830
Accounts receivable, net of allowances of $648 in 1996 and $1,138 in
1997................................................................ 6,796 9,696
Inventories............................................................ 7,650 5,685
Income taxes receivable................................................ -- 792
Deferred income taxes.................................................. 1,858 5,881
Prepaid expenses and other current assets.............................. 153 446
------- -------
Total current assets........................................... 20,206 40,384
Property and equipment, net.............................................. 940 2,451
Other assets............................................................. 140 355
------- -------
Total assets................................................... $21,286 $43,190
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 2,787 $ 4,734
Accrued liabilities.................................................... 1,540 6,669
Deferred revenue....................................................... 1,636 3,424
------- -------
Total current liabilities...................................... 5,963 14,827
------- -------
Commitments and contingencies (Notes 7 and 10)
Shareholders' equity:
Preferred stock, no par value; no shares authorized, issued or
outstanding......................................................... -- --
Common stock, no par value; 30,000,000 shares authorized; issued and
outstanding -- 12,235,200 in 1996 and 12,407,195 in 1997............ 216 2,000
Deferred compensation expense.......................................... -- (1,175)
Retained earnings...................................................... 15,107 27,538
------- -------
Total shareholders' equity..................................... 15,323 28,363
------- -------
Total liabilities and shareholders' equity..................... $21,286 $43,190
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 56
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Product revenues.............................................. $20,138 $43,229 $65,495
Royalty revenues.............................................. 323 2,878 7,329
------- ------- -------
Net revenues.................................................. 20,461 46,107 72,824
Cost of sales................................................. 8,054 18,567 27,741
------- ------- -------
Gross profit................................................ 12,407 27,540 45,083
------- ------- -------
Operating expenses:
Research and development.................................... 890 2,512 4,289
Selling and marketing....................................... 2,831 8,670 17,798
General and administrative.................................. 667 1,771 4,245
------- ------- -------
Total operating expenses............................ 4,388 12,953 26,332
------- ------- -------
Operating income.............................................. 8,019 14,587 18,751
Interest income (expense), net................................ (20) 85 530
------- ------- -------
Income before income taxes.................................... 7,999 14,672 19,281
Provision for income taxes.................................... 3,095 5,827 6,850
------- ------- -------
Net income.................................................... $ 4,904 $ 8,845 $12,431
======= ======= =======
Net income per share.......................................... $ 0.39 $ 0.64 $ 0.87
======= ======= =======
Shares used in the per share computations..................... 12.569 13.844 14.334
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 57
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- DEFERRED RETAINED
SHARES AMOUNT COMPENSATION EARNINGS TOTAL
---------- ------ ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Balances, August 31, 1994............... 12,150,000 $ 21 $ -- $ 1,358 $ 1,379
Net income............................ 4,904 4,904
---------- ------ ------- ------ ------
Balances, August 31, 1995............... 12,150,000 21 -- 6,262 6,283
Issuance of common stock.............. 15,000 4 4
Issuance of common stock for acquired
in-process research and
development........................ 18,000 189 189
Exercise of common stock options...... 52,200 2 2
Net income............................ 8,845 8,845
---------- ------ ------- ------ ------
Balances, August 31, 1996............... 12,235,200 216 -- 15,107 15,323
Exercise of common stock options...... 171,995 483 483
Deferred compensation expense relating
to grants of stock options......... 1,301 (1,301) --
Amortization of deferred compensation
expense............................ 126 126
Net income............................ 12,431 12,431
---------- ------ ------- ------ ------
Balances, August 31, 1997............... 12,407,195 $2,000 $ (1,175) $ 27,538 $28,363
========== ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 58
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 4,904 $ 8,845 $12,431
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 60 193 404
Interest on notes payable to shareholders................... 22 -- --
Deferred income taxes....................................... (91) (1,719) (4,023)
In process research and development charged to expense as
acquired................................................. -- 189 --
Amortization of deferred compensation expense............... -- -- 126
Changes in operating assets and liabilities:
Accounts receivable...................................... (2,446) (3,122) (2,900)
Inventories.............................................. (2,951) (4,093) 1,965
Income taxes receivable.................................. -- -- (792)
Prepaids and other current assets........................ 20 (98) (293)
Accounts payable......................................... 1,523 1,092 1,947
Accrued liabilities...................................... 186 453 5,129
Deferred revenue......................................... -- 1,636 1,788
------- ------- -------
Net cash provided by operating activities..................... 1,227 3,376 15,782
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (288) (803) (1,915)
Other assets................................................ (60) (78) (215)
------- ------- -------
Net cash used in investing activities......................... (348) (881) (2,130)
------- ------- -------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Purchase of short term investments.......................... -- -- (6,830)
Proceeds from common stock issued........................... -- 6 483
Repayment of notes payable to shareholders.................. (20) (238) --
------- ------- -------
Net cash flows used in financing activities................... (20) (232) (6,347)
------- ------- -------
Net increase in cash and cash equivalents..................... 859 2,263 7,305
Cash and cash equivalents at beginning of period.............. 627 1,486 3,749
------- ------- -------
Cash and cash equivalents at end of period.................... $ 1,486 $ 3,749 $11,054
======= ======= =======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Common stock issued in exchange for acquired in-process
research and development charged to expense.............. $ -- $ 189 $ --
Cash paid for income taxes.................................. $ 2,862 $ 8,063 $11,376
Cash paid for interest...................................... $ 20 $ 35 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 59
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Livingston Enterprises, Inc. (the Company), a California corporation, is a
provider of integrated remote access networking solutions for Internet Service
Providers.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries from which intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with remaining
maturities of three months or less at time of acquisition to be cash
equivalents. Approximately $7.9 million of short-term investments were
considered cash equivalents at August 31, 1997.
The Company accounts for cash equivalents and short-term investments in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. All cash and
cash equivalents are classified as available-for-sale under the provisions of
SFAS No. 115. The securities are carried at cost which approximates fair value
and any unrealized gains or losses, net of taxes, would be reported as a
separate component of shareholders' equity.
Revenue Recognition
The Company recognizes revenues from sales of remote access products upon
shipment. The Company grants its resellers limited rights to exchange products
and price protection on unsold merchandise. The Company establishes an estimated
allowance for future product returns based on historical returns experience and
provides for appropriate price protection reserves at the time the related
revenue is recorded. To date, returns for exchange and amounts granted for price
protection have not been significant.
The Company accounts for revenue related to the software portion of their
product in accordance with Statement of Position 91-1, Software Revenue
Recognition. Postcontract customer support ("PCS") revenues generally are
recognized ratably over the term of the support period (generally one year). PCS
revenues to date have not been significant and are included in product revenues.
The unamortized portion of PCS is reported as deferred revenue.
The Company records royalty revenue at the time the amount is determinable
and collection is certain.
Inventories
Inventories are valued using standard costs, which approximate the lower of
cost or market using the first-in, first-out method.
F-7
<PAGE> 60
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, generally
three to five years. Leasehold improvements are amortized using the
straight-line method over the estimated useful life of the assets or related
lease term, whichever is shorter.
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, on
September 1, 1996. SFAS No. 121 requires that long-lived assets and certain
identified intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
Research and Development Costs
Research and development expenditures are generally charged to operations
as incurred. SFAS No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed, governs accounting for software development
costs. This statement provides for the capitalization of certain software
development costs once technological feasibility is established. The cost
capitalized is then amortized on a straight-line basis over the estimated
product life, or using the ratio of current revenue to total projected product
revenues, whichever is greater. To date, software development costs incurred
subsequent to the establishment of technological feasibility have not been
material. Included in research and development expense in fiscal 1996 is
approximately $632,000 principally related to modem technology acquired in
exchange for 18,000 shares of common stock and $443,000 cash.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. Cash and cash equivalents consist of deposits with a
major U.S. commercial bank. The Company sells its products primarily to Internet
Service Providers through resellers. To reduce its credit risk, the Company
performs ongoing credit evaluations of its customers and maintains an allowance
for doubtful accounts to cover any credit losses.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, short-term investments,
accounts receivable, accounts payable, and accrued liabilities approximate fair
values due to the short maturity of the instruments.
Product Related Costs
Product related costs consist of warranty costs, modem technology license
fees, and costs related to the Company's 56K Modem Swap Program. This program
allows customers to upgrade to 56K modem technology as it becomes available at
no charge to them. The Company provides for all of the above costs at the time
revenue is recognized.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 prescribes an asset and liability
approach that results in the recognition of deferred tax
F-8
<PAGE> 61
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's consolidated financial statements or tax
returns. In estimating future tax consequences, SFAS No. 109 generally considers
all expected future events other than enactment of changes in tax laws or rates.
Per Share Information
Net income per share is computed using the weighted average number of
common shares and common share equivalents outstanding during the periods
presented. Common share equivalents result from the dilutive effect of
outstanding options to purchase common stock using the treasury stock method.
The Financial Accounting Standards Board recently issued SFAS No. 128,
Earnings Per Share, which requires the presentation of basic earnings per share
(EPS) and, for companies with potentially dilutive securities, such as
convertible debt, options, and warrants, diluted EPS. SFAS No. 128 is effective
for annual and interim periods ending after December 31, 1997. The Company
expects that basic EPS will be higher than primary EPS as presented in the
accompanying consolidated financial statements and that diluted EPS will not
differ materially from fully diluted EPS.
Stock Option Plans
The Company accounts for its stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board (APB) Opinion 25,
Accounting for Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the fair
value of the underlying stock exceeded the exercise price. On September 1, 1996,
the Company adopted the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, which requires entities to provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in fiscal year 1995 and future years as if the fair value-based
method defined in SFAS No. 123 had been applied.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which is effective for the Company's fiscal 1998
financial statements. This statement establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
It requires that comprehensive income, as defined, be classified by its nature
(e.g.: unrealized gains and losses on securities) in a financial statement, but
does not require a specific format for that statement. The Company is in the
process of determining its preferred format. The accumulated balance of other
comprehensive income is to be displayed separately in the equity section of the
balance sheet. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which is
effective for fiscal years beginning after December 15, 1997. This statement
provides specific segment disclosure requirements for annual and interim
financial statements using management's appraisal to identify segments and to
measure data disclosed. The Company is in the process of evaluating the
disclosure requirements. Financial statement disclosures for prior periods are
required to be restated.
Reclassifications
Certain amounts in the accompanying 1995 and 1996 consolidated financial
statements have been reclassified to conform with the 1997 consolidated
financial statement presentation.
F-9
<PAGE> 62
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BALANCE SHEET COMPONENTS
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF AUGUST 31,
-----------------
1996 1997
------ ------
<S> <C> <C>
Raw materials.............................................. $5,215 $3,122
Work in process............................................ 439 1,221
Finished goods............................................. 1,996 1,342
------ ------
$7,650 $5,685
====== ======
</TABLE>
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF AUGUST 31,
-----------------
1996 1997
------ ------
<S> <C> <C>
Equipment.................................................. $1,026 $2,086
Furniture and fixtures..................................... 91 672
Leasehold improvements..................................... 177 452
------ ------
1,294 3,210
Less accumulated depreciation and amortization............. 354 759
------ ------
$ 940 $2,451
====== ======
</TABLE>
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF AUGUST 31,
-----------------
1996 1997
------ ------
<S> <C> <C>
Compensation and related benefits.......................... $ 825 $2,046
Warranty costs............................................. 85 400
Modem swap program......................................... -- 2,586
Modem license fees......................................... -- 600
Other...................................................... 630 1,037
------ ------
$1,540 $6,669
====== ======
</TABLE>
3. RELATED PARTY TRANSACTIONS
The Directors of the Company periodically made cash advances to the Company
to fund operations. Outstanding amounts due the Directors aggregated $238,000 as
of August 31, 1995, which included interest of $34,000 at the rate of 9% per
annum. In October 1995, all outstanding principal balances and accrued interest
were repaid to the Directors.
F-10
<PAGE> 63
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF AUGUST 31,
------------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Current:
Federal...................................... $2,444 $ 5,838 $ 8,629
State........................................ 742 1,708 2,244
------- ------- ------
3,186.. 7,546 10,873
------- ------- ------
Deferred:
Federal...................................... (68) (1,453) (3,035)
State........................................ (23) (266) (988)
------- ------- ------
(91) (1,719) (4,023)
------- ------- ------
$3,095 $ 5,827 $ 6,850
======= ======= ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented below (in
thousands):
<TABLE>
<CAPTION>
AS OF AUGUST 31,
-----------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves.................................... $1,279 $4,809
Costs capitalized in inventory........................... 27 28
Deferred revenue......................................... 650 1,491
------ ------
1,956 6,328
Less valuation allowance................................... -- --
------ ------
Net deferred asset......................................... 1,956 6,328
------ ------
Deferred tax liability:
Deferred state taxes..................................... (98) (447)
------ ------
Net deferred asset......................................... $1,858 $5,881
====== ======
</TABLE>
The differences between the "expected" income tax expense computed at the
federal statutory rate of 35% and the Company's actual income tax expense are as
follows (in thousands):
<TABLE>
<CAPTION>
AS OF AUGUST 31,
----------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Income tax at statutory rate............................. $2,800 $5,135 $6,748
State tax, net of federal benefit........................ 474 951 816
Research and development tax credits..................... (30) -- (200)
Foreign Sales Corporation benefit........................ -- (92) (560)
Other.................................................... (149) (167) 46
------ ------ ------
$3,095 $5,827 $6,850
====== ====== ======
</TABLE>
Management believes that it is more likely than not, based on historical
operating results, that the Company will generate sufficient future taxable
income to realize the net deferred tax assets.
F-11
<PAGE> 64
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY
In March 1996, the Company restated its Articles of Incorporation canceling
its authorized Preferred Stock and the shareholders approved a three for one
stock split. Common share and per share data in these consolidated financial
statements have been retroactively adjusted to reflect the stock split.
At August 31, 1997, the Company has one stock-based compensation plan,
which is described below. The Company applied APB Opinion No. 25 and related
interpretations in accounting for its plan. Accordingly, no compensation expense
has been recognized for its plans, except with respect to options granted in
1997, where the Company recorded deferred compensation expense of $1,301,000 for
the difference between the option grant price and the deemed fair value of the
Company's common stock at the date of grant. The amount is being amortized over
the vesting period of the individual options, generally a 60 month period. Had
compensation expense for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Net income
As reported............................................. $8,845 $12,431
Pro forma............................................... $8,765 $12,205
Earnings per Share
As reported............................................. $ 0.64 $ 0.87
Pro forma............................................... $ 0.63 $ 0.85
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Dividend yield............................................ 0% 0%
Expected volatility....................................... 63% 63%
Risk-free interest rate................................... 5.57% 6.12%
Expected option life (years).............................. 3.5 3.5
</TABLE>
The Company has reserved 4,000,000 shares of common stock for issuance
under the 1994 Stock Option Plan (the 1994 Plan). The 1994 Plan provides for
incentive and non-statutory stock options to be granted to employees (including
officers), directors, consultants, and other independent contractors.
The 1994 Plan provides that stock options are granted at prices of not less
than 85% of the fair market value of the common stock at the time of grant,
except that stock options granted to any employee who owns stock representing
more than 10% of total combined voting power of all classes of the Company's
capital stock must have an exercise price of not less than 110% of fair market
value. Shares available for purchase on the exercise of options generally vest
at a rate of 20% in the first year and thereafter at a rate of 1/48 per each
month the optionee is employed or acts as a consultant of the Company. Options
expire ten years from the date of grant.
F-12
<PAGE> 65
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity under the 1994 Plan follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE VALUE
WEIGHTED VESTED OPTIONS OF OPTIONS
NUMBER OF AVERAGE EXERCISABLE AT GRANTED DURING
SHARES EXERCISE PRICE YEAR END THE YEAR
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balances as of August 31, 1994......... -- $
Options granted...................... 1,043,250 0.04
Options forfeited.................... (132,000) 0.03
---------
Balances as of August 31, 1995......... 911,250 0.04 -- N/A
Options granted...................... 1,668,250 2.56
Options exercised.................... (52,200) 0.04
Options forfeited.................... (301,500) 0.16
---------
Balances as of August 31, 1996......... 2,225,800 1.91 219,010 $ 1.29
Options granted...................... 739,000 11.68
Options exercised.................... (171,995) 2.81
Options forfeited.................... (183,568) 8.70
---------
Balances as of August 31, 1997......... 2,609,237 $ 4.14 769,691 $ 1.49
========= =====
</TABLE>
A summary of stock options outstanding at August 31, 1997 under the 1994
Plan follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------
WEIGHTED AVERAGE VESTED
------------------------ OPTIONS EXERCISABLE
REMAINING --------------------
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES NUMBER LIFE PRICE NUMBER PRICE
- ---------------- ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$0.03 to $0.25 1,379,277 7.96 $ 0.16 578,750 $ 0.15
$1.67 327,860 8.50 $ 1.67 99,071 $ 1.67
$3.20 9,000 8.57 $ 3.20 3,412 $ 3.20
$6.90 51,300 8.67 $ 6.90 13,390 $ 6.90
$10.50 725,200 9.21 $10.50 74,318 $10.50
$17.50 116,600 9.72 $17.50 750 $17.50
$0.03 to $17.50 2,609,237 8.47 $ 4.14 769,691 $ 1.49
</TABLE>
During September 1997, the Company's Board of Directors granted
approximately 275,000 options with an exercise price of $17.50 to employees of
the Company.
6. REVENUE
The Company distributes its products primarily through value added
resellers. Export sales, identified by region, are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Asia Pacific.................................................... 5% 18% 20%
Europe.......................................................... 7% 7% 15%
Canada.......................................................... 3% 3% 5%
Latin America................................................... 2% 2% 2%
-- -- --
17% 30% 42%
== == ==
</TABLE>
F-13
<PAGE> 66
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant resellers are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, RECEIVABLE
---------------------- BALANCE AT
1995 1996 1997 AUGUST 31, 1997
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
Customer A....................................... 30% 27% 1% 0%
Customer B....................................... 18% 6% 2% 0%
Customer C....................................... 11% 13% 18% 13%
</TABLE>
7. COMMITMENTS
The Company leases its facilities under non-cancelable operating leases
expiring at various dates through 2004. Future minimum lease payments under
operating leases with initial remaining non-cancelable terms of one or more
years are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
----------------------------------------------------
<S> <C>
1998................................................ $ 986
1999................................................ 1,319
2000................................................ 1,305
2001................................................ 1,271
2002................................................ 1,271
Thereafter.......................................... 1,698
------
Total minimum lease payments........................ $7,850
======
</TABLE>
Rent expense was $156,000, $566,000, and $816,000 for the years ended
August 31, 1995, 1996, and 1997, respectively.
The Company and one of its directors entered into a Deferred Compensation
Plan dated May 2, 1996, as amended (the "Compensation Plan"). Under the terms of
the Compensation Plan, the director is entitled to receive an aggregate annual
amount of $110,000 in recognition of past services rendered to the Company. The
Compensation Plan will terminate upon the earlier of (i) January 1, 2005, (ii)
the termination of the lock-up period in connection with the closing of an
initial public offering of the Company's Common Stock, or (iii) the closing of a
merger or sale of the Company.
8. BANK LINE OF CREDIT
In May 1996, the Company obtained an unsecured, $5 million bank line of
credit which bears interest at the bank's prime interest rate (8.5% at August
31, 1997). The line of credit expires March 1, 1998. Covenants under the line of
credit require the Company to maintain certain minimum levels of profitability,
net worth, and financial ratios, and restrict dividends and stock repurchases.
There have been no borrowings under the line of credit agreement.
9. RETIREMENT SAVINGS PLAN
The Company sponsors a 401(k) defined contribution plan that covers all
employees who have completed at least three months of service. This plan allows
for employees to defer up to 15% of their pretax salary in certain investments
at the discretion of the employees. The Company has the option to make
discretionary employer contributions, however, no such contributions have been
made since inception of the plan.
F-14
<PAGE> 67
LIVINGSTON ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CONTINGENCIES
On June 5, 1997, a complaint was filed against the Company by the Company's
largest distributor in fiscal 1996. The Company terminated its relationship with
this distributor in November 1996. The complaint alleges contract and tort
claims arising out of the Company's termination of the distributor. The
complaint seeks injunctive and declaratory relief as well as unspecified damages
for alleged lost profits, other compensatory damages and punitive and treble
damages. The Company denies the allegations and intends to defend its position.
Nevertheless, litigation is subject to inherent uncertainties and thus there can
be no assurance that this suit will be resolved favorably to the Company.
On September 23, 1997, the Company filed a claim against a competitor
requesting declaratory and injunctive relief with respect to a patent owned by
the competitor. The competitor has not filed an answer to the complaint. On
October 2, 1997, this same competitor filed a complaint against the Company
claiming that the Company is infringing the same patent. The Company has not
filed answer to the complaint. The Company believes that the patent may be
invalid, however, there can be no assurance that the Company will prevail in its
suit or that it will be successful in defending the patent infringement suit.
Furthermore, there can be no assurance that this competitor, or other third
parties, will not assert additional patent claims in the future with respect to
the Company's products.
On September 29, 1997, the Company filed a claim against the same
competitor for copyright infringement, misappropriation of trade secrets, breach
of written contract, and unfair competition. These claims arise from a
settlement agreement entered into between the Company and the competitor during
December 1996, with respect to an OEM Software License and Development Agreement
between the parties dated September 1, 1994. The Company believes that the
competitor has violated the terms of the settlement agreement and is seeking to
enforce its rights under such agreement. The competitor has not filed an answer
to the complaint.
11. SUBSEQUENT EVENTS
On October 2, 1997, the Company's Board of Directors granted to employees
approximately 620,000 options with an exercise price of $17.50 to employees of
the Company. Of these options, 583,000 have a vesting period of three years from
the date of grant.
On October 13, 1997, the Company's Board of Directors granted approximately
20,000 options with an exercise price of $42.42 to employees and consultants to
the Company.
On October 14, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Lucent Technologies Inc., a Delaware
corporation ("Lucent"), and its wholly-owned subsidiary, LaSalle Acquisition,
Inc., a Delaware corporation ("Purchaser"), that provides for the conversion of
each issued and outstanding share into 0.482 shares of validly issued, fully
paid and non-assessable shares of Lucent Common Stock. Upon the completion of
the merger, Lucent will assume the obligations of the Company under the 1994
Plan and the options will be adjusted to reflect the exchange of each
outstanding option to purchase the Company's Common Stock into an option to
purchase 0.482 share of Lucent Common Stock. The Board of Directors of the
Company has unanimously approved the Merger Agreement and the transactions
contemplated thereby.
F-15
<PAGE> 68
APPENDIX A
AGREEMENT AND PLAN OF MERGER
A-1
<PAGE> 69
EXECUTION COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LUCENT TECHNOLOGIES INC.
LASALLE ACQUISITION, INC.
AND
LIVINGSTON ENTERPRISES, INC.
------------------------
DATED AS OF OCTOBER 14, 1997
------------------------
================================================================================
<PAGE> 70
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
AGREEMENT AND PLAN OF MERGER............................................................. 1
BACKGROUND............................................................................... 1
1. The Merger.......................................................................... 1
1.1 General...................................................................... 1
1.2 Articles of Incorporation.................................................... 2
1.3 By-Laws...................................................................... 2
1.4 Directors and Officers....................................................... 2
1.5 Conversion of Securities..................................................... 2
1.6 Adjustment of the Exchange Ratio............................................. 3
1.7 Dissenting Shares............................................................ 3
1.8 Exchange Procedures; Distributions with Respect to Unexchanged Shares; Stock 3
Transfer Books...............................................................
1.9 No Fractional Shares......................................................... 4
1.10 Return of Exchange Fund...................................................... 5
1.11 No Further Ownership Rights in Company Common Stock.......................... 5
1.12 Further Assurances........................................................... 5
2. Approval by Shareholders............................................................ 5
2.1 Approval by Shareholders..................................................... 5
3. Representations and Warranties of the Company....................................... 5
3.1 Organization................................................................. 5
3.2 Capitalization; Options and Other Rights..................................... 5
3.3 Authority.................................................................... 6
3.4 Charter Documents............................................................ 7
3.5 Financial Statements......................................................... 7
3.6 Absence of Undisclosed Liabilities........................................... 7
3.7 Operations and Obligations................................................... 7
3.8 Properties................................................................... 7
3.9 Accounts Receivable; Inventory............................................... 7
3.10 Contracts.................................................................... 8
3.11 Absence of Default........................................................... 8
3.12 Litigation................................................................... 8
3.13 Compliance with Law.......................................................... 9
3.14 Intellectual Property........................................................ 9
3.15 Tax Matters.................................................................. 10
3.16 Employee Benefit Plans....................................................... 10
3.17 Executive Employees.......................................................... 11
3.18 Employees.................................................................... 11
3.19 Environmental Laws........................................................... 12
3.20 Bank Accounts, Letters of Credit and Powers of Attorney...................... 12
3.21 Subsidiaries................................................................. 12
3.22 Disclosure................................................................... 13
3.23 Financial Projections........................................................ 13
3.24 Information in Registration Statement........................................ 13
4. Representations and Warranties of Acquisition and Lucent............................ 13
4.1 Organization................................................................. 13
4.2 Authority.................................................................... 13
</TABLE>
i
<PAGE> 71
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
4.3 Capitalization............................................................... 14
4.4 Litigation................................................................... 14
4.5 SEC Filings; Lucent Financial Statements..................................... 14
4.6 Operations and Obligations................................................... 15
5. Conduct Pending Closing; Agreements................................................. 15
5.1 Conduct of Business Pending Closing.......................................... 15
5.2 Prohibited Actions Pending Closing........................................... 16
5.3 Access; Documents; Supplemental Information.................................. 17
5.4 No Solicitation.............................................................. 18
5.5 Registration; Filings; Other Actions......................................... 18
5.6 Comfort Letters.............................................................. 19
5.7 Stock Exchange Listings...................................................... 19
5.8 Company Stock Options; Unvested Restricted Stock............................. 19
5.9 Indemnification.............................................................. 20
5.10 Affiliates................................................................... 20
5.11 Notification of Certain Matters.............................................. 20
5.12 Reorganization............................................................... 20
5.13 Actions by the Parties....................................................... 20
6. Conditions Precedent................................................................ 21
6.1 Conditions Precedent to Each Party's Obligation to Effect the Merger......... 21
6.2 Conditions Precedent to Obligations of Acquisition and Lucent................ 21
6.3 Conditions Precedent to the Company's Obligations............................ 22
7. Nonsurvival of Representations and Warranties....................................... 23
7.1 Representations and Warranties............................................... 23
8. Brokers' and Finders' Fees.......................................................... 23
8.1 Company...................................................................... 23
8.2 Acquisition and Lucent....................................................... 23
9. Expenses............................................................................ 23
10. Press Releases...................................................................... 23
11. Contents of Agreement; Parties in Interest; etc. ................................... 23
12. Assignment and Binding Effect....................................................... 24
13. Waiver.............................................................................. 24
14. Termination......................................................................... 24
15. Definitions......................................................................... 24
16. Notices............................................................................. 25
17. Amendment........................................................................... 26
18. Governing Law....................................................................... 26
19. No Benefit to Others................................................................ 26
20. Severability........................................................................ 26
21. Extensions.......................................................................... 26
22. Section Headings.................................................................... 26
23. Schedules and Exhibits.............................................................. 26
24. Counterparts........................................................................ 26
Glossary of Defined Terms................................................................ i
</TABLE>
ii
<PAGE> 72
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of October 14, 1997 by and among
LUCENT TECHNOLOGIES INC., a Delaware corporation ("Lucent"), LASALLE
ACQUISITION, INC., a California corporation ("Acquisition"), and LIVINGSTON
ENTERPRISES, INC., a California corporation (the "Company").
BACKGROUND
A. The Company is engaged principally in the design, development,
production, marketing, distribution, maintenance and support of remote access
products and centralized management software for network service providers.
B. Acquisition is a wholly-owned subsidiary of Lucent and was formed to
merge with and into the Company so that, as a result of the merger, the Company
will survive and become a wholly-owned subsidiary of Lucent.
C. The Board of Directors of each of Acquisition and the Company has
determined that the merger of Acquisition with and into the Company (hereinafter
referred to as the "Merger") in accordance with the laws of the State of
California and subject to the terms and conditions of this Agreement and Plan of
Merger (the "Agreement"), is in the best interests of Acquisition and the
Company and their respective shareholders.
D. The Boards of Directors of Acquisition and the Company have approved
this Agreement by resolutions dated October 14, 1997 and October 13, 1997,
respectively.
E. The Company is a California corporation with its principal executive
office located at 4464 Willow Road, Pleasanton, California and has authorized
30,000,000 shares of common stock, no par value per share ("Company Common
Stock").
F. Acquisition is a California corporation with its principal executive
office located at 211 Mt. Airy Road, Basking Ridge, New Jersey, and has
authorized an aggregate of 1,000 shares of common stock, no par value per share
("Acquisition Common Stock").
G. Lucent is a Delaware corporation with its registered office located at
1013 Centre Road, Wilmington, Delaware.
H. The parties intend that, for federal income tax purposes, the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Code and that this Agreement shall constitute a "Plan of Reorganization".
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound do hereby agree
as follows:
1. The Merger
1.1 General.
(a) Subject to the terms and conditions of this Agreement and in accordance
with the applicable provisions of the laws of the State of California on the
Effective Time, (i) Acquisition will be merged with and into the Company, (ii)
the separate corporate existence of Acquisition shall cease and (iii) the
Company shall be the surviving corporation (the "Surviving Corporation") and
shall continue its corporate existence under the laws of the State of
California.
(b) The Merger shall become effective at the time of filing of an Agreement
of Merger, in a form reasonably acceptable to Lucent and the Company (the
"Agreement of Merger"), with the Secretary of State of the State of California
in accordance with the provisions of the California Corporations Code (the
"California Code"), at such later time as may be stated in the Agreement of
Merger or such later date as the
1
<PAGE> 73
parties may mutually agree (the "Effective Time"). Subject to the terms and
conditions of this Agreement, the Company and Acquisition shall duly execute and
file the Agreement of Merger with the Secretary of State of the State of
California as soon as practicable after the satisfaction of the conditions to
the Merger set forth herein. The closing of the transactions contemplated by the
Agreement (the "Closing") shall take place at the offices of Lucent in Murray
Hill, New Jersey, at 10:00 A.M. two business days after the date on which the
last of the conditions set forth in Section 6 shall have been satisfied or
waived, or on such other date, time and place as the parties may mutually agree
(the "Closing Date").
(c) At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of the laws of the State of California. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Acquisition shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of the Company
and Acquisition shall become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Corporation.
1.2 Articles of Incorporation. The Articles of Incorporation of
Acquisition, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided therein and by law.
1.3 By-Laws. The By-laws of Acquisition, as in effect immediately prior
to the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided therein and by law.
1.4 Directors and Officers. From and after the Effective Time, (a) the
directors of Acquisition at the Effective Time shall be the initial directors of
the Surviving Corporation, each to hold office in accordance with the Articles
of Incorporation and By-laws of the Surviving Corporation, and (b) the officers
of Acquisition at the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
1.5 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Acquisition, the Company or the
holders of any of the following securities:
(a) Each issued and outstanding share of common stock of Acquisition
shall be converted into one validly issued, fully paid and nonassessable
share of Common Stock, no par value per share, of the Surviving
Corporation;
(b) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by any Subsidiary of
the Company, by Acquisition or Lucent, shall be canceled without any
conversion thereof and no payment or distribution shall be made with
respect thereto; and
(c) Subject to the provisions of Sections 1.6 and 1.9, each share of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than (i) shares canceled in accordance with Section
1.5(b) and (ii) Dissenting Shares) shall be converted into 0.482 (such
number as adjusted in accordance with Section 1.6 (the "Exchange Ratio") of
a validly issued, fully paid and nonassessable share of Lucent Common Stock
including the corresponding percentage right (the "Right") to purchase
shares of junior preferred stock, par value $1.00 per share, pursuant to
the Rights Agreement dated as of April 4, 1996 between Lucent and First
Chicago Trust Company of New York, as Rights Agent. All references in this
Agreement to Lucent Common Stock to be received in accordance with the
Merger shall be deemed, from and after the Effective Time, to include the
Rights. All such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired, and each
holder of a certificate representing any such shares shall cease to have
any rights with respect thereto other than (i) the right to receive shares
of Common Stock of Lucent to be issued in consideration therefor upon the
surrender of such certificate, (ii) any dividends and other distributions
in accordance with Section 1.8(c) and (iii) any cash, without interest, to
be paid in lieu of any fractional share of Lucent Common Stock in
accordance with Section 1.9.
2
<PAGE> 74
1.6 Adjustment of the Exchange Ratio. In the event that, prior to the
Effective Date, any stock split, combination, reclassification or stock dividend
with respect to the Lucent Common Stock, any change or conversion of Lucent
Common Stock into other securities or any other dividend or distribution with
respect to the Lucent Common Stock (other than regular quarterly dividends)
should occur or, if a record date with respect to any of the foregoing should
occur, appropriate and proportionate adjustments shall be made to the Exchange
Ratio, and thereafter all references to the Exchange Ratio shall be deemed to be
to the Exchange Ratio as so adjusted.
1.7 Dissenting Shares. (a) Notwithstanding any provision of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by shareholders who
shall not have voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing appraisal for such shares in
accordance with the California Code (collectively, the "Dissenting Shares")
shall not be converted into or represent the right to receive the consideration
set forth in Section 1.5(c). Such shareholders shall be entitled to receive such
consideration as is determined to be due with respect to such Dissenting Shares
in accordance with the provisions of the California Code, except that all
Dissenting Shares held by shareholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares under the California Code shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Effective Time,
the right to receive the shares of Lucent Common Stock specified in Section
1.5(c), without any interest thereon, upon surrender, in the manner provided in
Section 1.8, of the certificate or certificates that formerly evidenced such
Dissenting Shares.
(b) The Company shall give Lucent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to the California Code and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the California Code. The Company shall not,
except with the prior written consent of Lucent, make any payment with respect
to any demands for appraisal or offer to settle or settle any such demands.
1.8 Exchange Procedures; Distributions with Respect to Unexchanged Shares;
Stock Transfer Books. (a) As of the Effective Time, Lucent shall deposit with
the Exchange Agent for the benefit of the holders of shares of Company Common
Stock, certificates representing shares of the Lucent Common Stock to be issued
pursuant to Section 1.5(c) in exchange for the shares of Company Common Stock.
Such shares of Lucent Common Stock, together with any dividends or distributions
with respect thereto pursuant to Sections 1.8(c) and 1.9, are referred to herein
as the "Exchange Fund").
(b) As soon as practicable after the Effective Time, Lucent shall use its
reasonable efforts to cause the Exchange Agent to send to each Person who was,
at the Effective Time, a holder of record of certificates which represented
outstanding Company Common Stock (the "Certificates") which shares were
converted into the right to receive Lucent Common Stock pursuant to Section
1.5(c), a letter of transmittal which (i) shall specify that delivery shall be
effected and risk of loss and title to such Certificates shall pass, only upon
actual delivery thereof to the Exchange Agent and (ii) shall contain
instructions for use in effecting the surrender of the Certificates. Upon
surrender to the Exchange Agent of Certificates for cancellation, together with
such letter of transmittal duly executed, such holder shall be entitled to
receive in exchange therefor (A) a certificate representing the number of whole
shares of Lucent Common Stock into which the Company Common Stock represented by
the surrendered Certificate shall have been converted at the Effective Time, (B)
cash in lieu of any fractional share of Lucent Common Stock in accordance with
Section 1.9 and (C) certain dividends and distributions in accordance with
Section 1.8(c), and the Certificates so surrendered shall then be canceled.
Subject to Section 1.8(c) and Section 1.9, until surrendered as contemplated by
this Section 1.8(b), each Certificate, from and after the Effective Time shall
be deemed to represent only the right to receive, upon such surrender, the
number of shares of Lucent Common Stock into which such Company Common Stock
shall have been converted.
(c) No dividends or other distribution declared or made after the Effective
Time with respect to the Lucent Common Stock with a record date after the
Effective Time shall be paid to any holder entitled by
3
<PAGE> 75
reason of the Merger to receive certificates representing Lucent Common Stock
and no cash payment in lieu of a fractional share of Lucent Common Stock shall
be paid to any such holder pursuant to Section 1.9 until such holder shall have
surrendered its Certificates pursuant to this Section 1.8. Subject to applicable
law, following surrender of any such Certificate, such holder shall be paid, in
each case, without interest, (i) the amount of any dividends or other
distributions theretofore paid with respect to the shares of Lucent Common Stock
represented by the certificate received by such holder and having a record date
on or after the Effective Time and a payment date prior to such surrender and
(ii) at the appropriate payment date or as promptly as practicable thereafter,
the amount of any dividends or other distributions payable with respect to such
shares of Lucent Common Stock and having a record date on or after the Effective
Time but prior to such surrender and a payment date on or after such surrender.
(d) If any certificate representing shares of Lucent Common Stock or any
cash is to be issued or paid to any Person other than the registered holder of
the Certificate surrendered in exchange therefor, it shall be a condition to
such exchange that such surrendered Certificate shall be properly endorsed and
otherwise in proper form for transfer and such Person either (i) shall pay to
the Exchange Agent any transfer or other taxes required as a result of the
issuance of such certificates of Lucent Common Stock and the distribution of
such cash payment to such Person or (ii) shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable. Lucent or
the Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Lucent or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by Lucent or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of Company Common Stock in respect of which such
deduction and withholding was made by Lucent or the Exchange Agent. All amounts
in respect of taxes received or withheld by Lucent shall be disposed of by
Lucent in accordance with the Code or such state, local or foreign tax law, as
applicable.
(e) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and subject to such other conditions as the Board
of Directors of the Surviving Corporation may impose, the Surviving Corporation
shall issue in exchange for such lost, stolen or destroyed Certificate the
shares of Lucent Common Stock as determined under Section 1.5(c) and pay any
cash, dividends and distributions as determined in accordance with Section
1.8(c) and Section 1.9 in respect of such Certificate. When authorizing such
issue of shares of Lucent Common Stock (and payment of any such cash, dividends
and distribution) in exchange for such Certificate, the Board of Directors of
the Surviving Corporation (or any authorized officer thereof) may, in its
reasonable discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificate to give the
Surviving Corporation a bond in such sum as the Board of Directors may direct as
indemnity against any claim that may be made against the Surviving Corporation
with respect to the Certificate alleged to have been lost, stolen or destroyed.
(f) At the close of business on the day on which the Effective Time occurs,
the stock transfer books of the Company shall be closed and thereafter there
shall be no further registration of transfers of shares of Company Common Stock
on the records of the Company. From and after the Effective Time, the holders of
shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such shares except as
otherwise provided herein or by applicable law.
1.9 No Fractional Shares. No certificates or scrip representing
fractional shares of Lucent Common Stock shall be issued upon the surrender for
exchange of Certificates and such a fractional share shall not entitle the
record or beneficial owner thereof to vote or to any other rights as a
stockholder of Lucent. In lieu of receiving any such fractional share, each
holder of Company Common Stock who would otherwise have been entitled thereto
upon the surrender of Certificates for exchange will receive cash (without
interest) in an amount rounded to the nearest whole cent, determined by
multiplying (i) the per share closing price on the New York Stock Exchange, Inc.
(the "NYSE") of Lucent Common Stock (as reported in the NYSE Composite
Transactions) on the date on which the Effective Time shall occur (or, if the
Lucent Common Stock shall not trade on the NYSE on such date, the first day of
trading in Lucent Common Stock on the
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NYSE thereafter) by (ii) the fractional share to which such holder would
otherwise be entitled. Lucent shall make available to the Exchange Agent the
cash necessary for this purpose.
1.10 Return of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former holders of Company Common Stock for six
months after the Effective Time shall be delivered to Lucent, upon its request,
and any such former holders who have not theretofore surrendered to the Exchange
Agent their Certificates in compliance herewith shall thereafter look only to
Lucent for payment of their claim for shares of Lucent Common Stock, any cash in
lieu of fractional shares of Lucent Common Stock and any dividends or
distributions with respect to such shares of Lucent Common Stock. Neither Lucent
nor the Company shall be liable to any former holder of Company Common Stock for
any such shares of Lucent Common Stock held in the Exchange Fund (and any cash,
dividends and distributions payable in respect thereof) which is delivered to a
public official pursuant to an official request under any applicable abandoned
property, escheat or similar law.
1.11 No Further Ownership Rights in Company Common Stock. All
certificates representing shares of Lucent Common Stock delivered upon the
surrender for exchange of any Company Certificate in accordance with the terms
hereof (including any cash paid pursuant to Section 1.8 or 1.10) shall be deemed
to have been delivered (and paid) in full satisfaction of all rights pertaining
to the Company Common Stock previously represented by such Company Certificate.
1.12 Further Assurances. If at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either the
Company or Acquisition or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either the Company or Acquisition, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of the Company or
Acquisition, all such other acts and things necessary, desirable or proper to
vest, perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of the Company or
Acquisition, as applicable, and otherwise to carry out the purposes of this
Agreement.
2. Approval by Shareholders.
2.1 Approval by Shareholders. Acquisition and the Company shall each call
a meeting of its respective shareholders to be held as promptly as practicable
after the date hereof for purposes of voting upon this Agreement. Each of the
Company and Acquisition will, through their respective boards of directors,
recommend to their respective shareholders approval of this Agreement. The
Company, Acquisition and Lucent each agree to execute and deliver such further
documents and instruments and to do such other acts and things as may be
required to complete all requisite corporate action in connection with the
transactions contemplated by this Agreement.
3. Representations and Warranties of the Company. The Company represents
and warrants to Acquisition and Lucent as follows:
3.1 Organization. Each of the Company and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite power and
authority and all necessary governmental approvals to carry on its business as
it has been and is now being conducted. Each of the Company and its Subsidiaries
is duly qualified or licensed as a foreign corporation to do business and is in
good standing in each jurisdiction where the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed and
in good standing, would not have a material adverse effect on the assets,
business, financial condition, operations or prospects of the Company and its
Subsidiaries (a "Material Adverse Effect").
3.2 Capitalization; Options and Other Rights. (a) The total authorized
shares of capital stock of the Company consists solely of 30,000,000 shares of
Company Common Stock, of which 12,414,495 shares (the
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"Shares") are issued and outstanding. All the Shares have been duly and validly
authorized and issued and are fully paid and nonassessable. None of the Shares
has been issued in violation of the preemptive rights of any shareholder of the
Company. The Shares were issued in compliance in all material respects with all
applicable Federal and state securities laws and regulations.
(b) Except as set forth in Schedule 3.2, there are no existing agreements,
subscriptions, options, warrants, calls, commitments, trusts (voting or
otherwise), or rights of any kind whatsoever between the Company and any Person,
and, to the knowledge of the Company none of the foregoing exist granting any
interest in or the right to purchase or otherwise acquire from the Company or
granting to the Company any interest in or the right to purchase or otherwise
acquire from any Person, at any time, or upon the occurrence of any stated
event, any securities of the Company, whether or not presently issued or
outstanding, nor are there any outstanding securities of the Company or any for
other entity which are convertible into or exchangeable for other securities of
the Company, nor are there any agreements, subscriptions, options, warrants,
calls, commitments or rights of any kind granting to any Person any interest in
or the right to purchase or otherwise acquire from the Company or, to the
Company's knowledge, any other Person any securities so convertible or
exchangeable, nor, to the Company's knowledge, are there any proxies, agreements
or understandings with respect to the voting of the Shares.
3.3 Authority. (a) The Company has full power and authority to execute,
deliver and perform this Agreement. The execution, delivery and performance of
this Agreement by the Company has been duly authorized and approved by the
Company's Board of Directors and, except for (i) the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder ("HSR Act"); (ii) the approval
of this Agreement by the shareholders of the Company in accordance with Section
6.2; and (iii) the filing of appropriate merger documents as required by the
California Code, no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is the legal, valid and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors rights generally and by the effect of general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(b) The execution, delivery, performance by the Company of this Agreement
and the consummation of the Merger do not, and will not, (i) violate or conflict
with any provision of the Articles of Incorporation or By-laws of the Company or
any of its Subsidiaries, (ii) violate any law, rule, regulation, order, writ,
injunction, judgment or decree of any court, governmental authority or
regulatory agency, except for violations which, individually or in the
aggregate, will not have a Material Adverse Effect, or (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any note, bond, indenture, lien, mortgage, lease,
permit, guaranty or other agreement, instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which any of its properties
may be bound, except (A) as set forth on Schedule 3.13 and (B) for violations,
breaches or defaults which, individually or in the aggregate, will not have a
Material Adverse Effect.
(c) The execution and delivery of this Agreement by the Company do not and
the performance by the Company of this Agreement will not, require any consent,
approval, authorization or permission of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, or any other Person
except (i) in connection with the requirements of the HSR Act; (ii) and the
filing and recordation of appropriate merger documents as required by the
California Code; and (iii) any such consent, approval, authorization,
permission, notice or filing which if not obtained or made would not (A) have a
Material Adverse Effect, (B) materially impair the ability of the Company to
perform its obligations under this Agreement or (C) prevent or delay the
consummation of the transactions contemplated under this Agreement.
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3.4 Charter Documents. The Company has previously furnished to Lucent a
true, complete and correct copy of the Articles of Incorporation and the By-laws
of the Company and each of its Subsidiaries. The Articles of Incorporation and
By-laws of the Company and each of its Subsidiaries are in full force and
effect. Neither the Company nor any of its Subsidiaries is in violation of any
provision of its Articles of Incorporation or By-laws.
3.5 Financial Statements. (a) The Company has previously furnished to
Lucent true and complete copies of the following financial statements of the
Company and its Subsidiaries (the "Financial Statements"):
(i) audited consolidated balance sheets of the Company and, to the
extent any of its Subsidiaries were then organized, such Subsidiaries as of
May 31, 1997 (the "1997 Balance Sheet"), August 31, 1996, August 31, 1995,
and August 31, 1994, each certified by KPMG Peat Marwick LLP; and
(ii) audited consolidated statements of operations, shareholders'
equity and cash flows of the Company and, to the extent any of its
Subsidiaries were then organized, such Subsidiaries for the nine-month
period ending May 31, 1997 and for the fiscal years ended August 31, 1996,
August 31, 1995, August 31, 1994, each certified by KPMG Peat Marwick LLP.
(b) The Financial Statements were prepared in accordance with GAAP applied
on a basis consistent with that of preceding accounting periods (except as may
be indicated herein or in the notes thereto). The Financial Statements were
prepared on the basis of the books and records of the Company and, to the extent
any of its Subsidiaries were then organized, such Subsidiaries and present
fairly, in all material respects, the financial position of the Company and such
Subsidiaries as of the dates thereof and the results of its operations and cash
flow for each of the periods then ended in conformity with GAAP (applied as
aforesaid).
3.6 Absence of Undisclosed Liabilities. Except as disclosed on Schedule
3.6 or as set forth in the notes to the Financial Statements, each of the
Company and its Subsidiaries does not have any liability or obligation of any
nature (whether absolute, accrued or contingent or otherwise) which is in excess
of amounts shown or reserved therefor in the Financial Statements other than (a)
liabilities or obligations not required under GAAP on a basis consistent with
that of preceding accounting periods to be reported on such Financial Statements
and (b) liabilities or obligations incurred after the date of the 1997 Balance
Sheet reasonably incurred in the ordinary course of business.
3.7 Operations and Obligations. (a) Except as set forth in Schedule 3.7,
since August 31, 1997,
(i) there has been no event or condition that has had or reasonably
could be expected to have a Material Adverse Effect (other than as a direct
result of the announcement of the transactions hereunder); and
(ii) there has been no impairment, damage, destruction, loss or claim,
whether or not covered by insurance, or condemnation or other taking
adversely affecting in any respect any of the Company's material assets.
(b) Except as set forth in Schedule 3.7, since August 31, 1997, each of the
Company and its Subsidiaries has conducted its business only in the ordinary
course.
3.8 Properties. (a) Each of the Company and its Subsidiaries has good and
valid title to all its properties and assets reflected on the 1997 Balance Sheet
or acquired after the date thereof except for (i) properties and assets sold or
otherwise disposed of in the ordinary course of business since the date of such
Balance Sheet, (ii) leasehold interests, in which event the Company or such
Subsidiary has a valid leasehold interest and (iii) properties and assets which
individually or in the aggregate are not material.
(b) The Company owns no real property.
3.9 Accounts Receivable; Inventory. (a) All accounts receivable of the
Company and its Subsidiaries have arisen from bona fide transactions by the
Company or such Subsidiary in the ordinary course of its business. To the
Company's knowledge, all such accounts receivable reflected in the 1997 Balance
Sheet are
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good and collectible in the ordinary course of business at the aggregate
recorded amounts thereof, net of any applicable allowance for doubtful accounts
reflected in such Balance Sheet.
(b) The inventories (and any reserves with respect thereto that have been
established by the Company) of the Company and its Subsidiaries as of August 31,
1997 are described in Schedule 3.9. All such inventories (net of any such
reserves) are of such quality as to be useable and saleable in the ordinary
course of business (subject in the case of work-in-process inventory to
completion in the ordinary course of business) and (i) are reflected in the 1997
Balance Sheet and (ii) are reflected in the books and records of the Company or
such Subsidiary at the lower of cost (determined under the first-in, first-out
method) or market value. The inventories of the Company and its Subsidiaries are
located at the locations set forth in Schedule 3.9.
3.10 Contracts. Schedule 3.10 lists any of the following not otherwise
listed on any other Schedule:
(a) each written contract or commitment which creates an obligation on
the part of the Company or any of its Subsidiaries in excess of $250,000;
(b) each written debt instrument, including, without limitation, any
loan agreement, line of credit, promissory note, security agreement or
other evidence of indebtedness, where the Company or any of its
Subsidiaries is a lender, borrower or guarantor, in a principal amount in
excess of $250,000;
(c) each written contract or commitment restricting the Company or any
of its Subsidiaries from engaging in any line of business;
(d) each written joint venture or partnership agreement to which the
Company or any of its Subsidiaries is a party;
(e) each material written distributorship, sales agency, sales
representative, marketing or reseller agreement to which the Company or any
of its Subsidiaries is a party;
(f) each agreement, option or commitment or right with, or held by,
any third party to acquire any assets or properties, or any interest
therein, of the Company or any of its Subsidiaries, having a value in
excess of $250,000, except for contracts for the sale of inventory,
machinery or equipment in the ordinary course of business;
(g) each written employment contract entered into by the Company or
any of its Subsidiaries; and
(h) each supply agreement that the Company could not readily replace
without a Material Adverse Effect on the Company.
Except as set forth on Schedule 3.10, (i) there are no oral contracts or
commitments of the types described in this Section 3.10 which create an
obligation on the part of the Company or any of its Subsidiaries in excess of
$250,000 and (ii) there are no contracts or commitments between the Company or
any of its Subsidiaries and any Affiliate.
3.11 Absence of Default. Except as set forth in Schedule 3.11, (a) the
agreements listed or which should be listed on Schedules 3.10, 3.14 and 3.17
are, and after giving effect to the Merger will be, valid, binding and in full
force and effect; (b) the Company and its Subsidiaries are not and are not
alleged in writing to be, and to the Company's knowledge, each other party to
any such agreement is not, in default under any such agreement and (c) neither
the Company nor any of its Subsidiaries is currently renegotiating any such
agreement or paying liquidated damages in lieu thereof. The Company has
previously delivered complete and correct copies of all such agreements
(including all amendments) to Lucent.
3.12 Litigation. (a) Except as set forth in Schedule 3.12, as of the date
hereof: (i) there are no actions, suits, arbitrations, legal or administrative
proceedings pending or, to the knowledge of the Company and its Subsidiaries,
threatened against the Company or any such Subsidiary; (ii) to the knowledge of
the Company, it is not the subject of any pending or threatened investigation;
and (iii) neither the Company nor any of its Subsidiaries nor the assets,
properties or business of the Company or any such Subsidiary, is subject to any
judgment, order, writ, injunction or decree of any court, governmental agency or
arbitration tribunal. Except as set forth in Schedule 3.12, neither the Company
nor any of its Subsidiaries is the plaintiff in any
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such proceeding nor is the Company or any of its Subsidiaries contemplating
commencing legal action against any other Person.
(b) Neither the Company nor any of its Subsidiaries is a party to any suit,
action, arbitration or legal, administrative, governmental or other proceeding
or, to the knowledge of the Company, the subject of any investigation pending
or, to its knowledge, threatened, which reasonably could adversely affect or
restrict the ability of the Company to consummate the transactions contemplated
by this Agreement or to perform its obligations hereunder.
(c) There is no judgment, order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal to which the Company or any of its
Subsidiaries is subject which reasonably could adversely affect or restrict the
ability of the Company to consummate the transactions contemplated by this
Agreement or to perform its obligations hereunder.
3.13 Compliance with Law. Except as set forth in Schedule 3.13 annexed
hereto:
(a) each of the Company and its Subsidiaries has complied in all
respects with, and is not in violation of, in any respect, any law,
ordinance or governmental rule or regulation (collectively, "Laws") to
which it or its business is subject, other than instances of non-compliance
and violations which, individually or in the aggregate, would not result in
a Material Adverse Effect;
(b) each of the Company and its Subsidiaries has obtained all
licenses, permits, certificates or other governmental authorizations
(collectively "Authorizations") necessary for the ownership or use of its
assets and properties or the conduct of its business other than
Authorizations (i) which are ministerial in nature and which the Company or
such Subsidiary has no reason to believe would not be issued in due course
and (ii) which, the failure of the Company to possess, would not subject
the Company and its Subsidiaries to penalties other than fines not to
exceed $250,000 in the aggregate ("Immaterial Authorizations"); and
(c) neither the Company nor any of its Subsidiaries has received
notice of violation of, and does not know of any material violation of, any
Laws to which it or its business is subject or any Authorization necessary
for the ownership or use of its assets and properties or the conduct of its
business (other than Immaterial Authorizations).
3.14 Intellectual Property. (a) The Company and its Subsidiaries own, or
are validly licensed or otherwise have the right to use, all patents, patent
rights, trademarks, trade secrets, trademark rights, trade names, trade name
rights, service marks, service mark rights, copyrights and other proprietary
intellectual property rights and computer programs which are material to the
conduct of the business of the Company and its Subsidiaries (the "Intellectual
Property Rights").
(b) Other than as disclosed on Schedule 3.14(b), to the Company's
knowledge, the Company and its Subsidiaries have not interfered with, infringed
upon, misappropriated or otherwise come into conflict with any Intellectual
Property Rights or other proprietary information of any other Person. Neither
the Company nor any of its Subsidiaries has received any written charge,
complaint, claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that the Company or such
Subsidiary must license or refrain from using any Intellectual Property Rights
or other proprietary information of any other Person) which has not been settled
or otherwise fully resolved. To the Company's knowledge, no other Person has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property Rights or other proprietary information of the
Company or any of its Subsidiaries.
(c) To the Company's knowledge, except as disclosed on Schedule 3.14(c),
assuming that Lucent continues to operate the business of the Company and its
Subsidiaries as presently conducted and proposed to be conducted by the Company
and such Subsidiaries, Lucent will not interfere with, infringe upon,
misappropriate or otherwise come into conflict with the Intellectual Property
Rights or other proprietary information of any other Person.
(d) Each employee, agent, consultant or contractor who has materially
contributed to or participated in the creation or development of any
copyrightable, patentable or trade secret material on behalf of the
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Company, any of its Subsidiaries or any predecessor in interest thereto either:
(i) is a party to a "work-for-hire" agreement under which the Company or such
Subsidiary is deemed to be the original owner/author of all property rights
therein; or (ii) has executed an assignment or an agreement to assign in favor
of the Company or such Subsidiary (or such predecessor in interest, as
applicable) of all right, title and interest in such material.
(e) For purposes of this Section 3.14, all references to knowledge of the
Company shall mean the knowledge of the persons listed on Schedule 3.14(e).
3.15 Tax Matters. (a) Except as set forth on Schedule 3.15, (i) the
Company and each of its Subsidiaries has filed all Tax Returns required to be
filed or has established adequate reserves therefor; (ii) all such Tax Returns
are complete and accurate in all material respects and all Taxes shown to be due
on such Tax Returns have been timely paid or the Company has established
adequate reserves therefor; (iii) all Taxes (whether or not shown on any Tax
Return) owed by the Company and each of its Subsidiaries have been timely paid
or the Company has established adequate reserves therefor; (iv) neither the
Company nor any of its Subsidiaries has waived or been requested to waive any
statute of limitations in respect of Taxes; (v) the Tax Returns referred to in
clause (i) have been examined by the Internal Revenue Service or the appropriate
state, local or foreign taxing authority or the period for assessment of the
Taxes in respect of which such Tax Returns were required to be filed has
expired; (vi) there is no action, suit, investigation, audit, claim or
assessment pending or proposed or threatened with respect to Taxes of the
Company or any of its Subsidiaries; (vii) all deficiencies asserted or
assessments made as a result of any examination of the Tax Returns referred to
in clause (i) have been paid in full; Tax indemnity arrangements, if any, will
terminate prior to Closing and the Surviving Corporation will not have any
liability thereunder on or after Closing; (viii) there are no liens for Taxes
upon the assets of the Company except liens relating to current Taxes not yet
due; and (ix) all Taxes which the Company or any of its Subsidiaries is required
by law to withhold or to collect for payment have been duly withheld and
collected, and have been paid or accrued, reserved against and entered on the
books of the Company or such Subsidiary in accordance with GAAP.
(b) No consent to the application of Section 341(f)(2) of the Code has been
filed with respect to any property or assets held or acquired or to be acquired
by the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries shall make any election that could result in any adverse tax
consequences to the Company or any of its Subsidiaries.
(c) Each of the Company and its Subsidiaries (i) has not agreed to and is
not required to make any adjustment pursuant to Section 481(a) of the Code; (ii)
has no knowledge that the Internal Revenue Service ("IRS") has proposed any such
adjustment or change in accounting method with respect to the Company or any of
its Subsidiaries; and (iii) does not have any application pending with the IRS
or any other tax authority requesting permission for any change in accounting
method.
(d) Except as set forth on Schedule 3.15, neither the Company nor any of
its Subsidiaries owns an interest in any (i) domestic international sales
corporation, (ii) foreign sales corporation, (iii) controlled foreign
corporation, or (iv) passive foreign investment company.
(e) Neither the Company nor any of its Subsidiaries is a party (other than
as an investor) to any industrial development bond.
3.16 Employee Benefit Plans. (a) Schedule 3.16 contains a list and brief
description of all "employee pension benefit plans" (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to as "Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA) (sometimes referred to as "Welfare Plans") and
all other Benefit Plans (together with the Pension Plans and Welfare Plans, the
"Plans") maintained, or contributed to, by the Company or any of its
Subsidiaries or any Person that, together with the Company and its Subsidiaries,
is treated as a single employer under Section 414(b), (c), (m) or (o) of the
Code (the Company and each such other Person, a "Commonly Controlled Entity")
for the benefit of any current or any former employees, officers or directors of
the Company or any of its Subsidiaries. The Company has made available to Lucent
true, complete and correct copies of (i) each Plan (or, in the case of any
unwritten Benefit Plans, descriptions
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thereof), (ii) the most recent annual report on Form 5500 filed with the
Internal Revenue Service with respect to each Plan (if any such report was
required), (iii) the most recent summary plan description for each Plan for
which such summary plan description is required, (iv) each trust agreement and
group annuity contract relating to any Plan and (v) all correspondence with the
IRS or the United States Department of Labor relating to any outstanding
controversy or audit. Except as would not have a Material Adverse Effect on the
Company, each Plan has been administered in accordance with its terms. Except as
would not have a Material Adverse Effect on the Company, the Company, each of
its Subsidiaries and all Plans are in compliance with applicable provisions of
ERISA and the Code.
(b) Except as would not have a Material Adverse Effect on the Company, all
Pension Plans that are intended to be qualified under Section 401(a) of the Code
have been the subject of determination, opinion, notification or advisory
letters from the Internal Revenue Service to the effect that such Pension Plans
are so qualified and are exempt from Federal income taxes under Section 501(a)
of the Code, and no such determination letter has been revoked nor has any event
occurred since the date of such Plan's most recent determination letter that
would adversely affect its qualification or materially increase its costs.
(c) Neither the Company, nor any of its Subsidiaries, nor any Commonly
Controlled Entity has maintained, contributed to or been obligated to contribute
to any Plan that is subject to Title IV of ERISA.
(d) Neither the Company nor any of its Subsidiaries has any liability or
obligation under any Welfare Plan to provide life insurance or medical benefits
after termination of employment to any employee or dependent other than as
required by Part 6 of Title I of ERISA.
(e) Schedule 3.16 lists all outstanding Stock Options, showing for each
such Option: (i) the number of shares issuable, (ii) the number of vested
shares, (iii) the date of expiration and (iv) the exercise price.
(f) Except as provided by this Agreement, no employee of the Company or any
of its Subsidiaries will be entitled to any additional compensation or benefits
or any acceleration of the time of payment or vesting of any compensation or
benefits under any Plan as a result of the transactions contemplated by this
Agreement.
(g) The deduction of any amount payable pursuant to the terms of the Plans
will not be subject to disallowance under Section 162(m) of the Code.
3.17 Executive Employees. (a) Schedule 3.17 lists the names, titles and
current annual salary rates of and bonuses paid or payable to all present
officers and employees of each of the Company and its Subsidiaries whose 1996
annual base salary exceeds $75,000 ("Executive Employees").
(b) Except as set forth in Schedules 3.16 or 3.17, neither the Company nor
any of its Subsidiaries has any employment agreement with, or maintain any
employee benefit plan (within the meaning of Section 3(3) of ERISA) with respect
to, any of its Executive Employees. There are no agreements with respect to
Executive Employees which are subject to Section 280G of the Code or which would
obligate the Company or any of its Subsidiaries to make any payment or provide
any benefit that could be subject to tax under Section 4999 of the Code.
3.18 Employees. (a) Except as set forth is Schedule 3.18, each of the
Company and its Subsidiaries has complied in all material respects with all
applicable laws, rules and regulations respecting employment and employment
practices, terms and conditions of employment, wages and hours, and neither the
Company nor any of its Subsidiaries is liable for any arrears of wages or any
taxes or penalties for failure to comply with any such laws, rules or
regulations; (b) the Company believes that each of the Company's and its
Subsidiaries' relations with their respective employees is satisfactory; (c)
there are no controversies pending or, to the knowledge of the Company,
threatened between the Company or any of its Subsidiaries and any of its
respective employees, which controversies have or could have a Material Adverse
Effect; (d) neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any of its Subsidiaries, nor, to the
knowledge of the Company, are there any activities or proceedings of any labor
union to organize any such employees; (e) there are no unfair labor practice
complaints pending against the Company or any of its Subsidiaries before the
National Labor Relations Board or any current union representation questions
involving employees
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of the Company or any of its Subsidiaries; (f) there is no strike, slowdown,
work stoppage or lockout existing, or, to the knowledge of the Company,
threatened, by or with respect to any employees of the Company or any of its
Subsidiaries; (g) no charges are pending before the Equal Employment Opportunity
Commission or any state, local or foreign agency responsible for the prevention
of unlawful employment practices with respect to the Company or any of its
Subsidiaries; (h) there are no claims pending against the Company or any of its
Subsidiaries before any workers' compensation board; and (i) neither the Company
nor any of its Subsidiaries has received notice that any federal, state, local
or foreign agency responsible for the enforcement of labor or employment laws
intends to conduct an investigation of or relating to the Company or any of its
Subsidiaries and, to the knowledge of the Company, no such investigation is in
progress.
3.19 Environmental Laws. The Company has not received any notice or claim
(and is not aware of any facts that would form a reasonable basis for any
claim), or entered into any negotiations or agreements with any other Person,
and, to the knowledge of the Company, the Company is not the subject of any
investigation by any governmental or regulatory authority, domestic or foreign,
relating to any material or potentially material liability or remedial action
under any Environmental Laws. There are no pending or, to the knowledge of the
Company, threatened, actions, suits or proceedings against the Company, its
Subsidiaries or any of their respective properties, assets or operations
asserting any such material liability or seeking any material remedial action in
connection with any Environmental Laws.
3.20 Bank Accounts, Letters of Credit and Powers of Attorney. Schedule
3.20 lists (a) all bank accounts, lock boxes and safe deposit boxes relating to
the business and operations of each of the Company and its Subsidiaries
(including the name of the bank or other institution where such account or box
is located and the name of each authorized signatory thereto), (b) all
outstanding letters of credit issued by financial institutions for the account
of the Company or any of its Subsidiaries (setting forth, in each case, the
financial institution issuing such letter of credit, the maximum amount
available under such letter of credit, the terms (including the expiration date)
of such letter of credit and the party or parties in whose favor such letter of
credit was issued), and (c) the name and address of each Person who has a power
of attorney to act on behalf of the Company or any of its Subsidiaries. The
Company has heretofore delivered to Lucent true, correct and complete copies of
each letter of credit and each power of attorney described on Schedule 3.20.
3.21 Subsidiaries. (a) Schedule 3.21 sets forth (i) the name and
jurisdiction of incorporation of each Subsidiary of the Company, (ii) the total
number of shares of each class of capital stock of each Subsidiary authorized,
the number of shares outstanding and the number of shares owned by the Company
or any other Subsidiary of the Company and (iii) a complete list of the
directors and officers of the Company and each Subsidiary. All the issued and
outstanding capital stock in each Subsidiary have been duly and validly
authorized and issued and are fully paid, non-assessable and free of pre-emptive
rights. None of the outstanding capital stock in any Subsidiary has been issued
in violation of the preemptive rights of any shareholder of such Subsidiary. The
shares of each Subsidiary were issued in compliance in all material respects
with all applicable Federal and state securities laws and regulations, and are
owned free and clear of all Liens.
(b) Except as set forth in Schedule 3.21, there are no existing agreements,
subscriptions, options, warrants, calls, commitments, trusts (voting or
otherwise), or rights of any kind whatsoever granting to any Person any interest
in or the right to purchase or otherwise acquire from the Company or any
Subsidiary, at any time, or upon the occurrence of any stated event, any capital
stock of or equity interest in any Subsidiary, whether or not presently issued
or outstanding, nor are there any outstanding capital stock of or equity
interest in any Subsidiary or any other entity which are convertible into or
exchangeable for other capital stock of or equity interests in any Subsidiary
nor are there any agreements, subscriptions, options, warrants, calls,
commitments or rights of any kind granting to any Person any interest in or the
right to purchase or otherwise acquire from any Subsidiary or any other Person
any capital stock or equity interests so convertible or exchangeable, nor are
there any proxies, agreements or understandings with respect to the voting of
the capital stock of or equity interests in any Subsidiary. Except for the
Company's ownership of the Subsidiaries as disclosed on Schedule 3.21, the
Company does not, directly or indirectly, have any ownership or other interest
in, or control of, any Person, nor is the Company or any Subsidiary controlled
by or under common control with any Person.
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3.22 Disclosure. To the knowledge of the Company, there is no fact which
the Company has not disclosed to Lucent in writing which has had or would
reasonably be expected to have a Material Adverse Effect. For purposes of this
Section 3.22, the reference to knowledge of the Company shall mean the knowledge
of the persons listed on Schedule 3.14(e)(i).
3.23 Financial Projections. The Company has made available to Lucent
certain financial projections with respect to the Company's business which
projections were prepared for internal use only. The Company makes no
representation or warranty regarding the accuracy of such projections or as to
whether such projections will be achieved or otherwise, except that the Company
represents and warrants that such projections were prepared in good faith and
are based on assumptions believed by it to be reasonable.
3.24 Information in Registration Statement. None of the information
supplied or to be supplied by the Company or any of its Subsidiaries for the
purpose of inclusion in the Registration Statement will, at the time the
Registration Statement is filed with the SEC, at the time the Registration
Statement becomes effective under the Securities Act and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4. Representations and Warranties of Acquisition and Lucent. Each of
Acquisition and Lucent represents and warrants to the Company as follows:
4.1 Organization. Each of Lucent and Acquisition is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority to enter into and perform this Agreement and the transactions
contemplated hereby to be performed by it.
4.2 Authority. (a) Each of Lucent and Acquisition has full power and
authority to execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement by it has been duly authorized
and approved (i) in the case of Acquisition, by its Board of Directors and
(ii) in the case of Lucent, by all necessary corporate action and, except
for (A) the pre-merger notification requirements of the HSR Act, (B) the
adoption of this Agreement by the shareholders of Acquisition in accordance
with Section 7.8 and (C) the filing of appropriate merger documents as
required by the California Code, no other corporate proceedings on the part
of either Lucent or Acquisition is necessary to authorize this Agreement
and the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by each of Lucent and Acquisition and is
the legal, valid and binding obligation of each of Lucent and Acquisition
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors rights generally and by
the effect of general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law). The filing
of a registration statement on Form S-4 with the Securities and Exchange
Commission (the "SEC") by Lucent under the Securities Act of 1933 (together
with the rules and regulations thereunder, the "Securities Act"), for the
purpose of registering shares of Lucent Common Stock to be issued in the
Merger (together with any amendments or supplements thereto, whether prior
to or after the effective date thereof, the "Registration Statement") has
been duly authorized by Lucent.
(b) The execution, delivery, performance by each of Lucent and
Acquisition of this Agreement and the consummation of the Merger do not,
and will not, (i) violate or conflict with any provision of the Certificate
of Incorporation or By-laws of either Lucent or Acquisition, (ii) violate
any law, rule, regulation, order, writ, injunction, judgement or decree of
any court, governmental authority, or regulatory agency, except for
violations which, individually or in the aggregate, will not have a
Material Adverse Effect on Lucent and Acquisition taken as a whole, or
(iii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right
of termination, cancellation or acceleration) under, any note, bond,
indenture, lien, mortgage, lease, permit, guaranty or other agreement,
instrument or obligation, oral or written, to which Lucent or Acquisition
is a party or by which any of the properties of Lucent or Acquisition may
be bound, except for violations,
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breaches or defaults which, individually or in the aggregate, will not have
a Material Adverse Effect on Lucent, its Subsidiaries and Acquisition taken
as a whole.
(c) The execution and delivery of this Agreement by each of Lucent and
Acquisition does not and the performance by it of this Agreement will not,
require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority, domestic or
foreign, or any other Person except: (i) in connection with the
requirements of the HSR Act; (ii) the Securities Act, the Securities and
Exchange Act of 1934 (together with the rules and regulations promulgated
thereunder, the "Exchange Act") and applicable state securities laws; (iii)
the filing and recordation of appropriate merger documents as required by
the California Code; and (iv) any such consent, approval, authorization,
permission, notice or filing which if not obtained or made would not have a
Material Adverse Effect on Lucent or Acquisition.
4.3 Capitalization. (a) The total authorized shares of capital stock
of Lucent consists of (i) 3,000,000,000 shares of Common Stock, par value
$.01 per share (the "Lucent Common Stock") and (ii) 250,000,000 shares of
Lucent Preferred Stock, par value $1.00 per share the ("Lucent Preferred
Stock"). At the close of business on September 30, 1997, (i) 642,070,130
shares of Lucent Common Stock were issued and outstanding and no shares of
Lucent Preferred Stock were issued and outstanding, (ii) 7,474 shares of
Lucent Common Stock were held by Lucent in its treasury, (iii) the total
number of shares of Lucent Common Stock available for grant under the
Lucent 1996 Long-Term Incentive Program and the Lucent 1997 Long-Term
Incentive Plan in each calendar year is 2.5% of the total number of
outstanding shares of Lucent Common Stock as of the first day of such
calendar year and (v) 6,000,000 shares were reserved for issuance in
connection with the Lucent Long Term Savings and Security Plan. All the
outstanding shares of Lucent Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable. None of the
shares of Lucent Common Stock has been issued in violation of the
preemptive rights of any stockholder of the Company. The shares of Lucent
Common Stock were issued in compliance in all material respects with all
applicable Federal and state securities laws and regulations.
(b) Except for Lucent plans providing for issuance of Lucent Common
Stock to officers, directors and employees of Lucent or as set forth in
Schedule 4.2, there are no existing agreements, subscriptions, options,
warrants, calls, commitments, trusts (voting or otherwise), or rights of
any kind whatsoever granting to any Person any interest in or the right to
purchase or otherwise acquire from Lucent or granting to Lucent any
interest in or the right to purchase or otherwise acquire from any Person,
at any time, or upon the occurrence of any stated event, any securities of
Lucent, whether or not presently issued or outstanding, nor are there any
outstanding securities of Lucent or any for other entity which are
convertible into or exchangeable for other securities of Lucent, nor are
there any agreements, subscriptions, options, warrants, calls, commitments
or rights of any kind granting to any Person any interest in or the right
to purchase or otherwise acquire from Lucent any securities so convertible
or exchangeable.
4.4 Litigation. (a) Neither Lucent nor Acquisition is a party to any
suit, action, arbitration or legal, administrative, governmental or other
proceeding or investigation pending or, to its knowledge threatened, which
reasonably could adversely affect or restrict its ability to consummate the
transactions contemplated by this Agreement or to perform its obligations
hereunder.
(b) There is no judgment, order, writ, injunction or decree of any
court, governmental agency or arbitration tribunal to which Lucent or
Acquisition is subject which might adversely affect or restrict its ability
to consummate the transactions contemplated by this Agreement or to perform
its obligations hereunder.
4.5 SEC Filings; Lucent Financial Statements. (a) Since October 1,
1996, Lucent and each of its Subsidiaries has filed all forms, reports and
documents required to be filed with the SEC under the Securities Act or the
Exchange Act. All such required forms, reports and documents are referred
to herein as the "Lucent SEC Reports." As of their respective dates, the
Lucent SEC Reports (i) were prepared in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such Lucent SEC Reports
and (ii) did not at the time they were filed (or if amended or superseded
by a filing prior to the date of this
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Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to made the statements therein, in the light
of the circumstances under which they were made, not misleading.
(b) Except as disclosed in the Lucent SEC Reports, the financial
statements (including, in each case, any related notes thereto) contained
in the Lucent SEC Reports (the "Lucent Financials"), including any Lucent
SEC Reports filed after the date hereof until the Closing, and (x) comply
as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, (y) were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and (z) fairly
presented the consolidated financial position of Lucent and its
subsidiaries as at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated, except
that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments and to any other adjustments
described therein. The balance sheet of Lucent contained in the Lucent SEC
Reports, as of June 30, 1997 is hereinafter referred to as the "Lucent
Balance Sheet." As of June 30, 1997, neither Lucent nor any of its
Subsidiaries has any liabilities (absolute, accrued, contingent or
otherwise) of a nature required to be disclosed under GAAP on the Lucent
Balance Sheet or in the related notes which if not so disclosed,
individually or in the aggregate, could result in a Material Adverse
Effect.
4.6 Operations and Obligations. Except as described in the Lucent
SEC Reports, since the date of the Lucent Balance Sheet, (i) except as a
result of the transactions contemplated by this Agreement or in connection
with the acquisition by Lucent or any of its Subsidiaries of all or
substantially all the capital stock or all or substantially all the assets
of another Person, there has not been any development that has had or
reasonably would be expected to have a Material Adverse Effect on Lucent
and its Subsidiaries taken as a whole; (ii) there has not been any damage,
destruction or loss (whether or not covered by insurance) having a Material
Adverse Effect on Lucent and its subsidiaries taken as a whole; (iii) there
has not been any material change by Lucent in its accounting methods,
principles or practices, except as required by changes in GAAP; or (iv)
except as a result of the transactions contemplated by this Agreement or in
connection with the acquisition by Lucent or any of its Subsidiaries of all
or substantially all the capital stock or all or substantially all the
assets of another Person, there has not been any material revaluation by
Lucent of any of its assets including, without limitation, writing down the
value of capitalized software or inventory or writing off notes or accounts
receivable which could have a Material Adverse Effect.
5. Conduct Pending Closing; Agreements.
5.1 Conduct of Business Pending Closing. From the date hereof until the
Closing, the Company shall (and shall cause each of its Subsidiaries to):
(a) maintain its existence in good standing;
(b) maintain the general character of its business and properties and
conduct its business in the ordinary and usual manner consistent with past
practices, except as expressly permitted by this Agreement;
(c) maintain business and accounting records consistent with past
practices; and
(d) use its reasonable best efforts (i) to preserve its business
intact, (ii) to keep available to the Company the services of its present
officers and employees, and (iii) to preserve for the Company or such
Subsidiary the goodwill of its suppliers, customers and others having
business relations with the Company or such Subsidiary.
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5.2 Prohibited Actions Pending Closing. Unless otherwise provided for
herein or approved by Lucent in writing, from the date hereof until the Closing,
the Company shall not (and shall not permit any of its Subsidiaries to):
(a) amend or otherwise change its Articles of Incorporation or
By-laws;
(b) issue or sell or authorize for issuance or sale (other than any
issuance of Company Common Stock upon the exercise of any outstanding
option to purchase Company Common Stock which option was issued prior to
the date hereof in accordance with the terms of the relevant stock option
agreement as in effect on September 30, 1997), or, except as permitted by
Section 5.2(h), grant any options or make other agreements with respect to,
any shares of its capital stock or any other of its securities, except for
those provisions of the agreement with the Exchange Agent which provisions
are in furtherance of this Agreement;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise with respect to
any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of assets; (ii) incur any indebtedness for borrowed money
or issue any debt securities or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of any Person,
or make any loans or advances, except in the ordinary course of business
and consistent with past practice; (iii) enter into any contract or
agreement resulting in obligations to the Company in excess of $250,000
other than in the ordinary course of business, consistent with past
practice; (iv) authorize any capital commitment which is in excess of
$100,000 or capital expenditures which are, in the aggregate, in excess of
$200,000; or (v) enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this Section 5.2(e);
(f) mortgage, pledge or subject to Lien, any of its assets or
properties or agree to do so except for (i) Liens for taxes, assessments,
or similar charges, incurred in the ordinary course of business that are
not yet due and payable or are being contested in good faith; (ii) pledges
or deposits made in the ordinary course of business; (iii) Liens of
mechanics, materialmen, warehousemen or other like Liens securing
obligations incurred in the ordinary course of business that are not yet
due and payable or are being contested in good faith; or (iv) similar Liens
and encumbrances which are incurred in the ordinary course of business and
which do not in the aggregate materially detract from the value of such
assets or properties or materially impair the use thereof in the operation
of its or their business;
(g) assume, guarantee or otherwise become responsible for the
obligations of any other Person or agree to so do;
(h) enter into or agree to enter into any employment agreements or
arrangements; provided that the Company may enter into such agreements or
arrangements with employees hired after the date hereof so long as (i) such
agreements or arrangements are entered into in the ordinary course of
business, (ii) the terms and conditions of such agreements or arrangements
are consistent with standards in the internetworking industry and (iii) in
connection with all such employment agreements or arrangements, the Company
does not grant to such employees options representing the right to receive
in the aggregate more than 2,500 shares of Company Common Stock.
(i) (x) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any of its
Subsidiaries who are not officers of the Company or such Subsidiary; (y)
grant any severance or termination pay to, or enter into any severance
agreement with any director, officer or other employee of the Company or
any of its Subsidiaries, except for severance or termination pay to
employees of the Company or any of its Subsidiaries in an amount not to
exceed $100,000 in the aggregate; or establish,
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adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit
of any director, officer or employee;
(j) take any action, other than in the ordinary course of business and
consistent with past practice, with respect to accounting policies or
procedures (including, without limitation, procedures with respect to the
payment of accounts payable and collection of accounts receivables);
(k) make any Tax election or settle or compromise any material
federal, state, local or foreign income Tax liability;
(l) settle or compromise any pending or threatened suit, action or
claim which is material or which relates to any of the transactions
contemplated by this Agreement;
(m) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than (i) the payment, discharge or satisfaction, in the ordinary course of
business, of liabilities reflected or reserved against in the 1997 Balance
Sheet or subsequently incurred in the ordinary course of business and
consistent with past practice or (ii) as contemplated by this Agreement;
(n) except in connection with the sale of the Company's products in
the ordinary course of business and consistent with past practice, sell,
assign, transfer, license, sublicense, pledge or otherwise encumber any of
the Intellectual Property Rights; or
(o) announce an intention, commit or agree to do any of the foregoing.
5.3 Access; Documents; Supplemental Information. (a) From and after the
date hereof until the Closing, the Company shall afford, shall cause its
Subsidiaries to afford and, with respect to clause (ii) below, shall use its
reasonable best efforts to cause the independent certified public accountants
for the Company to afford, (i) to the officers, independent certified public
accountants, counsel and other representatives of Acquisition and Lucent, upon
reasonable notice free and full access at all reasonable times to the
properties, books and records including tax returns filed and those in
preparation of the Company or any of its Subsidiaries and the right to consult
with the officers, employees, accountants, counsel and other representatives of
the Company or any of its Subsidiaries in order that Acquisition and Lucent may
have full opportunity to make such investigations as they shall reasonably
desire to make of the operations, properties, business, financial condition and
prospects of the Company and its Subsidiaries, (ii) to the independent certified
public accountants of Acquisition and Lucent, free and full access at all
reasonable times to the work papers and other records of the accountants
relating to the Company and its Subsidiaries, and (iii) to Acquisition and
Lucent and their representatives, such additional financial and operating data
and other information as to the properties, operations, business, financial
condition and prospects of the Company and its Subsidiaries as Acquisition and
Lucent shall from time to time reasonably require.
(b) From the date of this Agreement through and including the Closing,
Acquisition, Lucent and the Company agree to furnish to each other copies of any
notices, documents, requests, court papers, or other materials received from any
governmental agency or any other third party with respect to the transactions
contemplated by this Agreement, except where it is obvious from such notice,
document, request, court paper or other material that the other party was
already furnished with a copy thereof.
(c) The Company shall deliver to Lucent, without charge, the following
financial information (the "Supplemental Financial Information"): (i) within 45
days after each fiscal quarter ending after the date hereof and prior to the
Effective Time, the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of the end of such quarter and the unaudited consolidated
statements of income, shareholders' equity and cash flows of the Company and its
Subsidiaries for such quarter and for the portion of the fiscal year then
completed, (ii) within 90 days after each fiscal year ending after the date
hereof and prior to the Effective Time, the audited consolidated balance sheet
of the Company and its Subsidiaries as of the end of such year and the audited
consolidated statements of income, shareholders' equity and cash flows of the
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Company and its Subsidiaries for such year, in each case prepared in accordance
with GAAP certified by KPMG Peat Marwick LLP, and (iii) promptly upon the
reasonable request by Lucent, such additional financial information as may be
required in connection with any filing by Lucent pursuant to the requirements of
federal or state securities laws. Such Supplemental Financial Information shall
present fairly, in all material respects, the consolidated financial position of
the Company and its Subsidiaries for the period covered, subject in the case of
unaudited financials to normal year-end adjustments.
(d) Lucent shall deliver to the Company, without charge, a copy of any
filing made by Lucent with the SEC under the Exchange Act, including, without
limitation, any Form 10-Q, 8-K or 10-K, not later than five business days after
the date of such filing with the SEC.
5.4 No Solicitation. The Company shall not, nor shall it authorize or
permit any of its affiliates or any officer, director, employee, investment
banker, attorney or other adviser or representative of the Company or any of its
affiliates to (a) solicit, initiate, or encourage the submission of, any
Acquisition Proposal (as hereinafter defined), (b) enter into any agreement with
respect to any Acquisition Proposal or (c) participate in any discussions or
negotiations regarding, or furnish to any Person any information for the purpose
of facilitating the making of, or take any other action to facilitate any
inquiries or the making of, any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal. Without limiting the foregoing,
it is understood that any violation, of which the Company or any of its
Affiliates had knowledge at the time of such violation, of the restrictions set
forth in the immediately preceding sentence by any officer, director, employee,
investment banker, attorney, employee, or other adviser or representative of the
Company or any of its Affiliates, whether or not such Person is purporting to
act on behalf of the Company or any of its Affiliates or otherwise, shall be
deemed to be a breach of this Section 5.4 by the Company and its Affiliates. The
Company promptly shall advise Lucent of any Acquisition Proposal and inquiries
with respect to any Acquisition Proposal. "Acquisition Proposal" means any
proposal for a merger or other business combination involving the Company or any
of its Affiliates or any proposal or offer to acquire in any manner, directly or
indirectly, an equity interest in the Company or any of its Affiliates, any
voting securities of the Company or any of its Affiliates or a substantial
portion of the assets of the Company (other than sales of the Company's products
and services in the ordinary course of business consistent with past practice).
5.5 Registration; Filings; Other Actions. (a) As promptly as practicable
after the date hereof, Lucent shall prepare and file the Registration Statement
with the SEC. Lucent acknowledges that the Company and its counsel may
participate in the preparation of the Registration Statement, provided that the
final determination of any issues related thereto shall be made by Lucent.
Lucent shall use its reasonable best efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing. Lucent shall also take such actions (other than qualifying to do
business in any jurisdiction in which Lucent is now not so qualified) as may be
required to be taken under any applicable state securities laws in connection
with the issuance of Lucent Common Stock in the Merger and upon the exercise of
the Substitute Options. The Company shall furnish all information concerning the
Company and the holders of the Common Stock as may be reasonably requested in
connection with any of the foregoing.
(b) As promptly as practicable after the date hereof, Lucent and the
Company shall file, with the Federal Trade Commission and the Antitrust Division
of the Department of Justice the notifications and other information required to
be filed under the HSR Act with respect to the transactions contemplated hereby.
Each of Lucent and the Company will use its reasonable best efforts to ensure
that all such filings by it shall be, as of the date filed, true and accurate
and in accordance with the requirements of the HSR Act and any such rules and
regulations. Each of Lucent and the Company agrees to make available, or cause
to be made available, to the other such information as each of them may
reasonably request relative to its business, assets and property as may be
required of each of them to file any additional information requested by such
agencies under the HSR Act and any such rules and regulations; provided that the
parties shall have entered into mutually acceptable arrangements to ensure the
continued confidentiality of any such information.
(c) Each party hereto agrees, subject to applicable laws relating to the
exchange of information, promptly to furnish the other parties hereto with
copies of written communications (and memoranda setting forth the substance of
all oral communications) received by such party, or any of its subsidiaries,
affiliates or
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associates (as such terms are defined in Rule 12b-2 under the Exchange Act as in
effect on the date hereof), from, or delivered by any of the foregoing to, any
governmental or regulatory authority, domestic or foreign, relating to or in
respect of the transactions contemplated under this Agreement.
5.6 Comfort Letters. (a) The Company shall use its reasonable best
efforts to cause to be delivered to Lucent a "comfort" letter of KPMG Peat
Marwick LLP, the Company's independent public accountants, dated the date on
which the Registration Statement shall become effective and as of the Effective
Time, and addressed to Lucent and the Company, in form and substance reasonably
satisfactory to Lucent and reasonably customary in scope and substance for
letters delivered by independent public accounts in connection with transactions
such as those contemplated by this Agreement.
(b) Lucent shall use its reasonable best efforts to cause to be delivered
to the Company a "comfort" letter of Coopers & Lybrand L.L.P., Lucent's
independent public accountants, dated the date on which the Registration
Statement shall become effective and as of the Effective Time, addressed to the
Company and Lucent, in form and substance reasonably satisfactory to the Company
and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.
5.7 Stock Exchange Listings. Lucent shall use all reasonable best efforts
to list on the NYSE, upon official notice of issuance, the shares of Lucent
Common Stock to be issued in connection with the Merger and the shares of Lucent
Common Stock to be reserved for issuance upon exercise of the Substitute
Options.
5.8 Company Stock Options; Unvested Restricted Stock. (a) Not later than
the Effective Time, each stock option to purchase Company Common Stock (the
"Stock Options") which is outstanding immediately prior to the Effective Time
pursuant to the Company's 1994 Stock Option Plan in effect on the date hereof
(the "1994 Stock Plan") shall be assumed by Lucent and become and represent an
option (a "Substitute Option") to purchase the number of shares of Lucent Common
Stock (decreased to the nearest full share) determined by multiplying (i) the
number of shares of Company Common Stock subject to such Stock Option
immediately prior to the Effective Time by (ii) the Exchange Ratio, which Stock
Options shall have an exercise price per share of Lucent Common Stock (rounded
up to the nearest tenth of a cent) equal to the exercise price per share of
Common Stock immediately prior to the Effective Time divided by the Exchange
Ratio. Lucent shall pay cash to holders of Stock Options in lieu of issuing
fractional shares of Lucent Common Stock upon the exercise of Substitute Options
for shares of Lucent Common Stock. After the Effective Time, except as provided
herein, each Substitute Option shall be exercisable upon the same terms and
conditions as were applicable under the related Stock Option immediately prior
to the Effective Time. The Company agrees that it will not grant any stock
appreciation rights or limited stock appreciation rights and will not permit
cash payments to holders of Stock Options in lieu of the substitution therefor
of Substitute Options, as described in this Section 5.8.
(b) The adjustments provided herein with respect to any "Stock Options"
that are "Incentive Stock Options" as defined in Section 422 of the Code shall
be and are intended to be effected in a manner which is consistent with Section
424(a) of the Code.
(c) As soon as practicable after the Effective Time, Lucent shall prepare
and file with the SEC a registration statement on Form S-8 (or another
appropriate form) registering a number of shares of Lucent Common Stock equal to
the number of shares subject to the Substitute Options. Such registration
statement shall be kept effective (and the current status of the prospectus
required thereby shall be maintained) at least for so long as any Substitute
Options remain outstanding.
(d) As soon as practicable after the Effective Time, Lucent shall deliver
to the holders of Stock Options appropriate notices setting forth such holders'
rights pursuant to the 1994 Stock Plan and the agreements evidencing the grants
of such Stock Options and that such Stock Options and agreements shall be
assumed by Lucent and shall continue in effect on the same terms and conditions
(subject to the adjustment set forth in this Section 5.8).
(e) At the Effective Time, each Restricted Stock Purchase Agreement (a
"Restricted Stock Agreement") set forth on Schedule 5.8 shall be assumed by
Lucent and each share of restricted Company Common
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<PAGE> 91
Stock which is outstanding and unvested thereunder immediately prior to the
Effective Time pursuant to the 1994 Stock Plan shall become the right to 0.482
(as adjusted in accordance with Section 1.6) share of Lucent Common Stock
subject to the same restrictions and vesting as set forth in each such
Restricted Purchase Agreement (the "Substitute Restricted Stock"). Lucent shall
pay cash to each holder of such restricted Common Stock in lieu of issuing
fractional shares of Lucent Common Stock as soon as practicable after the date
on which all Substitute Restricted Stock under such holder's Restricted Purchase
Agreement shall vest. The Company shall use its reasonable best efforts to
terminate the right of any holder of Stock Options who is not a party to a
Restricted Stock Agreement on the date hereof to enter into such an Agreement.
5.9 Indemnification. From and after the Effective Time, Lucent shall, or
shall cause the Surviving Corporation to, fulfill and honor in all respects the
obligations of the Company to indemnify each person who is or was a director or
officer (an "Indemnified Party") of the Company or any of its Subsidiaries
pursuant to any indemnification provision under any agreement between the
Company and an Indemnified Party the Company's Articles of Incorporation or
By-laws as each is in effect on the date hereof. All rights to such
indemnification in favor of any Indemnified Party, as provided in the Company's
Articles of Incorporation and By-laws in effect at the date hereby shall survive
the Merger and shall continue in full force and effect, without amendment
thereto, for a period of six years from the Effective Time to the extent such
indemnification is consistent with the California Code. Notwithstanding any
other provision of this Agreement to the contrary, this Section 5.9 shall
survive the consummation of the Merger, is intended for the benefit of, and
enforceable by the Company, Lucent, the Surviving Corporation and each
Indemnified Party and such Indemnified Party's heirs and representatives and
shall be binding upon Lucent and the Surviving Corporation.
5.10 Affiliates. Prior to the Closing, the Company shall deliver to
Lucent a letter identifying all Persons who are, at the time this Agreement is
submitted for approval to the shareholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The Company shall use
its reasonable best efforts to cause each such Person to execute and deliver to
Lucent, on or before the Closing Date, an agreement substantially in the form of
Exhibit A.
5.11 Notification of Certain Matters. The Company shall give prompt
notice to Lucent, and Lucent shall give prompt notice to the Company, of (a) the
occurrence, or non-occurrence, of any event which would be likely to cause (i)
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (ii) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied; and (ii) any
failure of the Company or Lucent, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided that the delivery of any notice pursuant to this Section
5.11 shall not limit or otherwise affect the remedies available to the party
receiving such notice.
5.12 Reorganization. Each of Lucent and the Company shall use its best
efforts to cause the business combination to be effected by the Merger to be
qualified as a "reorganization" described in Section 368(a) of the Code. Lucent
shall take no action, and shall not cause the Surviving Corporation to take any
action, following the Effective Time that would have the effect of causing the
Merger to fail to so qualify.
5.13 Actions by the Parties. Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties hereto will use its reasonable
best efforts to take or cause to be taken all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable law and
regulations to consummate and make effective in the most expeditious manner
practicable, the transactions contemplated by this Agreement including (i) the
obtaining of all necessary actions and non-actions, waivers and consents, if
any, from any governmental agency or authority and the making of all necessary
registrations and filings and the taking of all reasonable steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any governmental agency or authority; (ii) the obtaining of all
necessary consents, approvals or waivers from any other Person; (iii) the
defending of any claim, investigation, action, suit or other legal proceeding,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby; and (iv) the execution of
additional instruments necessary to consummate the transactions contemplated by
this Agreement. Each party will promptly consult with the other and provide
necessary information (including copies thereof) with respect to all filings
made by such party with any
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<PAGE> 92
governmental agency or authority in connection with this Agreement and the
transactions contemplated hereby.
6. Conditions Precedent.
6.1 Conditions Precedent to Each Party's Obligation to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
shall be subject to the fulfillment or satisfaction, prior to or on the Closing
Date of the following conditions:
(a) Shareholder Approval. The Merger shall have been duly approved by
a vote of a majority of the outstanding shares entitled to vote thereon in
accordance with the California Code and the Articles of Incorporation and
By-laws of the Company.
(b) Stock Exchange Listing. The shares of Lucent Common Stock
issuable in accordance with the Merger and upon exercise of the Substitute
Options shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
(c) HSR and Other Approvals. (i) The waiting period (and any
extension thereof) applicable to the consummation of the Merger under the
HSR Act shall have expired or been terminated.
(ii) All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting
periods imposed by, any governmental or regulatory authority, domestic
or foreign, which the failure to obtain, make or occur would have the
effect of making the Merger or any of the transactions contemplated
hereby illegal or would have a Material Adverse Effect on Lucent or the
Company (as Surviving Corporation), assuming the Merger had taken place,
shall have been obtained, made or occurred.
(d) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall
have been initiated or, to the knowledge of Lucent or the Company,
threatened by the SEC. All necessary state securities authorizations shall
have been received.
(e) Tax Matters. Each of Lucent and the Company shall have executed
and delivered a letter of representation relating to certain tax matters
substantially in the form of Exhibit D. Each of Lucent and the Company
shall have received a written opinion from its counsel to the effect that
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code.
(f) No Injunction. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the transactions contemplated
hereunder shall be in effect.
6.2 Conditions Precedent to Obligations of Acquisition and Lucent. All
obligations of Acquisition and Lucent under this Agreement are subject to the
fulfillment or satisfaction, prior to or on the Closing Date, of each of the
following conditions precedent (any of which may be waived in writing in whole
or in part by Acquisition and Lucent):
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed and complied in all material respects with all
agreements and conditions contained in this Agreement that are required to
be performed or complied with by it prior to or at the Closing. Each of the
Company's representations and warranties contained in Section 3 of this
Agreement to the extent it is qualified by Material Adverse Effect shall be
true and correct and each of the Company's representations and warranties
to the extent it is not so qualified by Material Adverse Effect, shall be
true and correct except as would have a Material Adverse Effect, in each
case, on and as of the Closing with the same effect as though such
representations and warranties were made on and as of the Closing, except
for changes permitted by this Agreement and except to the extent that such
representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall be as of such earlier
date. Lucent and Acquisition shall have received a certificate dated the
Closing Date and signed
21
<PAGE> 93
by the Chairman, President or a Vice-President of the Company, certifying
that, the conditions specified in this Section 6.2(a) have been satisfied.
(b) Opinion of Counsel. Lucent and Acquisition shall have received
the favorable written opinion dated the Closing Date of Wilson Sonsini
Goodrich & Rosati, counsel to the Company, in form satisfactory to Lucent
and Acquisition.
(c) Resignations. The Company shall have delivered to Lucent and
Acquisition the written resignation of each director and officer of the
Company as shall be requested in writing by Lucent. The Company also shall
have delivered to Lucent the written resignation of all Trustees of all the
benefit plans of the Company as shall be requested in writing by Lucent.
(d) No Material Adverse Change. There shall have been no material
adverse change in the assets, business, financial condition or operations
of the Company and no event or events shall have occurred that could
reasonably be expected to have a Material Adverse Effect (other than (i)
conditions affecting the internetworking industry generally and (ii)
resulting from the announcement of this transaction) on the Company and
Lucent shall have received a certificate signed on behalf of the Company by
its Chief Executive Officer and Chief Financial Officer to such effect.
(e) Consents. The Company shall have received all necessary consents,
in form and substance satisfactory to Lucent and Acquisition, from the
other parties (i) to each contract or agreement listed on Schedule 6.2(e)
and (ii) all other contracts, leases or agreements to which the Company is
a party, except where the failure to receive such consent would not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on the Company, impair the ability of the Company
to perform its obligations hereunder or to prevent or delay the
consummation of the transactions contemplated hereunder.
(f) Employment Agreement. Each of the individuals listed on Schedule
6.2(f) shall have entered into employment agreements with Lucent, each
substantially in the form of Exhibit B hereto, and such agreements shall be
in full force and effect.
(g) Non-Competition Agreements. Each of the individuals listed on
Schedule 6.2(g) shall have entered into Non-Competition Agreements with the
Surviving Corporation, each substantially in the form of Exhibit C hereto,
and such agreements shall be in full force and effect.
(h) Affiliates. Lucent shall have received from each person named in
the letter referred to in Section 5.10, an executed copy of an agreement
substantially in the form of Exhibit A.
6.3 Conditions Precedent to the Company's Obligations. All obligations of
the Company under this Agreement are subject to the fulfillment or satisfaction,
prior to or on the Closing Date, of each of the following conditions precedent
(any of which may be waived in writing in whole or in part by the Company):
(a) Performance of Obligations; Representations and
Warranties. Acquisition and Lucent shall have performed and complied in
all material respects with all agreements and conditions contained in this
Agreement that are required to be performed or complied with by them prior
to or at the Closing. Each of the representations and warranties of
Acquisition and Lucent contained in Section 4 of this Agreement to the
extent it is qualified by Material Adverse Effect shall be true and correct
and each of the representations and warranties of Acquisition and Lucent to
the extent it is not so qualified by Material Adverse Effect shall be true
and correct except as would have a Material Adverse Effect in each case, on
and as of the Closing with the same effect as though such representations
and warranties were made on and as of the Closing except for changes
permitted by this Agreement and except to the extent that such
representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall be as of such earlier
date. The Company shall have received certificates dated the Closing Date
and signed by the President or a Vice-President of Acquisition and an
authorized signatory of Lucent, certifying that the conditions specified in
this Section 6.3(a) have been satisfied.
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<PAGE> 94
(b) Opinion of Counsel. The Company shall have received the favorable
written opinion dated the Closing Date of Sidley & Austin, special counsel
to Acquisition and Lucent, and internal counsel to Acquisition and Lucent,
each in form satisfactory to the Company.
(c) No Material Adverse Change. There shall have been no material
adverse change in the assets, business, financial condition or operations
of Lucent and no event or events shall have occurred that could reasonably
be expected to have a Material Adverse Effect (other than (i) conditions
affecting the internetworking industry generally and (ii) resulting from
the announcement of this transaction) on Lucent and the Company shall have
received a certificate signed on behalf of Lucent by an authorized
signatory thereof.
7. Nonsurvival of Representations and Warranties.
7.1 Representations and Warranties. None of the representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time. This Section shall not limit any
covenant or agreement by the parties which contemplates performance after the
Effective Time.
8. Brokers' and Finders' Fees.
8.1 Company. The Company represents and warrants to Acquisition and
Lucent that no broker, investment banker or financial advisor, other than Morgan
Stanley & Co. Incorporated, the fees and expenses of which shall be paid by the
Company is entitled to a brokerage fee, financing commission or other commission
in respect of the execution of this Agreement or the consummation of the
transactions contemplated hereby. The Company agrees that if the transactions
contemplated by this Agreement are not consummated (other than as a result of a
breach or default by Lucent or Acquisition), it shall indemnify and hold
Acquisition and Lucent harmless against any and all claims, losses, liabilities,
costs or expenses which may be asserted against them as a result of the
Company's or any of its Affiliates' dealings, arrangements or agreements with
any such Person.
8.2 Acquisition and Lucent. Acquisition and Lucent represent and warrant
to the Company that no broker, investment banker or financial advisor is
entitled to any brokerage fee, financing commission or other commission in
respect of the execution of this Agreement or the consummation of the
transactions contemplated hereby. Acquisition and Lucent agree that if the
transactions contemplated hereby are not consummated (other than as a result of
a breach or default by the Company), they shall jointly and severally indemnify
and hold the Company and the shareholders of the Company harmless against any
and all claims, losses, liabilities, costs or expenses which may be asserted
against them, as a result of Acquisition's or Lucent's or any of their
respective Affiliates' dealings, arrangements or agreements with any such
Person.
9. Expenses. Each party hereto shall pay its own expenses incidental to
the preparation of this Agreement, the carrying out of the provisions of this
Agreement and the consummation of the transactions contemplated hereby, except
that all printing expenses and SEC filing fees shall be divided equally between
Lucent and the Company.
10. Press Releases. Except as required by law or Lucent's listing
agreement with the New York Stock Exchange, Acquisition, Lucent and the Company
shall not issue any press release or otherwise make public any information with
respect to this Agreement nor the transactions contemplated hereby, prior to the
Closing, without the prior written consent of the other parties to this
Agreement.
11. Contents of Agreement; Parties in Interest; etc. This Agreement and
the agreements expressly referred to or contemplated herein and the letter
agreement dated August 12, 1997 concerning confidentiality (the "Confidentiality
Agreement") set forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby, and, except as set forth in
this Agreement, such other agreements, the Exhibits hereto and the
Confidentiality Agreement, there are no representations or warranties, express
or implied, made by any party to this Agreement with respect to the subject
matter of this Agreement and the Confidentiality Agreement. Except for the
matters set forth in the Confidentiality Agreement, any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof,
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<PAGE> 95
whether written or oral, are superseded by this Agreement and the agreements
referred to or contemplated herein.
12. Assignment and Binding Effect. This Agreement may not be assigned by
either party hereto without the prior written consent of the other party;
provided, that Acquisition may assign its rights and obligations under this
Agreement to any directly or indirectly wholly-owned subsidiary of Lucent, upon
written notice to the Company if the assignee shall assume the obligations of
Acquisition hereunder and Lucent shall remain liable for its obligations
hereunder. All the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
13. Waiver. Any term or provision of this Agreement may be waived at any
time by the party entitled to the benefit thereof only by a written instrument
duly executed by such party.
14. Termination.
This Agreement may be terminated, and the Merger may be abandoned at any
time prior to the Effective Time whether before or after the approval and
adoption of this Agreement and the transactions contemplated hereby by the
shareholders of the Company or the shareholders of Acquisition:
(a) by the mutual agreement of Lucent and the Company;
(b) by Lucent, Acquisition or the Company if (i) the Effective Time
shall not have occurred by March 31, 1998; provided that the right to
terminate this Agreement under this Section 14(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date; or (ii) any court of competent jurisdiction
in the United States or other United States governmental authority shall
have issued an order, decree, ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable;
(c) by the Company in the event Lucent or Acquisition materially
breaches its obligations under this Agreement, unless such breach is cured
within 10 business days after notice to Lucent by the Company; or
(d) by Lucent or Acquisition in the event the Company materially
breaches its obligations under this Agreement unless such breach is cured
within 10 business days after notice by Lucent or Acquisition.
15. Definitions. As used in this Agreement the terms set forth below
shall have the following meanings:
(a) "Affiliate" of a Person means any other Person who (i) directly or
indirectly through one or more intermediaries controls, is controlled by or
is under common control with, such Person or (ii) owns more than 5% of the
capital stock or equity interest in such Person. "Control" means the
possession of the power, directly or indirectly, to direct or cause the
direction of the management and policies of a Person whether through the
ownership of voting securities, by contract or otherwise.
(b) "Benefit Plan" shall mean any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other material plan,
arrangement or understanding (whether or not legally binding) providing
material benefits to any current or former employee, officer or director of
the Company or any Subsidiary.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Environmental Laws" shall mean all applicable federal, state,
local or foreign laws, rules and regulations, orders, decrees, judgments,
permits and licenses relating to protection and clean-up of the environment
and activities or conditions related thereto, including those relating to
the generation, handling, disposal, transportation or release of Hazardous
Substances.
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<PAGE> 96
(e) "Exchange Agent" shall mean a bank or trust company designated as
the exchange agent by Lucent (which designation shall be reasonably
acceptable to the Company).
(f) "GAAP" shall mean generally accepted accounting principles.
(g) "Hazardous Substances" shall mean any and all hazardous and toxic
substances, wastes or materials, any pollutants, contaminants, or dangerous
materials (including, but not limited to, polychlorinated biphenyls, PCBs,
friable asbestos, volatile and semi-volatile organic compounds, oil,
petroleum products and fractions, and any materials which include hazardous
constituents or become hazardous, toxic, or dangerous when their
composition or state is changed), or any other similar substances or
materials.
(h) "Liens" shall mean any mortgage, pledge, lien, security interest,
conditional or installment sale agreement, encumbrance, charge or other
claims of third parties of any kind.
(i) "Person" shall mean any individual, corporation, partnership,
limited partnership, limited liability company, trust, association or
entity or government agency or authority.
(j) "Subsidiary" shall mean any corporation, partnership, joint
venture or other entity in which the Company (a) owns, directly or
indirectly, 50% or more of the outstanding voting securities or equity
interests or (b) is a general partner.
(k) "Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall
mean any federal, state, local or foreign net income, gross income, gross
receipts, windfall profit, severance, property, production, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, value-added, transfer, stamp, or
environmental tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority.
(l) "Tax Return" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim
for refund, amended return or declaration of estimated Tax.
16. Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by facsimile transmission (promptly
followed by a hard-copy delivered in accordance with this Section 16), by
reputable overnight courier service or by registered or certified mail (return
receipt requested), with postage and registration or certification fees thereon
prepaid, addressed to the party at its address set forth below:
If to Acquisition or Lucent:
Lucent Technologies Inc.
c/o Business Communications Systems
211 Mt. Airy Road
Basking Ridge, New Jersey 07920
Attn: President
with copies to:
Lucent Technologies Inc.
c/o Business Communications Systems
211 Mt. Airy Road
Basking Ridge, New Jersey 07920
Attn: General Counsel, Business Communications Systems
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<PAGE> 97
If to the Company:
Livingston Enterprises, Inc.
4464 Willow Road
Pleasanton, California 94588
Attn: Steven M. Willens
with a copy to:
Wilson Sonsini Goodrich & Rosati
A Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attn: Steven E. Bochner, Esq.
or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telegraphed or mailed.
17. Amendment. This Agreement shall not be amended, modified, revised,
supplemented or terminated orally and no waiver of compliance with any provision
hereof and no consent provided for herein shall be effective other than by a
written instrument executed by the parties hereto. This Agreement may be amended
upon the taking of requisite corporate action by the parties hereto.
18. Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of California without
giving effect to any California choice of law principles.
19. No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto, and their respective successors and assigns, and they shall not be
construed as conferring, and are not intended to confer, any rights on any other
Person other than, in the case of Section 5.9, as expressly provided therein.
20. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of the Agreement shall
remain in full force and effect. Upon such determination, the parties hereto
shall negotiate in good faith to modify this Agreement so as to give effect to
the original intent of the parties to the fullest extent permitted by applicable
law.
21. Extensions. At any time prior to the Effective Time, either party may
by appropriate action, extend the time for compliance by or waive performance of
any representation, warranty, agreement, condition or obligation of the other
party.
22. Section Headings. All section headings are for convenience only and
shall in no way modify or restrict any of the terms or provisions hereof.
23. Schedules and Exhibits. All Schedules and Exhibits referred to herein
are intended to be and hereby are specifically made a part of this Agreement.
24. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and the Company,
Acquisition and Lucent may become a party hereto by executing a counterpart
hereof. This Agreement and any counterpart so executed shall be deemed to be one
and the same instrument.
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<PAGE> 98
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement on the date first above written.
<TABLE>
<S> <C>
Attest: LUCENT TECHNOLOGIES INC.
By: /s/ WILLIAM O'SHEA
- --------------------------------------------- ---------------------------------------------
Secretary Title: President, BCS
Attest: LASALLE ACQUISITION, INC.
/s/ JEAN F. RANKIN By: /s/ PAUL D. DICZOK
- --------------------------------------------- ---------------------------------------------
Secretary Title: Chief Financial Officer
Attest: LIVINGSTON ENTERPRISES, INC.
/s/ RONALD WILLENS By: /s/ STEVEN M. WILLENS
- --------------------------------------------- ---------------------------------------------
Secretary Title: President and Chief Executive Officer
</TABLE>
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<PAGE> 99
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
- -------------------------------------------------------------------------- ----------------------
<S> <C>
Acquisition............................................................... Preamble
Acquisition Common Stock.................................................. Recitals
Acquisition Proposal...................................................... Section 5.4
Affiliate................................................................. Section 15(a)
Agreement................................................................. Recitals
Agreement of Merger....................................................... Section 1.1(b)
Authorizations............................................................ Section 3.13(b)
Benefit Plan.............................................................. Section 15(b)
California Code........................................................... Section 1.1(b)
Certificate of Merger..................................................... Section 1.1(b)
Certificates.............................................................. Section 1.8(b)
Closing................................................................... Section 1.1(b)
Closing Date.............................................................. Section 1.1(b)
Code...................................................................... Section 15(c)
Commonly Controlled Entity................................................ Section 3.16(a)
Company................................................................... Preamble
Company Common Stock...................................................... Recitals
Confidentiality Agreement................................................. Section 11
Control................................................................... Section 15(a)
Dissenting Shares......................................................... Section 1.7
Effective Time............................................................ Section 1.1(b)
Environmental Laws........................................................ Section 15(d)
ERISA..................................................................... Section 3.16(a)
Exchange Act.............................................................. Section 4.2(c)
Exchange Agent............................................................ Section 15(e)
Exchange Fund............................................................. Section 1.8(a)
Exchange Ratio............................................................ Section 1.5(c)
Executive Employees....................................................... Section 3.17
Financial Statements...................................................... Section 3.5(a)
GAAP...................................................................... Section 15(f)
Hazardous Substances...................................................... Section 15(g)
HSR Act................................................................... Section 3.3(a)
Immaterial Authorizations................................................. Section 3.13(b)
Incentive Stock Options................................................... Section 5.8(b)
Indemnified Party......................................................... Section 5.9
Intellectual Property Rights.............................................. Section 3.14(a)
IRS....................................................................... Section 3.15(c)
Laws...................................................................... Section 3.13
Liens..................................................................... Section 15(h)
Lucent.................................................................... Preamble
Lucent Balance Sheet...................................................... Section 4.5(b)
Lucent Common Stock....................................................... Section 4.3(a)
Lucent Financials......................................................... Section 4.5(b)
Lucent Preferred Stock.................................................... Section 4.3(a)
Lucent SEC Reports........................................................ Section 4.5(a)
Material Adverse Effect................................................... Section 3.1
</TABLE>
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<PAGE> 100
<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
- -------------------------------------------------------------------------- ----------------------
<S> <C>
Merger.................................................................... Recitals
NYSE...................................................................... Section 1.9
Pension Plans............................................................. Section 3.16(a)
Person.................................................................... Section 15(i)
Plans..................................................................... Section 3.16(a)
Registration Statement.................................................... Section 4.2(a)
Restricted Stock Agreement................................................ Section 5.8(e)
Right..................................................................... Section 1.5(c)
SEC....................................................................... Section 4.2(a)
Securities Act............................................................ Section 4.2(a)
Shares.................................................................... Section 3.2(a)
Stock Options............................................................. Section 5.8(a)
Subsidiary................................................................ Section 15(j)
Substitute Option......................................................... Section 5.8(a)
Substitute Restricted Stock............................................... Section 5.8(e)
Supplemental Financial Information........................................ Section 5.3(c)
Surviving Corporation..................................................... Section 1.1(a)
Tax....................................................................... Section 15(k)
Tax Return................................................................ Section 15(l)
Welfare Plans............................................................. Section 3.16(a)
1994 Stock Plan........................................................... Section 5.8(a)
1997 Balance Sheet........................................................ Section 3.5(a)
</TABLE>
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<PAGE> 101
APPENDIX B
CALIFORNIA CORPORATIONS CODE
DISSENTERS' RIGHTS -- CHAPTER 13
SECTION 1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted the endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under
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such sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subsection (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE -- TIME FOR PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. DISSENTERS' ACTION TO ENFORCE PAYMENT
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
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(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISERS' REPORT -- PAYMENT -- COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING
SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
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SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT OF PENDING
LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a
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determination by the court that clearly no other remedy will adequately protect
the complaining shareholder or the class of shareholders of which such
shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation, a "derivative action") if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such actions, and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's bylaws, disinterested director vote, stockholder
vote, agreement or otherwise.
The Lucent Certificate provides that each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of Lucent or is or was serving
at the request of Lucent as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, will be indemnified and held harmless by Lucent to
the fullest extent authorized by the DGCL, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits Lucent to provide broader indemnification rights than said law
permitted Lucent to provide prior to such amendment), against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith. Such right to indemnification includes the right to have Lucent pay
the expenses incurred in defending any such proceeding in advance of its final
disposition, subject to the provisions of the DGCL. Such rights are not
exclusive of any other right which any person may have or thereafter acquire
under any statute, provision of the Certificate, Lucent By-Law, agreement, vote
of stockholders or disinterested directors or otherwise. No repeal or
modification of such provision will in any way diminish or adversely affect the
rights of any director, officer, employee or agent of Lucent thereunder in
respect of any occurrence or matter arising prior to any such repeal or
modification. The Certificate also specifically authorizes Lucent to maintain
insurance and to grant similar indemnification rights to employees or agents of
Lucent.
The DGCL permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) payments of unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
The Lucent Certificate provides that a director of Lucent will not be
personally liable to Lucent or its stockholders for monetary damages for breach
of fiduciary duty as a director, except, if required by the Lucent as amended
from time to time, for liability (i) for any breach of the director's duty of
loyalty to Lucent or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit. Neither the amendment
nor repeal of such provision will eliminate or reduce the effect of such
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provision in respect of any matter occurring, or any cause of action, suit or
claim that, but for such provision, would accrue or arise prior to such
amendment or repeal.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a list of Exhibits included as part of this Registration
Statement. Lucent agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request. Items marked with an asterisk are filed
herewith.
<TABLE>
<C> <S>
*2.1 Agreement and Plan of Merger dated as of October 14, 1997 among Lucent Technologies
Inc., LaSalle Acquisition, Inc. and Livingston Enterprises, Inc. (included as
Appendix A to the Proxy Statement/Prospectus).
3.1 Restated Certificate of Incorporation of Lucent is hereby incorporated by reference
to Exhibit No. (3.1) to Amendment No. 3 to the Registration Statement on Form S-1 of
Lucent filed with the SEC on April 1, 1996 (Registration No. 333-00703) ("Amendment
No. 3").
3.2 By-Laws of Lucent are hereby incorporated by reference to Exhibit No. (3.2) to
Amendment No. 3.
4.3 Rights Agreement between Lucent and First Chicago Trust Company of New York, as
Rights Agent, dated as of April 4, 1996 in hereby incorporated by reference to
Exhibit No. (4.2) to Amendment No.3.
+5.1 Opinion of Lucent Vice President - Law, as to the legality of the securities being
registered.
+8.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation as to certain
United States federal income tax consequences of the Merger.
+11.1 Statement re: Computation of Per Share Earnings.
*23.1 Consent of KPMG Peat Marwick LLP, dated November 7, 1997.
*23.2 Consent of Coopers & Lybrand L.L.P., dated November 7, 1997.
+23.3 Consent of Lucent Vice President - Law (included as part of Exhibit 5.1) dated
October 23, 1997.
+23.4 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included as
part of Exhibit 8.1) dated October 23, 1997.
+23.5 Consent of Lucent Vice President - Taxes and Tax Counsel dated October 23, 1997.
+24.1 Powers of Attorney.
+99.1 Form of proxy to be mailed to holders of Livingston Common Stock.
</TABLE>
- ---------------
* Filed herewith
+ Previously filed with Initial Registration Statement on Form S-4 on October
23, 1997.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar amount of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
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(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Proxy Statement/Prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this registration statement
through the date of responding to the request.
(f) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement or amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in Murray
Hill, New Jersey, on the 7th day of November, 1997.
LUCENT TECHNOLOGIES INC.
<TABLE>
<S> <C>
By: JAMES S. LUSK By: /s/ FLORENCE L. WALSH
- --------------------------------------------- ---------------------------------------------
Vice President and Controller (Florence L. Walsh, attorney-in-fact)*
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement or amendment thereto has been signed by the
following persons in the capacities and on the date indicated.
Principal Executive Officer:
Richard A. McGinn
Chief Executive Officer
Principal Financial Officer:
Donald K. Peterson
Executive Vice President
and Chief Financial Officer
Principal Accounting Officer:
James S. Lusk
Vice President and Controller
Directors:
Paul A. Allaire
Carla A. Hills
Drew Lewis
Richard A. McGinn
Paul H. O'Neill
Donald S. Perkins
Henry B. Schacht
Franklin A. Thomas
John A. Young.
By: /s/ FLORENCE L. WALSH
------------------------------------
(Florence L Walsh,
attorney-in-fact)*
November 7, 1997
*by power of attorney
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<PAGE> 110
EXHBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ -------------------------------------------------------------------------- ----------
<C> <S> <C>
*2.1 Agreement and Plan of Merger dated as of October 14, 1997 among Lucent
Technologies Inc., LaSalle Acquisition, Inc. and Livingston Enterprises,
Inc. (included as Appendix A to the Proxy Statement/Prospectus).
3.1 Restated Certificate of Incorporation of Lucent is hereby incorporated by
reference to Exhibit No. (3.1) to Amendment No. 3 to the Registration
Statement on Form S-1 of Lucent filed with the SEC on April 1, 1996
(Registration No. 333-00703) ("Amendment No. 3").
3.2 By-Laws of Lucent are hereby incorporated by reference to Exhibit No.
(3.2) to Amendment No. 3.
4.3 Rights Agreement between Lucent and First Chicago Trust Company of New
York, as Rights Agent, dated as of April 4, 1996 in hereby incorporated by
reference to Exhibit No. (4.2) to Amendment No. 3.
+5.1 Opinion of Lucent Vice President - Law, as to the legality of the
securities being registered.
+8.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation as
to certain United States federal income tax consequences of the Merger.
+11.1 Statement re: Computation of Per Share Earnings.
*23.1 Consent of KPMG Peat Marwick LLP, dated November 7, 1997.
*23.2 Consent of Coopers & Lybrand L.L.P., dated November 7, 1997.
+23.3 Consent of Lucent Vice President - Law (included as part of Exhibit 5.1)
dated October 23, 1997.
+23.4 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included as part of Exhibit 8.1) dated October 23, 1997.
+23.5 Consent of Lucent Vice President - Taxes and Tax Counsel dated October 23,
1997.
+24.1 Powers of Attorney.
+99.1 Form of proxy to be mailed to holders of Livingston Common Stock.
</TABLE>
- ---------------
* Filed herewith
+ Previously filed with Initial Registration Statement on Form S-4 on October
23, 1997.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in Amendment No. 1 to the Registration
Statement dated November 7, 1997 on Form S-4 of Livingston Enterprises, Inc. of
our report dated September 26, 1997, except as to Notes 10 and 11, which are as
of October 14, 1997, for the years ended August 31, 1996 and 1997 and for each
of the years in the three-year period ended August 31, 1997 and to the reference
to our firm under the headings "Summary Selected Financial
Information -- Livingston" and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Palo Alto, California
November 7, 1997
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Amendment No. 1 to the
registration statement of Lucent Technologies Inc. on Form S-4 (File No.
333-38569) of our report dated October 24, 1996, on our audits of the
consolidated financial statements and financial statement schedule of Lucent
Technologies Inc. and subsidiaries at September 30, 1996, and December 31, 1995
and for the nine months ended September 30, 1996 and for the years ended
December 31, 1995 and 1994 which report is included in the Company's Transition
Report on Form 10-K. We also consent to the reference to our firm under the
caption "Experts."
/s/ Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York
November 6, 1997
