<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LUCENT TECHNOLOGIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<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, ESQ.
VICE PRESIDENT -- LAW AND SECRETARY
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:
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<S> <C>
ROBERT I. TOWNSEND, III, ESQ. ELIZABETH FLINT, ESQ.
CRAVATH, SWAINE & MOORE WILSON SONSINI GOODRICH & ROSATI
WORLDWIDE PLAZA, 825 EIGHTH AVENUE 650 PAGE MILL ROAD
NEW YORK, NEW YORK 10019 PALO ALTO, CALIFORNIA 94304
(212) 474-1000 (656) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the merger referred to herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT OFFERING PRICE(2) REGISTRATION FEE(3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share, and related preferred stock
purchase rights(4)................... 64,936,712 N/A $4,073,872,355.44 $1,132,537
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</TABLE>
(1) Based on the maximum number of shares to be issued in connection with the
merger, calculated as the product of (a) 76,639,574, the aggregate number of
shares of International Network Services ("INS") common stock, par value
$0.001 per share, outstanding on September 1, 1999 (other than shares owned
by INS, Intrepid Merger Inc., a wholly owned subsidiary of the registrant,
or the registrant) or issuable pursuant to outstanding options prior to the
date the merger is expected to be consummated and (b) an exchange ratio of
0.8473 shares of the registrant's common stock for each share of INS common
stock.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act, and calculated pursuant to
Rule 457(f) under the Securities Act. Pursuant to Rule 457(f)(1) under the
Securities Act, the proposed maximum aggregate offering price of the
registrant's common stock was calculated in accordance with Rule 457(c)
under the Securities Act as: (a) $53.15625, the average of the high and low
prices per share of INS common stock on September 9, 1999 as reported on The
Nasdaq National Market, multiplied by (b) 76,639,574, the aggregate number
of shares of INS common stock outstanding on September 1, 1999 or issuable
pursuant to outstanding options prior to the date the merger is expected to
be completed.
(3) Pursuant to Rule 457(b) under the Securities Act, $604,265 of the
registration fee was paid on August 26, 1999 in connection with the filing
of preliminary proxy materials of INS on August 27, 1999 and $528,272 of the
registration fee was paid on September 14, 1999 in connection with the
filing of this registration statement by the registrant on September 15,
1999.
(4) No separate consideration will be received for the rights, which initially
will trade together with the common stock.
------------------------
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 OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
[INTERNATIONAL NETWORK SERVICES LOGO]
INTERNATIONAL NETWORK SERVICES
1213 INNSBRUCK DRIVE
SUNNYVALE, CA 94089
SEPTEMBER 15, 1999
Dear Stockholder:
You are cordially invited to attend our special meeting of stockholders on
Friday, October 15, 1999, at 9:00 a.m., local time, at our headquarters at 1213
Innsbruck Drive, Sunnyvale, California 94089.
At the special meeting, we will ask you to vote on the merger of INS and
Lucent Technologies Inc. In the merger, you will receive 0.8473 shares of Lucent
common stock for each share of INS common stock that you own. Lucent common
stock is listed on the New York Stock Exchange under the trading symbol "LU" and
on September 13, 1999, Lucent common stock closed at $66 3/4 per share. You will
receive cash for any fractional shares of Lucent common stock which you would
otherwise receive in the merger.
We cannot complete the merger unless the holders of a majority of the
outstanding shares of INS common stock vote to adopt the merger agreement. Only
stockholders who hold shares of INS common stock at the close of business on
September 1, 1999 will be entitled to vote at the special meeting.
YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS RELATING TO
THE MERGER" COMMENCING ON PAGE 12 OF THE ENCLOSED PROXY STATEMENT/PROSPECTUS
BEFORE VOTING. PLEASE REVIEW CAREFULLY THE ENTIRE PROXY STATEMENT/PROSPECTUS.
AFTER CAREFUL CONSIDERATION, INS' BOARD OF DIRECTORS HAS APPROVED THE
MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO YOU AND IN YOUR BEST
INTERESTS AND RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
Thank you for your cooperation.
Sincerely,
/s/ John L. Drew
John L. Drew
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger described in the proxy
statement/prospectus or the Lucent common stock to be issued in connection with
the merger, or determined if the proxy statement/prospectus is accurate or
adequate. Any representation to the contrary is a criminal offense.
THE PROXY STATEMENT/PROSPECTUS IS DATED SEPTEMBER 15, 1999,
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT SEPTEMBER 16, 1999.
<PAGE> 3
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Lucent and INS from documents that are not included
in or delivered with this proxy statement/prospectus. This information is
available to you without charge upon your written or oral request. You can
obtain documents incorporated by reference in this proxy statement/prospectus by
requesting them in writing or by telephone from the appropriate company at the
following addresses and telephone numbers:
<TABLE>
<S> <C>
Lucent Technologies Inc. International Network Services
c/o The Bank of New York 1213 Innsbruck Drive
Church Street Station Sunnyvale, California 94089
P.O. Box 11009 Investor Relations
New York, New York 10286-1009 Telephone: (650) 318-1151
Telephone: 1-888-LUCENT6
</TABLE>
If you would like to request documents, please do so by October 8, 1999 in
order to receive them before the special meeting.
See "Where You Can Find More Information" on page 56.
<PAGE> 4
[INTERNATIONAL NETWORK SERVICES LOGO]
INTERNATIONAL NETWORK SERVICES
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1999
To the Stockholders of International Network Services:
We will hold a special meeting of the stockholders of International Network
Services on Friday, October 15, 1999, at 9:00 a.m., local time, at our
headquarters at 1213 Innsbruck Drive, Sunnyvale, California 94089, for the
following purpose:
To consider and vote upon a proposal to adopt the merger agreement among
Lucent Technologies Inc., Intrepid Merger Inc., a wholly owned subsidiary
of Lucent, and INS. Under the merger agreement, each outstanding share of
INS common stock will be converted into the right to receive 0.8473 shares
of Lucent common stock.
We will transact no other business at the special meeting, except such
business as may properly be brought before the special meeting or any
adjournment of it by the INS board of directors.
Only holders of record of shares of INS common stock at the close of
business on September 1, 1999, the record date for the special meeting, are
entitled to notice of, and to vote at, the special meeting and any adjournments
or postponements of it.
We cannot complete the merger unless the holders of a majority of the
outstanding shares of INS common stock vote to adopt the merger agreement.
Holders of INS common stock have no appraisal rights under Delaware law in
connection with the merger.
FOR MORE INFORMATION ABOUT THE MERGER, PLEASE REVIEW THE ACCOMPANYING PROXY
STATEMENT/ PROSPECTUS AND THE MERGER AGREEMENT ATTACHED AS ANNEX 1.
Whether or not you plan to attend the special meeting, please complete,
sign and date the enclosed proxy and return it promptly in the enclosed
postage-paid envelope. If you do not vote by proxy or in person at the special
meeting, it will count as a vote against the merger agreement.
Please do not send any stock certificates at this time.
By Order of the Board of Directors,
/s/ Kevin J. Laughlin
Kevin J. Laughlin
Vice President, Finance,
Chief Financial Officer and Secretary
Sunnyvale, California
September 15, 1999
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... i
SUMMARY..................................................... 1
General................................................... 1
The Special Meeting....................................... 2
The Merger................................................ 2
The Companies............................................. 5
Selected Consolidated Historical Financial Data........... 9
Lucent................................................. 9
INS.................................................... 11
RISK FACTORS RELATING TO THE MERGER......................... 12
The exchange ratio for Lucent common stock to be received
in the merger is fixed and will not be adjusted in the
event of any change in stock price..................... 12
The integration of Lucent and INS following the merger
will present significant challenges.................... 12
Integrating Lucent and INS may compromise the market's
perception of INS as a vendor independent provider of
network services....................................... 12
The price of Lucent common stock may be affected by
factors different from those affecting the price of INS
common stock........................................... 12
THE SPECIAL MEETING......................................... 14
Date, Time and Place...................................... 14
Purpose of Special Meeting................................ 14
Record Date; Stock Entitled to Vote; Quorum............... 14
Votes Required............................................ 14
Voting by INS Directors and Executive Officers............ 14
Voting of Proxies......................................... 14
Revocability of Proxies................................... 15
Solicitation of Proxies................................... 15
THE COMPANIES............................................... 16
INS....................................................... 16
Lucent.................................................... 16
Material Contracts between Lucent and INS................. 16
THE MERGER.................................................. 17
Background to the Merger.................................. 17
Reasons for the Merger and Board of Directors
Recommendation......................................... 19
Opinion of Morgan Stanley & Co. Incorporated.............. 20
Interests of INS Directors and Management in the Merger... 26
Accounting Treatment...................................... 28
Form of the Merger........................................ 28
Merger Consideration...................................... 29
Conversion of Shares; Procedures for Exchange of
Certificates; Fractional Shares........................ 29
</TABLE>
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PAGE
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<S> <C>
Effective Time of the Merger.............................. 30
Stock Exchange Listing of Lucent Common Stock............. 30
Delisting and Deregistration of INS Common Stock.......... 30
Material United States Federal Income Tax Consequences of
the Merger............................................. 30
Regulatory Matters........................................ 31
Appraisal Rights.......................................... 32
Continuation of INS Employee Benefits..................... 32
Effect on Awards Outstanding Under INS Stock Plans;
Warrants............................................... 33
Resale of Lucent Common Stock............................. 34
THE MERGER AGREEMENT, STOCK OPTION AGREEMENT AND STOCKHOLDER
AGREEMENT................................................. 35
The Merger Agreement...................................... 35
The Stock Option Agreement................................ 42
The Stockholder Agreement................................. 44
COMPARATIVE STOCK PRICES AND DIVIDENDS...................... 46
DESCRIPTION OF LUCENT CAPITAL STOCK......................... 47
COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS OF LUCENT AND
INS....................................................... 47
Capitalization............................................ 47
Voting Rights............................................. 48
Number, Election, Vacancy and Removal of Directors........ 48
Amendments to Certificates of Incorporation............... 49
Amendments to By-Laws..................................... 49
Stockholder Action........................................ 50
Notice of Certain Stockholder Actions..................... 50
Special Stockholder Meetings.............................. 50
Limitation of Personal Liability of Directors............. 50
Dividends................................................. 51
Conversion................................................ 51
Rights Plan............................................... 51
LEGAL MATTERS............................................... 54
EXPERTS..................................................... 54
STOCKHOLDER PROPOSALS....................................... 55
OTHER MATTERS............................................... 55
WHERE YOU CAN FIND MORE INFORMATION......................... 56
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 59
Annexes
Annex 1 Agreement and Plan of Merger
Annex 2 Stock Option Agreement
Annex 3 Stockholder Agreement
Annex 4 Opinion of Morgan Stanley & Co.
Incorporated
</TABLE>
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE LUCENT AND INS PROPOSING TO MERGE?
A: We believe that together Lucent and INS will offer customers the industry's
deepest portfolio of communications network planning, design, integration,
maintenance and management solutions.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, please complete and sign your proxy and return it
in the enclosed return envelope as soon as possible, so that your shares may
be represented at the special meeting. If you sign and send in your proxy and
do not indicate how you want to vote, we will count your proxy as a vote in
favor of adoption of the merger agreement. If you abstain from voting or do
not vote, it will have the effect of a vote against adoption of the merger
agreement.
The special meeting will take place on October 15, 1999. You may attend the
special meeting and vote your shares in person, rather than signing and
mailing your proxy.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you
can complete and submit a new proxy. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy to the
Secretary of INS at the address set forth below. Third, you can attend the
special meeting and vote in person.
Q: IF MY INS SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will vote your INS shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares. Without instructions, your
shares will not be voted, which will have the effect of a vote against
adoption of the merger agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written instructions for
exchanging your stock certificates. Please do not send in your stock
certificates with your proxy.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger during the fourth calendar quarter of 1999.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional copies
of this proxy statement/prospectus or the enclosed proxy, you should contact:
International Network Services
Investor Relations
1213 Innsbruck Drive
Sunnyvale, California 94089
Telephone: (650) 318-1151
i
<PAGE> 8
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and does not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should carefully read this
entire proxy statement/prospectus and the other documents to which we have
referred you. See "Where You Can Find More Information" on page 56. We have
included page references parenthetically to direct you to a more complete
description of the topics presented in this summary.
GENERAL
WHAT INS STOCKHOLDERS WILL RECEIVE IN THE MERGER (page 29)
In the merger, holders of INS common stock will receive 0.8473 shares of
Lucent common stock for each share of INS common stock that they own.
Stockholders will receive cash for any fractional shares which they would
otherwise receive in the merger.
OWNERSHIP OF LUCENT FOLLOWING THE MERGER
Based on the number of outstanding shares of INS common stock on the record
date, we anticipate that INS stockholders will receive approximately 48,737,585
shares of Lucent common stock in the merger. Based on that number and on the
number of outstanding shares of Lucent common stock on the record date,
following the merger former INS stockholders will own approximately 1.6% of the
outstanding shares of Lucent common stock.
APPRAISAL RIGHTS (page 32)
INS stockholders have no appraisal rights in connection with the merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (page 30)
The merger will qualify as a reorganization within the meaning of the
Internal Revenue Code of 1986. Holders of INS common stock will not recognize
gain or loss for United States federal income tax purposes as a result of the
exchange of their INS common stock for Lucent common stock in the merger, except
for cash received instead of fractional shares of Lucent common stock.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO
YOU.
BOARD OF DIRECTORS RECOMMENDATION TO STOCKHOLDERS (page 20)
The INS board of directors believes that the terms of the merger and the
merger agreement are fair to and in the best interests of INS and its
stockholders and recommends that the stockholders vote "for" the adoption of the
merger agreement.
To review the background and reasons for the merger in greater detail, as
well as certain risks related to the merger, see pages 12 and 17-20.
FAIRNESS OPINION OF FINANCIAL ADVISOR
(page 20)
In deciding to approve the merger, the INS board of directors considered
the opinion, as of the date of the merger agreement, of its financial advisor,
Morgan Stanley & Co. Incorporated, as to the fairness of the exchange ratio in
the merger to INS stockholders from a financial point of view. This opinion is
attached as Annex 4 to this proxy statement/ prospectus. WE ENCOURAGE
STOCKHOLDERS TO READ THIS OPINION CAREFULLY.
1
<PAGE> 9
INTERESTS OF INS DIRECTORS AND MANAGEMENT IN THE MERGER (page 26)
INS stockholders should note that a number of directors and officers of INS
have interests in the merger as directors or officers that are different from,
or in addition to, those of a stockholder. If we complete the merger,
indemnification arrangements for current directors and officers of INS will be
continued and certain current executive officers of INS will be retained as
employees of Lucent. John L. Drew, President and Chief Executive Officer of INS,
will lead Lucent's NetCare unit which designs and sets up data networks, and
with which INS will be combined after the merger. Several of INS' executive
officers may be entitled to severance payments under existing change of control
agreements as a result of the merger. In addition, directors, officers and
employees with stock options to acquire INS common stock will have these options
converted to stock options to acquire Lucent common stock, and a portion of the
stock options held by certain executive officers will become fully vested and
exercisable as a result of the merger.
THE SPECIAL MEETING (page 14)
The special meeting of INS stockholders will be held at our headquarters at
1213 Innsbruck Drive, Sunnyvale, California 94089, at 9:00 a.m., local time, on
Friday, October 15, 1999. At the special meeting, stockholders will be asked to
adopt the merger agreement.
RECORD DATE; VOTING POWER
INS stockholders are entitled to vote at the special meeting if they owned
shares as of the close of business on September 1, 1999, the record date.
On the record date, there were 57,521,050 shares of INS common stock
entitled to vote at the special meeting. Stockholders will have one vote at the
special meeting for each share of INS common stock that they owned on the record
date.
VOTE REQUIRED
The affirmative vote of a majority of the shares of INS common stock
outstanding on the record date is required to adopt the merger agreement.
VOTING BY INS DIRECTORS AND EXECUTIVE OFFICERS
On the record date, directors and executive officers of INS and their
affiliates owned and were entitled to vote 17,362,757 shares of INS common
stock, or approximately 30.2% of the shares of INS common stock outstanding on
the record date. The directors and executive officers of INS have indicated that
they intend to vote the INS common stock owned by them "for" adoption of the
merger agreement.
THE MERGER (page 35)
The merger agreement is attached as Annex 1 to this proxy
statement/prospectus. We encourage you to read the merger agreement. It is the
principal document governing the merger.
CONDITIONS TO THE MERGER (page 35)
Lucent and INS will complete the merger only if they satisfy or, in some
cases, waive several conditions, including the following:
- holders of a majority of the outstanding shares of INS common stock must
adopt the merger agreement
- the waiting period required under the Hart-Scott-Rodino Act must expire
or be terminated
- no legal restraints or prohibitions may exist which prevent the
completion of the merger, prohibit or limit the owner-
2
<PAGE> 10
ship or operation of any material portion of INS or Lucent, or are
reasonably likely to have a material adverse effect on Lucent or INS
- Lucent common stock issuable to INS stockholders must have been approved
for listing on the New York Stock Exchange
- Wilson Sonsini Goodrich & Rosati, Professional Corporation must deliver
an opinion to INS and Cravath, Swaine & Moore must deliver an opinion to
Lucent, in each case stating that the merger will qualify for United
States federal income tax purposes as a reorganization within the meaning
of the Internal Revenue Code
- Lucent and INS must satisfy the representations, warranties and covenants
contained in the merger agreement in all material respects.
In addition, Lucent's obligation to complete the merger is subject to
satisfaction or waiver by Lucent of the following condition:
- Lucent and INS must each receive a letter from PricewaterhouseCoopers LLP
regarding such firm's concurrence with Lucent and INS managements'
conclusions that pooling of interests accounting is appropriate for the
merger under Accounting Principles Board Opinion No. 16 if completed in
accordance with the merger agreement.
TERMINATION OF THE MERGER AGREEMENT (page 38)
1. Lucent and INS can jointly agree to terminate the merger agreement at
any time without completing the merger.
2. Lucent or INS can terminate the merger agreement if:
- Lucent and INS do not complete the merger by April 30, 2000
- the holders of a majority of the outstanding shares of INS common stock
do not adopt the merger agreement
- a governmental authority or other legal action permanently prohibits the
completion of the merger, permanently prohibits or limits the ownership
or operation of any material portion of INS or Lucent or is reasonably
likely to have a material adverse effect on either Lucent or INS
- the other party breached in any material respect any of its
representations, warranties or obligations under the merger agreement and
has not cured the breach within 30 days after written notice.
3. Before the special meeting, INS can terminate the merger agreement if
the INS board of directors receives an unsolicited proposal by a third party to
acquire INS on terms determined by the INS board of directors to be more
favorable to INS stockholders than the terms of the merger with Lucent.
4. Lucent can also terminate the merger agreement if INS or any of its
directors or officers participates in discussions with third parties regarding
certain takeover proposals or other business transactions in breach of the
merger agreement.
TERMINATION FEES (page 38)
INS must pay Lucent a termination fee of $110 million if:
- INS or its stockholders receive a takeover proposal, or a takeover
proposal or the intention to commence one otherwise becomes publicly
known, and Lucent or INS then terminates the merger agreement for the
first or second reason described in paragraph 2 above under
"-- Termination of the Merger Agreement"
- INS terminates the merger agreement for the reason described in paragraph
3
3
<PAGE> 11
above under "-- Termination of the Merger Agreement"
- Lucent terminates the merger agreement for the reason described in
paragraph 4 above under "-- Termination of the Merger Agreement."
INS is not required to pay Lucent the termination fee for the first and
third reasons described above unless INS enters into an agreement for or
completes any takeover proposal within 15 months of the termination of the
merger agreement.
STOCK OPTION AGREEMENT (page 42)
INS has granted an option to Lucent to purchase shares of INS common stock
equal to approximately 19.9% of the number of outstanding shares of INS common
stock if certain events occur that entitle Lucent to receive the termination fee
under the merger agreement. The option agreement limits to $150 million the
total amount Lucent may receive from (1) the stock option and (2) any
termination fee payable by INS if the merger agreement is terminated.
STOCKHOLDER AGREEMENT (page 44)
To induce Lucent to enter into the merger agreement, Donald K. McKinney and
his affiliated entities, who beneficially own approximately 27.6% of INS' common
stock, entered into a stockholder agreement with Lucent. Mr. McKinney and his
affiliated entities agreed to vote all of their shares of INS common stock in
favor of the merger.
REGULATORY MATTERS (page 31)
United States antitrust laws prohibit Lucent and INS from completing the
merger until after they have furnished certain information and materials to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and a required waiting period has ended. Lucent and INS each filed the required
notification and report forms with the Antitrust Division and the Federal Trade
Commission on August 20, 1999. Lucent and INS expect the waiting period to end
on September 19, 1999, unless terminated earlier, or unless the Antitrust
Division or the FTC extends the waiting period with a request for additional
information.
The merger is also subject to German merger control regulations, which
require that a notification be filed with, and approval of the transaction be
granted by the German Federal Cartel Office. Lucent and INS submitted the
necessary notification on September 13, 1999. Lucent and INS expect the waiting
period to expire on October 13, 1999, unless terminated earlier.
Lucent and INS do not currently expect that other filings or approvals will
be required in other jurisdictions in connection with the merger. However, if
any such filings or approvals become necessary, Lucent and INS intend to take
all necessary actions to comply with such filing requirements or obtain such
approvals.
ACCOUNTING TREATMENT (page 28)
Lucent and INS expect the merger to qualify as a pooling of interests,
which means that the merger of Lucent and INS will be accounted for as if Lucent
and INS had always been combined for accounting and financial reporting
purposes. As a result, the basis of assets and liabilities will be reflected in
the financial statements at their historical book values.
EXPENSES (page 41)
Each of Lucent and INS will bear all expenses it incurs in connection with
the merger, except that Lucent and INS will share equally the costs of filing
with the Securities and Exchange Commission the registration statement of which
this proxy statement/prospectus is a part, printing and mailing this proxy
statement/prospectus and the filing fees
4
<PAGE> 12
incurred in connection with obtaining regulatory approval for the merger in the
United States.
THE COMPANIES (page 16)
INTERNATIONAL NETWORK SERVICES
1213 Innsbruck Drive
Sunnyvale, California 94089
(650) 318-1100
INS is a global provider of network consulting and software solutions. INS
provides professional services for the full life cycle of a network, including
planning, design, implementation, operations and optimization, and maintains
expertise in the most complex network technologies and multi-vendor
environments. Through its INSoft Division, INS also offers application and
network performance management software products and software services.
LUCENT TECHNOLOGIES INC.
600 Mountain Avenue
Murray Hill, New Jersey 07974
(908) 582-8500
Lucent designs, builds and delivers a wide range of public and private
networks, communications systems and software, data networking systems, business
telephone systems and microelectronic components. Lucent is a global leader in
the sale of public communications systems, and is a supplier of systems or
software to most of the world's largest network operators. Lucent is also a
global leader in the sale of business communications systems and in the sale of
microelectronic components for communications applications to manufacturers of
communications systems and computers. Lucent conducts its research and
development activities through Bell Laboratories, one of the world's foremost
industrial research and development organizations.
5
<PAGE> 13
MARKET PRICE AND DIVIDEND INFORMATION (page 46)
Shares of Lucent common stock are listed on the New York Stock Exchange.
Shares of INS common stock are quoted on The Nasdaq National Market. The
following table presents:
- the last reported sale price of one share of Lucent common stock, as
reported on the New York Stock Exchange Composite Transaction Tape
- the last reported sale price of one share of INS common stock, as
reported on The Nasdaq National Market
- the market value of one share of INS common stock on an equivalent per
share basis,
in each case as if the merger had been completed on August 9, 1999, the last
full trading day prior to the public announcement of the proposed merger, and on
September 13, 1999, the last day for which such information could be practicably
calculated prior to the date of this proxy statement/prospectus. The equivalent
price per share data for INS common stock has been determined by multiplying the
last reported sale price of one share of Lucent common stock on each of these
dates by the exchange ratio of 0.8473.
<TABLE>
<CAPTION>
LUCENT INS EQUIVALENT PRICE
COMMON COMMON OF SHARE OF INS
DATE STOCK STOCK COMMON STOCK
- ---- ------ ------ ----------------
<S> <C> <C> <C>
August 9, 1999.................................... $63 5/8 $47 7/16 $53.91
September 13, 1999................................ $66 3/4 $55 1/8 $56.56
</TABLE>
Lucent has historically paid a regular quarterly dividend, currently $0.02
per share, to its stockholders. The payment of dividends by Lucent in the future
will depend on business conditions, its financial position, earnings and other
factors. INS has never paid cash dividends to its stockholders.
6
<PAGE> 14
COMPARATIVE PER SHARE INFORMATION
We have summarized below the per common share information for Lucent on a
consolidated basis, for Lucent and INS on a pro forma combined basis and for INS
on an historical basis. Lucent's consolidated results were restated to include
the results of Kenan Systems Corporation and Ascend Communications, Inc. which
merged with Lucent on February 26, 1999 and June 24, 1999, respectively. Each of
the Kenan and Ascend mergers was accounted for as a pooling of interests. INS'
consolidated results include the results of VitalSigns Software, Inc., which
merged with INS on November 20, 1998. The VitalSigns merger was accounted for as
a pooling of interests. All per share data has been restated to account for
Lucent's two-for-one stock splits effective on April 1, 1999 and on April 1,
1998, and for INS' three-for-two stock split on April 5, 1999. Lucent's fiscal
year ends on September 30 and INS' fiscal year ends on June 30.
The unaudited "pro forma combined" and the unaudited "pro forma
equivalent -- INS" information assumes that the merger of INS and Lucent is
accounted for as a pooling of interests and had occurred at the beginning of the
earliest period presented. The unaudited "pro forma combined" information
combines the financial information of Lucent for the nine months ended June 30,
1999 and 1998, for each of the two years in the period ended September 30, 1998
and for the nine-month period ended September 30, 1996, with the financial
information of INS for the nine months ended March 31, 1999 and March 31, 1998,
for each of the two years in the period ended June 30, 1998 and for the
nine-month period ended June 30, 1996, respectively. 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.
Lucent's results for the nine-month period ended June 30, 1999 may not be
indicative of the results for the full year.
The unaudited "pro forma equivalent -- INS" information was calculated by
multiplying the corresponding pro forma combined data by the exchange ratio of
0.8473. This information shows how each share of INS common stock would have
participated in net earnings, cash dividends and book value of Lucent if the
merger had been completed at the beginning of the earliest period presented.
However, these amounts do not necessarily reflect future per share levels of net
earnings, cash dividends or book value of Lucent. The following unaudited
comparative and unaudited pro forma per share data is derived from the
consolidated financial statements of Lucent and the consolidated historical
financial statements of INS.
7
<PAGE> 15
STOCKHOLDERS SHOULD READ THE INFORMATION IN THIS SECTION ALONG WITH
LUCENT'S HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND INS' HISTORICAL
CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES INCLUDED IN THE
DOCUMENTS DESCRIBED UNDER "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 56.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS TWELVE MONTHS AT OR FOR THE
ENDED ENDED NINE MONTHS
JUNE 30, SEPTEMBER 30, ENDED
-------------- ------------------- SEPTEMBER 30,
1999 1998 1998 1997 1996
----- ----- ------- -------- -------------
<S> <C> <C> <C> <C> <C>
LUCENT -- HISTORICAL
Basic earnings per share................. $1.26 $0.28 $ 0.35 $ 0.16 $ 0.14
Diluted earnings per share............... 1.22 0.27 0.34 0.15 0.14
Cash dividends declared per share........ 0.06 0.06 0.078 0.056 0.038
Book value per share..................... 4.07 2.37 2.55 1.51 1.20
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS TWELVE MONTHS AT OR FOR THE
ENDED ENDED NINE MONTHS
MARCH 31, JUNE 30, ENDED
-------------- ----------------------- JUNE 30,
1999 1998 1999 1998 1997 1996
----- ----- ----- ----- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
INS -- HISTORICAL
Basic earnings per share.............. $0.29 $0.19 $0.47 $0.28 $0.17 $ 0.11
Diluted earnings per share............ 0.25 0.17 0.41 0.25 0.13 0.03
Cash dividends declared per share..... -- -- -- -- -- --
Book value per share.................. 2.41 1.59 2.86 1.86 1.37 0.58
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS TWELVE MONTHS AT OR FOR THE
ENDED ENDED NINE MONTHS
JUNE 30, SEPTEMBER 30, ENDED
-------------- ---------------- SEPTEMBER 30,
1999 1998 1998 1997 1996
----- ----- ------ ------ -------------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED
Basic earnings per share.................... $1.25 $0.28 $ 0.35 $ 0.16 $ 0.14
Diluted earnings per share.................. 1.20 0.27 0.34 0.15 0.14
Cash dividends declared per share........... 0.06 0.06 0.078 0.056 0.038
Book value per share........................ 4.05 2.36 2.55 1.51 1.19
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS TWELVE MONTHS AT OR FOR THE
ENDED ENDED NINE MONTHS
JUNE 30, SEPTEMBER 30, ENDED
-------------- -------------- SEPTEMBER 30,
1999 1998 1998 1997 1996
----- ----- ----- ----- -------------
<S> <C> <C> <C> <C> <C>
PRO FORMA EQUIVALENT -- INS
Basic earnings per share...................... $1.06 $0.24 $0.30 $0.14 $0.12
Diluted earnings per share.................... 1.02 0.23 0.29 0.13 0.12
Cash dividends declared per share............. 0.05 0.05 0.07 0.05 0.03
Book value per share.......................... 3.43 2.00 2.16 1.28 1.01
</TABLE>
8
<PAGE> 16
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
LUCENT
Lucent was spun off from AT&T Corp. in 1996. On February 1, 1996, AT&T
began transferring to Lucent the assets and liabilities relating to Lucent's
operations. Lucent's historical financial data for periods prior to that date
reflect the results of operations and the financial position of the business
that was transferred to Lucent from AT&T in the separation as if Lucent had been
a stand-alone entity and have been prepared using the historical basis in the
assets and liabilities and historical results of operations related to the
Lucent business. Lucent's historical financial data for periods prior to that
date also include an allocation of certain AT&T corporate headquarters assets,
liabilities and expenses related to the Lucent business. The calculation of
earnings (loss) per common share on a historical basis includes the retroactive
recognition to January 1, 1995 of the 524,624,894 shares on a pre-split basis,
or 2,098,499,576 shares on a post-split basis, owned by AT&T on April 10, 1996.
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. All per share data has been restated to account
for Lucent's two-for-one stock splits effective on April 1, 1999 and on April 1,
1998.
Effective October 1, 1998, Lucent changed its method of accounting for
pension and post-retirement benefits to allow it to better represent the related
expenses in its financial statements. As a result, Lucent recorded a one-time,
after-tax gain from the cumulative effect of the accounting change of $1,308
million net of tax of $842 million, or $0.42 per share, for the first fiscal
quarter of 1999. Included in net income as a result of the accounting change is
$195 million, or $0.06 per diluted share for the nine months ended June 30,
1999.
Lucent's consolidated results were restated to include the results of Kenan
Systems Corporation and Ascend Communications, Inc. which merged with Lucent on
February 26, 1999 and June 24, 1999, respectively. Each of the Kenan and Ascend
mergers was accounted for as a pooling of interests.
The following selected consolidated financial data of Lucent at September
30, 1998 and 1997, for each of the two years in the period ended September 30,
1998 and for the nine-month period ended September 30, 1996 is derived from
audited consolidated financial statements incorporated by reference in this
proxy statement/prospectus. The selected consolidated financial data of Lucent
at September 30, 1996, December 31, 1995 and 1994, and for each of the two years
in the period ended December 31, 1995 is derived from unaudited consolidated
financial statements not incorporated by reference in this proxy
statement/prospectus and, in the opinion of Lucent's management, includes all
necessary adjustments for a fair presentation of such data in conformity with
generally accepted accounting principles.
The selected consolidated financial data of Lucent at and for the nine
months ended June 30, 1999 and 1998 and for the twelve months ended September
30, 1996 is derived from unaudited condensed consolidated financial statements
incorporated by reference in this proxy statement/prospectus and, in the opinion
of Lucent's management, includes all necessary adjustments for a fair
presentation of such data in conformity with generally accepted accounting
principles. Results for the nine-month period ended June 30, 1999 may not be
indicative of the results for the full year.
9
<PAGE> 17
THE INFORMATION IN THIS SECTION SHOULD BE READ ALONG WITH LUCENT'S
CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 56.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE AT OR FOR THE
NINE MONTHS TWELVE MONTHS AT OR FOR THE AT OR FOR THE TWELVE MONTHS
ENDED ENDED TWELVE MONTHS NINE MONTHS ENDED
JUNE 30, SEPTEMBER 30, ENDED ENDED DECEMBER 31,
----------------- ----------------- SEPTEMBER 30, SEPTEMBER 30, -----------------
1999 1998 1998 1997 1996 1996 1995 1994
------- ------- ------- ------- ------------- ------------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................. $27,728 $23,232 $31,806 $27,611 $24,215 $16,639 $21,718 $19,867
Operating income (loss)... 4,177 1,960 2,638 1,599 (656) 734 (921) 985
Net income (loss)......... 3,818 815 1,035 449 (604) 382 (813) 497
Earnings (loss) per common
share - basic........... 1.26 0.28 0.35 0.16 (0.23) 0.14 (0.34) N/A
Earnings (loss) per common
share - diluted......... 1.22 0.27 0.34 0.15 (0.23) 0.14 (0.34) N/A
Dividends declared per
common share............ 0.06 0.06 0.0775 0.05625 0.0375 0.0375 -- N/A
BALANCE SHEET DATA:
Total assets.............. $37,156 $26,919 $29,363 $25,006 $23,572 $23,572 $20,217 $17,475
Total debt................ 6,792 4,322 4,640 4,203 3,997 3,997 4,018 3,164
Shareowners' equity....... 12,403 6,296 7,709 4,379 3,462 3,462 1,917 2,583
</TABLE>
- ---------------
N/A -- Not applicable
10
<PAGE> 18
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
INS
The following selected historical financial data of INS at June 30, 1999
and 1998, and for each of the three years in the period ended June 30, 1999 is
derived from audited consolidated financial statements incorporated by reference
in this proxy statement/prospectus.
The selected historical financial data of INS at June 30, 1997, 1996 and
1995, and for each of the two years in the period ended June 30, 1996 is derived
from audited consolidated financial statements not incorporated by reference in
this proxy statement/prospectus.
The selected historical financial data of INS at and for the nine months
ended March 31, 1999 and 1998 is derived from unaudited consolidated financial
statements incorporated by reference in this proxy statement/prospectus.
INS' consolidated results include the results of VitalSigns Software, Inc.,
which merged with INS on November 20, 1998. The VitalSigns merger was accounted
for as a pooling of interests. Information for the nine-month period ended June
30, 1996 was calculated by subtracting the September 30, 1995 three-month period
from the financial statements for the year ended June 30, 1996. In March 1999,
the INS board of directors approved a three-for-two stock split, payable in
April 1999 in the form of a stock dividend to all stockholders of record. All
per share data has been restated to reflect this stock split.
THE INFORMATION IN THIS SECTION SHOULD BE READ ALONG WITH INS' HISTORICAL
CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 56.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE AT OR FOR THE AT OR FOR THE
NINE MONTHS TWELVE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, JUNE 30, JUNE 30,
--------------- ------------------------------- ------------- -------------
1999 1998 1999 1998 1997 1996 1996 1995
------ ------ ------ ------ ----- ----- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................ $220.9 $118.8 $315.1 $172.8 $99.5 $44.1 $36.6 $ 15.5
Operating income................ 27.6 14.3 43.4 21.9 10.4 4.7 3.8 0.8
Net income (loss) attributable
to common stock............... 15.5 9.5 25.5 14.4 6.8 1.7 1.5 (0.1)
Earnings (loss) per common
share - basic................. 0.29 0.19 0.47 0.28 0.17 0.14 0.11 (0.01)
Earnings (loss) per common
share - diluted............... 0.25 0.17 0.41 0.25 0.13 0.04 0.03 (0.01)
Dividends declared per common
share......................... -- -- -- -- -- -- -- --
BALANCE SHEET DATA:
Total assets.................... $184.7 $109.2 $223.2 $140.3 $83.8 $18.1 $18.1 $ 10.0
Stockholders' equity(1)......... 135.6 86.2 163.4 102.3 71.9 9.9 9.9 6.9
</TABLE>
- ---------------
(1) Includes mandatorily redeemable convertible preferred stock which converted
to common stock upon the consummation of INS' initial public offering on
September 18, 1996.
11
<PAGE> 19
RISK FACTORS RELATING TO THE MERGER
In addition to the other information included and incorporated by reference
in this proxy statement/prospectus, INS stockholders should consider carefully
the matters described below in determining whether to adopt the merger
agreement.
- THE EXCHANGE RATIO FOR LUCENT COMMON STOCK TO BE RECEIVED IN THE MERGER
IS FIXED AND WILL NOT BE ADJUSTED IN THE EVENT OF ANY CHANGE IN STOCK
PRICE. Under the merger agreement, each share of INS common stock will be
converted into the right to receive 0.8473 shares of Lucent common stock.
This exchange ratio is a fixed number and will not be adjusted in the
event of any increase or decrease in the price of Lucent common stock or
INS common stock. The prices of Lucent common stock and INS common stock
at the closing of the merger may vary from their respective prices on the
date of this proxy statement/prospectus and on the date of the special
meeting. These prices may vary because of changes in the business,
operations or prospects of Lucent or INS, market assessments of the
likelihood that the merger will be completed, the timing of the completion
of the merger, the prospects of post-merger operations, regulatory
considerations, general market and economic conditions and other factors.
Because the date that the merger is completed may be later than the date
of the special meeting, the prices of Lucent common stock and INS common
stock on the date of the special meeting may not be indicative of their
respective prices on the date the merger is completed. We urge INS
stockholders to obtain current market quotations for Lucent common stock
and INS common stock.
- THE INTEGRATION OF LUCENT AND INS FOLLOWING THE MERGER WILL PRESENT
SIGNIFICANT CHALLENGES. Lucent and INS will face significant challenges in
integrating their organizations, operations and product lines in a timely
and efficient manner and in retaining key Lucent and INS personnel. The
integration of Lucent and INS will be complex and time-consuming. For
example, Lucent and INS must rapidly integrate their respective sales
forces, despite different business cultures and geographically dispersed
operations, or the combined company may not be able to maintain its
competitive position. The failure to successfully integrate Lucent and INS
and to successfully manage the challenges presented by the integration
process may result in Lucent and INS not achieving the anticipated
potential benefits of the merger.
- INTEGRATING LUCENT AND INS MAY COMPROMISE THE MARKET'S PERCEPTION OF INS
AS A VENDOR INDEPENDENT PROVIDER OF NETWORK SERVICES. The success of INS'
business has historically depended on INS' current and potential clients
perceiving it as a vendor independent provider of professional services.
Following the merger, INS' existing and potential clients may perceive its
relationship with Lucent, a leading vendor of networking systems, as
compromising its ability to provide unbiased solutions. The announcement
has already had an adverse effect on INS' relationship with Cisco Systems,
Inc., a competitor of Lucent, with whom INS had developed a significant
relationship. INS had entered into direct relationships with clients as a
result of referrals from Cisco and had provided services directly to Cisco
primarily as a subcontractor. Since the announcement of the merger, Cisco
has terminated existing agreements with INS and Cisco will likely cease
referring clients and subcontracting work to INS.
- THE PRICE OF LUCENT COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT
FROM THOSE AFFECTING THE PRICE OF INS COMMON STOCK. Upon completion of
the merger, holders of INS common stock will become holders of Lucent
common stock. Lucent's business differs from that of INS, and Lucent's
results of operations, as well as the price of Lucent common stock, may
12
<PAGE> 20
be affected by factors different from those affecting INS' results of
operations and the price of INS common stock. For a discussion of Lucent's
and INS' businesses and certain factors to consider in connection with
such businesses, see Lucent's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998, as amended, Lucent's Form 8-K, dated August
2, 1999, filed to restate the financial results for the merger of Lucent
and Ascend, and INS' Annual Report on Form 10-K for the fiscal year ended
June 30, 1999, which are incorporated by reference in this proxy
statement/prospectus.
13
<PAGE> 21
THE SPECIAL MEETING
We are furnishing this proxy statement/prospectus to stockholders of INS as
part of the solicitation of proxies by the INS board of directors for use at the
special meeting.
DATE, TIME AND PLACE
We will hold the special meeting at our headquarters at 1213 Innsbruck
Drive, Sunnyvale, California 94089, at 9:00 a.m., local time, on October 15,
1999.
PURPOSE OF SPECIAL MEETING
At the special meeting, we are asking holders of INS common stock to adopt
the merger agreement. The INS board of directors has determined that the merger
is fair to, and in the best interests of, INS stockholders, has approved the
merger agreement and the merger and recommends that INS stockholders vote "for"
adoption of the merger agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of INS common stock at the close of business on
September 1, 1999, the record date, are entitled to notice of and to vote at the
special meeting. On the record date, 57,521,050 shares of INS common stock were
issued and outstanding and held by approximately 505 holders of record. A quorum
is present at the special meeting if a majority of the shares of INS common
stock issued and outstanding and entitled to vote on the record date are
represented in person or by proxy. In the event that a quorum is not present at
the special meeting, it is expected that the meeting will be adjourned or
postponed to solicit additional proxies. Holders of record of INS common stock
on the record date are entitled to one vote per share at the special meeting on
the proposal to adopt the merger agreement.
VOTES REQUIRED
The adoption of the merger agreement requires the affirmative vote of a
majority of the shares of INS common stock outstanding on the record date. IF AN
INS STOCKHOLDER ABSTAINS FROM VOTING OR DOES NOT VOTE, EITHER IN PERSON OR BY
PROXY, IT WILL COUNT AS A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT.
VOTING BY INS DIRECTORS AND EXECUTIVE OFFICERS
At the close of business on the record date, directors and executive
officers of INS and their affiliates owned and were entitled to vote 17,362,757
shares of INS common stock, which represented approximately 30.2% of the shares
of INS common stock outstanding on that date. Each INS director and executive
officer has indicated his or her present intention to vote, or cause to be
voted, the INS common stock owned by him or her "for" adoption of the merger
agreement.
VOTING OF PROXIES
All shares represented by properly executed proxies received in time for
the special meeting will be voted at the special meeting in the manner specified
by the holders. Properly executed proxies that do not contain voting
instructions will be voted "for" adoption of the merger agreement.
Shares of INS common stock represented at the special meeting but not
voting, including shares of INS common stock for which proxies have been
received but for which holders of shares
14
<PAGE> 22
have abstained, will be treated as present at the special meeting for purposes
of determining the presence or absence of a quorum for the transaction of all
business.
Only shares affirmatively voted for adoption of the merger agreement,
including properly executed proxies that do not contain voting instructions,
will be counted as favorable votes for that proposal. If an INS stockholder
abstains from voting or does not vote, either in person or by proxy, it will
count as a vote against adoption of the merger agreement. Brokers who hold
shares of INS common stock in street name for customers who are the beneficial
owners of such shares may not give a proxy to vote those customers' shares in
the absence of specific instructions from those customers. These non-voted
shares are referred to as broker non-votes and count as votes against adoption
of the merger agreement.
The persons named as proxies by a stockholder may propose and vote for one
or more adjournments of the special meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against the proposal to adopt
the merger agreement will be voted in favor of any such adjournment or
postponement.
INS does not expect that any matter other than the proposal to adopt the
merger agreement will be brought before the special meeting. If, however, the
INS board of directors properly presents other matters, the persons named as
proxies will vote in accordance with their judgment.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from voting in person at the special meeting. A stockholder may
revoke a proxy at any time prior to its exercise by filing with the Secretary of
INS a duly executed revocation of proxy, by submitting a duly executed proxy to
the Secretary of INS bearing a later date or by appearing at the special meeting
and voting in person. Attendance at the special meeting will not itself
constitute revocation of a proxy.
SOLICITATION OF PROXIES
INS will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of INS and its subsidiaries may solicit proxies from stockholders by
telephone or other electronic means or in person. INS will cause brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of stock held of record by such persons. INS
will reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in doing so.
Corporate Investor Communications, Inc. will assist in the solicitation of
proxies by INS. INS will pay Corporate Investor Communications a fee of $8,000,
plus reimbursement of certain out-of-pocket expenses, and will indemnify
Corporate Investor Communications against any losses arising out of Corporate
Investor Communications' proxy soliciting services on behalf of INS.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES. A
transmittal form with instructions for the surrender of INS common stock
certificates will be mailed to INS stockholders as soon as practicable after
completion of the merger.
15
<PAGE> 23
THE COMPANIES
INS
INS is a global provider of network consulting and software solutions. INS
provides professional services for the full life cycle of a network, including
planning, design, implementation, operations and optimization, and maintains
expertise in the most complex network technologies and multi-vendor
environments. Through its INSoft Division, INS also offers application and
network performance management software products and services.
INS was incorporated in California in August 1991 and re-incorporated in
Delaware in December 1998. Additional information regarding INS is contained in
INS' filings with the Securities and Exchange Commission. See "Where You Can
Find More Information" on page 56.
LUCENT
Lucent designs, builds and delivers a wide range of public and private
networks, communications systems and software, data networking systems, business
telephone systems and microelectronic components. Lucent is a global leader in
the sale of public communications systems, and is a supplier of systems or
software to most of the world's largest network operators. Lucent is also a
global leader in the sale of business communications systems and in the sale of
microelectronic components for communications applications to manufacturers of
communications systems and computers. Lucent conducts its research and
development activities through Bell Laboratories, one of the world's foremost
industrial research and development organizations.
Lucent was incorporated in Delaware in November 1995. Lucent was a wholly
owned subsidiary of AT&T prior to its initial public offering of common stock in
April 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 in
September 1996. Additional information regarding Lucent is contained in Lucent's
filings with the Securities and Exchange Commission. See "Where You Can Find
More Information" on page 56.
MATERIAL CONTRACTS BETWEEN LUCENT AND INS
Lucent and INS are parties to a consulting services agreement dated as of
October 27, 1998. The agreement provides that INS will provide network
consulting services to Lucent for a period from August 17, 1998 through August
16, 2000.
16
<PAGE> 24
THE MERGER
The following discussion summarizes the material terms of the merger, the
merger agreement, the stock option agreement and the stockholder agreement.
Stockholders should read carefully the merger agreement, the stock option
agreement and the stockholder agreement, which are attached as Annexes 1, 2 and
3 to this proxy statement/prospectus.
BACKGROUND TO THE MERGER
On October 27, 1998, Lucent and INS entered into a consulting services
agreement pursuant to which INS will provide consulting services to Lucent for a
period from August 17, 1998 through August 16, 2000.
On April 23, 1999, Lucent and INS entered into a nondisclosure agreement
containing customary terms and conditions.
On May 12, 1999, representatives of Lucent and INS met to discuss
broadening the current business relationship between Lucent and INS. On June 4,
1999, a meeting was held among Michael Bond, Director -- Business Development;
Ashton Peery, Vice President -- Corporate Strategy & Business Development;
Patricia Russo, Executive Vice President -- Strategy, Business Development
Corporate Operations; Jonathan Edelman, Director -- Corporate Strategy &
Development; Jeffrey Akers, Vice President, COO -- NetCare Professional
Services, all of Lucent; and representatives from INS including John Drew,
President and Chief Executive Officer and Kevin Laughlin, Vice
President -- Finance, Chief Financial Officer and Secretary, and representatives
from its financial adviser, Morgan Stanley.
During the period from May 17, 1999 through July 16, 1999, discussions
continued among various representatives of Lucent and INS.
On July 21, 1999 at the regularly scheduled meeting of the Lucent board of
directors, the Lucent board reviewed with Lucent management the merits of
expanding Lucent's existing business relationship with INS, including the
possibility of a strategic business combination with INS. As a result of such
review, the Lucent board authorized Lucent management to pursue discussions with
INS further.
On July 22, 1999, Mr. Peery, William Viqueira, Vice President -- Business
Development, and Mr. Bond called Mr. Drew to discuss a possible acquisition.
On July 23, 1999, Mr. Drew discussed with INS directors Donald McKinney,
Lawrence Finch, David Carlick and Vernon Anderson a possible strategic
transaction with Lucent. The directors instructed Mr. Drew to pursue further
discussions and negotiations with Lucent and to seek advice from INS' financial
advisors and legal counsel.
On July 27, 1999, INS formally retained Morgan Stanley to provide financial
advisory services in connection with the merger. On July 28, 1999,
representatives of Morgan Stanley conducted business and financial due diligence
on Lucent with the following representatives of Lucent: Mr. Bond, Phillip Chin,
Manager -- Corporate Strategy & Business Development, Michael Holliday,
Corporate Counsel and Jim Lusk, Vice President and Controller.
On July 29, 30 and 31, 1999, Mr. Drew and representatives of Morgan Stanley
continued discussions with Mr. Peery, Mr. Bond, Mr. Edelman, Mr. Viqueira, Ms.
Russo and Mr. Chin. They also discussed certain significant terms of a potential
strategic business combination, including, among others, the appropriate
exchange ratio, certain senior management roles and other integration issues.
Throughout this period of time, representatives of Lucent and INS and their
financial advisors exchanged and discussed certain business, personnel, legal,
accounting and financial information relating to Lucent and INS.
17
<PAGE> 25
On August 1, 1999, Ms. Russo spoke with Mr. Drew to discuss certain
material terms of the proposed transaction. They determined that $54 per share
(with the exchange ratio to be set before signing) was likely to be mutually
acceptable, subject to the satisfactory completion of mutual due diligence,
agreement on definitive documentation and to the approval of their respective
boards of directors. They also agreed to instruct their senior management teams
and their advisors to continue their work analyzing the proposed strategic
business combination and to exchange drafts of a merger agreement and related
documents.
From August 2 through August 9, 1999, representatives of Lucent and INS,
including their financial and legal advisors, conducted more extensive mutual
due diligence concerning their respective businesses and operations.
On August 3, 1999, the INS board of directors held a special meeting. At
the meeting, Mr. Drew updated the board on the status of negotiations with
Lucent and outlined the material terms of the proposed transaction. INS' legal
advisors, Wilson Sonsini Goodrich & Rosati, Professional Corporation, discussed
the board's fiduciary duties in considering a strategic business combination and
strategic alternatives and discussed the terms of the merger agreement and
related documents. In addition, INS' financial advisors, Morgan Stanley,
discussed the proposed merger from a financial perspective.
From August 4 through August 9, 1999, representatives of Lucent and INS,
together with their financial and legal advisors, held numerous calls to discuss
and negotiate the terms and conditions of the merger agreement, the stock option
agreement and the stockholder agreement and various other legal, financial and
regulatory issues, including, among other things, the treatment of employee
benefit plans, the tax treatment of the proposed transaction and the proper
accounting treatment of the proposed transaction.
On August 6, 1999, the INS board of directors held a special meeting. At
the meeting, Mr. Drew updated the board on the status of negotiations with
Lucent and management's due diligence review. Mr. Drew also reviewed INS'
strategic intent in pursuing the proposed transaction with Lucent. INS' legal
advisors further discussed the terms of the merger agreement and related
documents. In addition, INS' financial advisors gave a presentation to INS'
board of directors on the financial terms of the proposed merger.
On August 6, 1999, the members of the Lucent board of directors met by
telephone conference call to consider the terms of the merger and the definitive
agreements and, after deliberation, approved the merger agreement and the stock
option agreement with INS and the stockholder agreement with Donald McKinney and
his affiliates.
On August 7, 1999, the INS board of directors held a special meeting. INS'
legal advisors updated the board on the status of negotiations regarding the
merger agreement and related documents.
On August 9, 1999, the INS board of directors held a special meeting and
senior management and legal and financial advisors of INS reviewed the
following:
- the status of negotiations with Lucent
- the potential benefits and risks of the transaction with Lucent
- the principal terms of the merger agreement and related documents.
INS legal advisors further discussed the terms of the merger agreement and
related documents. INS' financial advisors reviewed the strategic rationale for,
and financial analyses relating to, the
18
<PAGE> 26
proposed merger. In addition, at the meeting INS' financial advisors provided
their opinion that the exchange ratio pursuant to the merger agreement was fair,
from a financial point of view, to the stockholders of INS. Following
discussion, the INS board determined that the proposed merger was advisable and
approved the merger agreement and stock option agreement and resolved to
recommend that INS stockholders adopt the merger agreement.
The merger agreement, the stock option agreement and the stockholder
agreement were signed by the parties on the night of August 9, 1999. On the
morning of August 10, 1999, prior to the commencement of trading, Lucent and INS
issued a joint press release announcing the execution of the merger agreement.
REASONS FOR THE MERGER AND BOARD OF DIRECTORS RECOMMENDATION
REASONS FOR THE MERGER. In reaching its decision to approve the merger
agreement and the merger and to recommend adoption of the merger agreement by
INS stockholders, the INS board of directors consulted with its management team
and advisors and independently considered the proposed merger agreement and the
transactions contemplated by the merger agreement. The following discussion of
the factors considered by the INS board of directors in making its decision is
not intended to be exhaustive but includes all material factors considered by
the INS board of directors.
The INS board of directors considered the following factors as reasons that
the merger will be beneficial to INS and its stockholders:
- the merger should enable INS to accelerate its growth strategy and
broaden its international presence while expanding its portfolio of
services to offer more comprehensive solutions to new and existing
clients worldwide
- the terms of the proposed merger agreement regarding the right of INS to
consider and negotiate other strategic transaction proposals, as well as
the possible effects of the provisions regarding termination fees and the
stock option agreement
- the expected qualification of the merger as a tax-free reorganization
- the transaction being accounted for as a pooling of interests, so that no
goodwill is expected to be created on the books of the combined company
as a result of the transaction
- detailed financial analysis and pro forma and other information with
respect to the companies presented by Morgan Stanley to the INS board of
directors, including Morgan Stanley's opinion that the consideration to
be received by INS stockholders pursuant to the exchange ratio in the
merger is fair to the INS stockholders from a financial point of view.
In the course of deliberations, the INS board of directors also considered
a number of additional factors relevant to the merger, including:
- historical information concerning INS' and Lucent's respective
businesses, financial performance and condition, operations, technology,
management and competitive position, including public reports concerning
results of operations during the most recent fiscal year and fiscal
quarter for each company as filed with the Securities and Exchange
Commission
- the financial condition, results of operations, businesses and prospects
of INS and Lucent before and after giving effect to the merger
- current financial market conditions and historical market prices,
volatility and trading information with respect to the common stock of
INS and Lucent
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<PAGE> 27
- the consideration to be received by INS stockholders in the merger and
the relationship between the market value of the common stock of Lucent
to be issued in exchange for each share of common stock of INS and a
comparison of comparable merger transactions
- the belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations are reasonable
- the prospects of INS as an independent company
- the potential for other third parties to enter into strategic
relationships with or to acquire INS
- the impact of the merger on INS clients and employees
- reports from INS management and from legal and financial advisors as to
the results of their due diligence investigation of Lucent.
The INS board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including but not limited to:
- the risk that the potential benefits sought in the merger might not be
fully realized
- the possibility that the merger might not be consummated
- the effect of the public announcement of the merger on (a) demand for the
services of INS, its relationships with strategic partners, its operating
results and its stock price and (b) the ability of INS to attract and
retain key management, account managers, network engineers and other
personnel
- the substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
from the merger
- the risk that despite the efforts of the combined company, key management
and other personnel might not remain employed by the combined company
- risks associated with fluctuations in Lucent's stock price prior to
closing of the merger
- various other risks.
The INS board of directors believed that these risks were outweighed by the
potential benefits of the merger.
The foregoing discussion is not exhaustive of all factors considered by
INS' board of directors. Each member of INS' board may have considered different
factors, and INS' board evaluated these factors as a whole and did not quantify
or otherwise assign relative weights to factors considered.
RECOMMENDATION OF THE INS BOARD OF DIRECTORS. After careful consideration,
the INS board of directors has determined that the terms of the merger agreement
and the merger are fair to, and in the best interests of, the stockholders of
INS and has approved the merger agreement and the merger. The INS board of
directors recommends that the stockholders of INS vote "for" the adoption of the
merger agreement. All of the INS directors who considered the merger concur in
the foregoing determination and recommendation. One then-member of the INS
board, Charles Giancarlo, who is an officer of Cisco, did not participate in the
deliberations.
OPINION OF MORGAN STANLEY & CO. INCORPORATED
Under an engagement letter dated July 27, 1999, INS retained Morgan Stanley
to provide it with financial advisory services and a financial fairness opinion
in connection with the merger. The INS board of directors selected Morgan
Stanley to act as INS' financial advisor based on Morgan
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<PAGE> 28
Stanley's qualifications, expertise and reputation and its knowledge of the
business and affairs of INS. At the meeting of the INS board of directors on
August 9, 1999, Morgan Stanley rendered its oral opinion, subsequently confirmed
in writing, that as of August 9, 1999, based upon and subject to the various
considerations set forth in the opinion, the 0.8473 exchange ratio pursuant to
the merger agreement was fair from a financial point of view to INS
stockholders.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED AUGUST 9, 1999
IS ATTACHED AS ANNEX 4 AND SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE
REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION. YOU SHOULD READ
THE OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED
TO THE INS BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE
RATIO PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW AS TO
HOLDERS OF SHARES OF INS COMMON STOCK AS OF THE DATE OF THE OPINION. IT DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY HOLDER OF INS COMMON STOCK AS TO HOW TO VOTE AT THE INS SPECIAL MEETING.
THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS DOCUMENT, WHILE
MATERIALLY COMPLETE, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things
- reviewed certain publicly available financial statements and other
information of INS and Lucent, respectively
- reviewed certain internal financial statements and other financial and
operating data concerning INS and Lucent prepared by the managements of
INS and Lucent, respectively
- discussed the past and current operations and financial condition and the
prospects of INS, including information relating to certain strategic,
financial and operational benefits anticipated from the merger, with
senior executives of INS
- discussed the past and current operations and financial condition and the
prospects of Lucent, including information relating to certain strategic,
financial and operational benefits anticipated from the merger, and
certain publicly available securities research analyst projections for
Lucent with senior executives of Lucent
- reviewed the pro forma impact of the merger on the earnings per share of
Lucent
- reviewed the reported prices and trading activity for the INS common
stock and the Lucent common stock
- compared the financial performance of INS and Lucent and the prices and
trading activity of the INS common stock and the Lucent common stock with
that of certain other comparable publicly-traded companies and their
securities
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions
- reviewed and discussed with the senior managements of INS and Lucent
their strategic rationales for the merger
- participated in discussions and negotiations among representatives of INS
and Lucent and their financial and legal advisors
- reviewed the draft merger agreement and certain related agreements
21
<PAGE> 29
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the purposes
of its opinion. With respect to the internal financial statements and other
financial and operating data, and discussions relating to the strategic,
financial and operational benefits, including synergies, anticipated from the
merger provided by INS and Lucent, Morgan Stanley assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the prospects of INS and Lucent. With the consent of INS,
Morgan Stanley relied upon the estimates of certain securities research analysts
with respect to Lucent. Morgan Stanley relied upon the assessment by the
managements of INS and Lucent of their ability to retain key employees of INS
and Lucent. Morgan Stanley also relied upon, without independent verification,
the assessment by the managements of INS and Lucent of:
- the strategic and other benefits expected to result from the merger
- the timing and risks associated with the integration of INS and Lucent
- the validity of, and risks associated with, INS' and Lucent's existing
and future services, products and technologies.
Morgan Stanley has not made any independent valuation or appraisal of the assets
or liabilities or technology of INS and Lucent, nor has Morgan Stanley been
furnished with any such appraisals. In addition, Morgan Stanley assumed that the
merger will be accounted for as a "pooling-of-interests" business combination in
accordance with U.S. generally accepted accounting principles and the merger
will be treated as a tax-free reorganization and/or exchange, each pursuant to
the Internal Revenue Code of 1986 and will be consummated in accordance with the
terms set forth in the merger agreement. Morgan Stanley's opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to it as of, the date of its opinion.
The following is a brief summary of certain of the analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
opinion letter dated August 9, 1999. Certain of these summaries of financial
analyses include information presented in tabular format. In order to understand
fully the financial analyses used by Morgan Stanley, the tables must be read
together with the text of each summary. The tables alone do not constitute a
complete description of the financial analyses.
COMPARATIVE STOCK PRICE PERFORMANCE. Morgan Stanley reviewed the recent
stock price performance of INS and Lucent and compared their performance with
that of two groups of companies. The first group, which is referred to as the
High Growth IT Services Index, included:
- Answerthink Consulting Group
- I-Cube
- Sapient
- Scient
- USWeb/CKS
- Whittman-Hart
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<PAGE> 30
The second group, which is referred to as collectively, the Large
Capitalization Communication Equipment Index, included:
- Alcatel
- Cisco
- Ericsson
- GEC
- Nokia
- Nortel
- Siemens
- Tellabs
Morgan Stanley observed the following, as of August 5, 1999:
<TABLE>
<CAPTION>
INDEXED PRICE CHANGE (AS OF 8/5/99)
-------------------------------------
LUCENT LAST 24 LAST 12
IPO (4/8/96) MONTHS MONTHS
------------- -------- --------
<S> <C> <C> <C>
INS........................................... 123% 204% 93%
Lucent........................................ 732% 199% 42%
High Growth IT Services Index................. 715% 221% 53%
Large Cap. Communications Equipment Index..... 306% 114% 52%
NASDAQ........................................ 132% 58% 43%
</TABLE>
PEER GROUP COMPARISON. Morgan Stanley compared certain financial
information of INS and Lucent with publicly available information for the
companies comprising the High Growth IT Services Index and Large Capitalization
Communication Equipment Index as described above. Based on estimates from
securities research analysts, with median values shown except for INS and Lucent
and using the closing prices of INS and Lucent common stock on August 5, 1999 of
$45.63 and $64.25, respectively, such analysis showed that as of August 5, 1999:
<TABLE>
<CAPTION>
AGGREGATE PRICE/EARNINGS
PRICE/EARNINGS VALUE/REVENUE TO GROWTH
CALENDAR YEAR CALENDAR YEAR CALENDAR YEAR
-------------- -------------- --------------
1999E 2000E 1999E 2000E 2000E
----- ----- ----- ----- --------------
<S> <C> <C> <C> <C> <C>
INS.................................... 70.7x 50.7x 7.5x 5.1x 1.1x
Lucent................................. 50.4x 40.8x 5.3x 4.5x 2.0x
High Growth IT Services Index.......... 42.7x 30.6x 4.9x 3.3x 0.8x
Large Cap. Communications Equipment
Index................................ 35.0x 30.3x 2.3x 2.2x 1.5x
Transaction (as of 8/5/99)............. 84.4x 60.5x 9.2x 6.3x 1.3x
</TABLE>
No company utilized in the peer group comparison analysis is identical to
INS or Lucent. In evaluating the peer groups, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
control of INS and Lucent, such as the impact of competition on the businesses
of INS and Lucent and the industry generally, industry growth and the absence of
any adverse material change in the financial condition and prospects of INS and
Lucent or the industry or in the financial markets in general. Mathematical
analysis (such as determining the average or median) is not in itself a
meaningful method of using peer group data.
EXCHANGE RATIO ANALYSIS. Morgan Stanley reviewed the ratios of the closing
prices of Lucent common stock divided by the corresponding prices of INS common
stock over various periods
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<PAGE> 31
during the twelve month period ending August 5, 1999. Morgan Stanley examined
the premia represented by the exchange ratio over the averages of these daily
ratios over various periods:
<TABLE>
<CAPTION>
PREMIUM/(DISCOUNT)
TO TRANSACTION
EXCHANGE RATIO
------------------
<S> <C>
Last Twelve Months................................. 24%
Last 180 Days...................................... 21%
Last 120 Days...................................... 26%
Last 90 Days....................................... 31%
Last 60 Days....................................... 34%
Last 30 Days....................................... 38%
Last 20 Days....................................... 34%
Last 10 Days....................................... 28%
Last 5 Days........................................ 26%
Market (8/5/99).................................... 19%
</TABLE>
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Morgan Stanley compared the
publicly available statistics for 21 selected transactions in the technology
consulting and services industry and 52 selected transactions in the data
communications and networking industry to the relevant financial statistics for
INS based on the value of INS implied by the exchange ratio and the closing
share price for INS common stock and Lucent common stock on August 9, 1999. The
following table presents the implied values of the last twelve months and next
twelve months price to earnings ratio, aggregate value to last twelve months
revenue and operating income, the offered price as a premium to the previous
trading day and previous month closing share price, as well as the average 30
trading days, average 60 trading days and the average 90 trading days implied
exchange ratio premia, compared to the respective multiples and exchange ratio
premia implied by the merger on August 9, 1999.
<TABLE>
<CAPTION>
PRICE
AGGREGATE VALUE TO ---------------
LAST NEXT LAST TWELVE MONTHS
TWELVE MONTHS TWELVE MONTHS -------------------- 1 MONTH 1 DAY
PRICE/EARNINGS PRICE/EARNINGS REVENUE OP. INCOME PRIOR PRIOR
-------------- -------------- ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Technology Consulting and
Services.................... 33.7x 25.7x 1.5x 19.8x 38% 28%
Data Communications........... 56.5x 36.4x 5.3x 37.2x 45% 29%
Transaction (as of 8/9/99).... 104.0x 71.9x 11.5x 7.3x 25% 14%
<CAPTION>
AVERAGE EXCHANGE RATIO
---------------------------
30 DAY 60 DAY 90 DAY
AVERAGE AVERAGE AVERAGE
------- ------- -------
<S> <C> <C> <C>
Technology Consulting and
Services.................... 29% 29% 26%
Data Communications........... 42% 34% 31%
Transaction (as of 8/9/99).... 36% 34% 32%
</TABLE>
DISCOUNTED EQUITY VALUE. Morgan Stanley performed an analysis of the
present value per share of the implied value of INS on a standalone basis based
on INS' future equity value. Morgan Stanley observed the following, based on a
range of earnings per share compounded annual growth estimates ranging from 29%
to 52%, for the calendar year 2001 and 37% to 45% for the calendar year 2002:
<TABLE>
<CAPTION>
NEXT TWELVE MONTHS DISCOUNT FULLY DILUTED
PRICE TO EARNINGS RATES EQUITY VALUE
- ------------------ --------- ----------------
<S> <C> <C>
40x - 60x 15% - 20% $34.02 to $77.11
</TABLE>
Morgan Stanley performed an analysis of the present value per share of the
implied value of Lucent on a standalone basis based on Lucent's future equity
value. Morgan Stanley observed the following, based on a range of earnings per
share compounded annual growth estimates ranging from 14% to 27%, for the
calendar year 2001 and 18% to 23% for the calendar year 2002:
<TABLE>
<CAPTION>
NEXT TWELVE MONTHS DISCOUNT FULLY DILUTED
PRICE TO EARNINGS RATES EQUITY VALUE
- ------------------ --------- ----------------
<S> <C> <C>
33x - 50x 15% - 20% $45.93 to $85.67
</TABLE>
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<PAGE> 32
RELATIVE CONTRIBUTION ANALYSIS. Morgan Stanley analyzed the pro forma
contribution of INS and Lucent to the combined company assuming consummation of
the merger and based on estimates of certain financial metrics such as revenue,
gross profit, operating profit and net income from securities research analysts
and closing share prices as of August 5, 1999. The analysis showed, among other
things, the following:
<TABLE>
<CAPTION>
% PRO FORMA IMPLIED
OWNERSHIP BY --------------------------
------------- EXCHANGE PRICE
LUCENT INS RATIO (AS OF 8/5/99)
------ --- -------- --------------
<S> <C> <C> <C> <C>
LAST TWELVE MONTHS
Revenue..................................... 99.1% 0.9% 0.401x $25.74
Gross Profit................................ 98.9% 1.1% 0.471x $30.28
Operating Income............................ 99.0% 1.0% 0.415x $26.69
Net Income.................................. 99.1% 0.9% 0.398x $33.60
PROJECTED CALENDAR YEAR 1999
Revenue..................................... 99.0% 1.0% 0.449x $28.85
Gross Profit................................ 98.8% 1.2% 0.530x $34.05
Operating Income............................ 98.9% 1.1% 0.480x $30.83
Net Income.................................. 99.0% 1.0% 0.445x $28.57
PROJECTED CALENDAR YEAR 2000
Revenue..................................... 98.7% 1.3% 0.550x $35.33
Gross Profit................................ 98.5% 1.5% 0.651x $41.85
Operating Income............................ 98.7% 1.3% 0.567x $36.44
Net Income.................................. 98.8% 1.2% 0.523x $33.60
TRANSACTION (0.8473 EX. RATIO)................ 98.2% 1.8% 0.847x $54.44
</TABLE>
PRO FORMA MERGER ANALYSIS. Morgan Stanley analyzed the pro forma impact of
the merger on the combined company's projected earnings per share for calendar
year 1999 and 2000. Such analysis was based on earnings projections by
securities research analysts for INS and Lucent. Morgan Stanley observed that
the merger would result in earnings per share dilution for Lucent, prior to
giving effect to any synergies, of $0.01 for calendar year 1999 and $0.01 for
calendar year 2000.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of INS or Lucent. In performing its analyses,
Morgan Stanley made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of INS or Lucent. Any estimates contained in Morgan Stanley's
analyses are not necessarily indicative of future results or actual values,
which may be significantly more or less favorable than those suggested by such
estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the exchange ratio pursuant to the merger agreement
from a financial point of view to holders of shares of INS common stock and were
conducted in connection with the delivery of the Morgan Stanley opinion to the
INS board of directors. The analyses do not purport to be appraisals or to
reflect the prices at which INS or Lucent might actually be sold.
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<PAGE> 33
The exchange ratio pursuant to the merger agreement was determined through
arm's-length negotiations between INS and Lucent and was approved by the INS
board of directors. Morgan Stanley provided advice to INS during such
negotiations; however, Morgan Stanley did not recommend any specific exchange
ratio to INS or that any specific exchange ratio constituted the only
appropriate exchange ratio for the merger.
In addition, Morgan Stanley's opinion and presentation to the INS board of
directors was one of many factors taken into consideration by INS' board of
directors in making its decision to approve the merger. Consequently, the Morgan
Stanley analyses as described above should not be viewed as determinative of the
opinion of the INS board of directors with respect to the exchange ratio or of
whether the INS board of directors would have been willing to agree to a
different exchange ratio.
The INS board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate, estate and other purposes. In the past, Morgan Stanley
and its affiliates have provided financing services for INS and Lucent and
financial advisory services for Lucent, and have received fees for the rendering
of these services. In the ordinary course of Morgan Stanley's trading and
brokerage activities, Morgan Stanley or its affiliates may at any time hold long
or short positions, may trade or otherwise effect transactions, for its own
account or for the account of customers in the equity securities of INS, Lucent
or any other parties involved in the transaction.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the merger, and INS
agreed to pay Morgan Stanley a customary fee. INS has also agreed to reimburse
Morgan Stanley for its expenses incurred in performing its services. In
addition, INS has also agreed to indemnify Morgan Stanley and its affiliates,
their respective directors, officers, agents and employees and each person, if
any controlling Morgan Stanley or any of its affiliates against certain
liabilities and expenses, including certain liabilities under the federal
securities laws, related to or arising out of Morgan Stanley's engagement.
INTERESTS OF INS DIRECTORS AND MANAGEMENT IN THE MERGER
In considering the recommendation of the INS board of directors in favor of
the merger, stockholders of INS should be aware that members of the INS board of
directors and executive officers of INS have interests in the merger that are
different from, or in addition to, the interests of stockholders of INS. Such
interests relate to or arise from, among other things,
- the terms of the merger agreement providing for the continued
indemnification of current directors and officers of INS
- directors and employees with options to acquire INS common stock will
have these options converted to options to acquire Lucent common stock
pursuant to the merger agreement and a portion of the stock options held
by certain executive officers will become fully vested and exercisable as
a result of the merger
- certain executive officers are parties to agreements that provide for
severance payments and the full vesting of any unvested options if such
executive officer is terminated or resigns for
26
<PAGE> 34
"good reason," including a material change in responsibilities, following
a corporate transaction such as the merger
- John L. Drew, President and Chief Executive Officer of INS, will lead
Lucent's NetCare unit which designs and sets up data networks, and with
which INS will be combined after the merger.
Each of these additional interests are described below, to the extent material,
and except as described below these individuals have, to the knowledge of Lucent
and INS, no material interest in the merger apart from those of stockholders
generally. The INS board of directors was aware of, and considered the interests
of, their directors and executive officers in approving the merger agreement and
the merger.
INDEMNIFICATION AND INSURANCE. The merger agreement provides that all
rights of indemnification and exculpation from liabilities existing in favor of
the current and former directors or officers of INS and its subsidiaries as
provided in their respective certificates of incorporation and by-laws and
existing indemnification agreements of INS will be assumed by the surviving
corporation in the merger, and will continue in full force and effect in
accordance with their terms. The merger agreement provides that for six years
after the effective time of the merger, Lucent will maintain directors' and
officers' liability insurance for acts or omissions occurring prior to the
effective time of the merger covering those persons who were, as of the date of
the merger agreement, covered by INS' directors' and officers' liability
insurance policy, on terms no less favorable than those in effect on the date of
the merger agreement. Lucent's obligation to provide this insurance coverage is
subject to a cap of 200% of the current annual premium paid by INS for its
existing insurance coverage. If Lucent cannot maintain the existing or
equivalent insurance coverage without exceeding the 200% cap, Lucent is required
to maintain only that amount of insurance coverage which can be obtained by
paying an annual premium equal to the 200% cap.
EMPLOYEE BENEFITS. Lucent has agreed to provide employee benefit plans,
programs and arrangements to those individuals who will continue to be employees
of INS after the merger that are the same as those made generally available to
non-represented employees of Lucent hired after December 31, 1998. These plans,
programs and arrangements will be made available as soon as practicable after
the merger. From the merger until that time, Lucent has agreed that it will
provide the same benefit plans, programs and arrangement of INS that were
provided to employees of INS as were in effect as of August 9, 1999. See
"-- Continuation of INS Employee Benefits" on page 32.
STOCK OPTIONS. Under the merger agreement, at the effective time of the
merger, Lucent will assume each stock option plan of INS and all stock options
granted under those plans to acquire shares of INS common stock. Each stock
option under those plans will be converted into a stock option to acquire Lucent
common stock on the same terms and conditions. The number of shares of Lucent
common stock to be subject to any option will be equal to the number of shares
of INS common stock subject to that INS option multiplied by the 0.8473 exchange
ratio and rounded down to the nearest whole share. The exercise price per share
of Lucent common stock under any option will be equal to the exercise price per
share of INS common stock subject to that INS option divided by the 0.8473
exchange ratio and rounded to the nearest one hundredth of a cent. As soon as
practicable following the effective time of the merger, Lucent will prepare and
file with the Securities and Exchange Commission an appropriate registration
statement registering the shares of Lucent common stock subject to the assumed
INS stock options. That registration statement will be kept effective (and the
current status of the prospectus or prospectuses required by the SEC shall be
maintained) for so long as any assumed INS options remain outstanding. See
"-- Effect on
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Awards Outstanding Under INS Stock Plans; Warrants" on page 33. Also, a portion
of the stock options held by certain executive officers will become fully vested
as a result of the merger.
CHANGE IN CONTROL AGREEMENTS. INS has entered into change in control
agreements with Donald K. McKinney, its Chairman of the Board, John L. Drew, its
President and Chief Executive Officer and Director, and Kevin J. Laughlin, its
Vice President -- Finance, Chief Financial Officer and Secretary. Pursuant to
these agreements, a portion of each officer's unvested options will become fully
vested as a result of the merger. In addition, if the employment of any officer
is terminated within one year of the merger other than for cause, or if the
officer resigns other than for good reason, which is defined to include, among
other things, a material reduction in responsibilities or a reduction in
compensation, the officer will become entitled to
- an amount equal to 100% of his annual salary plus incentive compensation
- continued health benefits for twelve months
- have all remaining stock options become fully vested.
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT. In order to induce Lucent to
enter into the merger, Mr. Drew has agreed that for one year after the merger,
he will not, directly or indirectly, become employed by, or render any services
to any company or any division of any company engaged primarily or in
substantial part in the business of providing professional services in the area
of communications networking, planning, design, integration, operations, and/or
optimization in specified counties in California and anywhere in the world where
Lucent's professional services group does business. Mr. Drew has also agreed not
to directly or indirectly induce any employee of Lucent to terminate his or her
employment. Lucent has agreed that, in the event Mr. Drew's employment is
terminated other than for cause or he otherwise ceases to be employed by INS or
Lucent, it will pay Mr. Drew, at his option, the benefits to which he is
entitled under the change of control agreement referenced above or an amount in
cash equal to 150% of the portion of his annual base salary payable from such
time to the first anniversary of the merger.
ACCOUNTING TREATMENT
Completion of the merger is conditioned upon its being accounted for on a
pooling of interests accounting basis and the receipt by each of Lucent and INS
of letters from PricewaterhouseCoopers LLP regarding such firm's concurrence
with Lucent and INS managements' conclusions that pooling of interests
accounting is appropriate for the merger under Accounting Principles Board
Opinion No. 16 if completed in accordance with the merger agreement. See "The
Merger Agreement, Stock Option Agreement and Stockholder Agreement -- The Merger
Agreement -- Conditions to the Completion of the Merger" and "-- Termination."
Under this accounting method, the historical financial statements of Lucent and
INS will be combined for all historical periods as if they had always been
merged and, as of the effective time of the merger, the historical assets and
liabilities of INS will be combined with those of Lucent at their recorded book
values.
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with Delaware law, at the effective time of the merger, Intrepid
Merger Inc., a wholly owned subsidiary of Lucent and a party to the merger
agreement, will merge with and into INS. INS will survive the merger as a wholly
owned Delaware subsidiary of Lucent, and will continue under the name
"International Network Services."
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MERGER CONSIDERATION
At the effective time of the merger, each outstanding share of INS common
stock will be converted into the right to receive 0.8473 shares of Lucent common
stock, except that treasury stock and stock held by Lucent and Intrepid Merger
Inc. will be canceled. Stockholders will receive cash for any fractional shares
which they would otherwise receive in the merger. As of the effective time of
the merger, all shares of INS common stock and cash for any fractional shares
will no longer be outstanding and will automatically be canceled and will cease
to exist and each holder of a certificate representing any shares of INS common
stock will cease to have any rights as a stockholder except the right to receive
Lucent common stock in the merger. The exchange ratio of 0.8473 was determined
through arm's-length negotiations between Lucent and INS.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of INS common stock into the right to receive Lucent common
stock will occur automatically at the effective time of the merger. As soon as
practicable after the effective time of the merger, The Bank of New York, the
exchange agent, will send a transmittal letter to each former INS stockholder.
The transmittal letter will contain instructions for obtaining shares of Lucent
common stock in exchange for shares of INS common stock. PLEASE DO NOT SEND
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
After the effective time of the merger, each certificate that previously
represented shares of INS common stock will represent only the right to receive
the Lucent common stock into which such shares were converted in the merger and
the right to receive cash for any fractional shares of Lucent common stock as
described below.
Until holders of certificates previously representing INS common stock have
surrendered those certificates to the exchange agent for exchange, holders will
not receive dividends or distributions on the Lucent common stock into which
such shares have been converted with a record date after the effective time of
the merger, and will not receive cash for any fractional shares of Lucent common
stock. When holders surrender such certificates, they will receive any unpaid
dividends and any cash for fractional shares of Lucent common stock without
interest.
In the event of a transfer of ownership of INS common stock which is not
registered in the records of INS' transfer agent, a certificate representing the
proper number of shares of Lucent common stock may be issued to a person other
than the person in whose name the certificate so surrendered is registered if:
- such certificate is properly endorsed or otherwise is in proper form for
transfer
- the person requesting such issuance will (1) pay any transfer or other
taxes resulting from the issuance of shares of Lucent common stock to a
person other than the registered holder of such certificate or (2)
establish to Lucent that such tax has been paid or is not applicable.
All shares of Lucent common stock issued upon conversion of shares of INS
common stock, including any cash paid instead of any fractional shares of Lucent
common stock, will be issued in full satisfaction of all rights relating to such
shares of INS common stock. Lucent will remain obligated, however, to pay any
dividends or make any other distributions declared or made by INS with a record
date prior to the effective time of the merger and which remain unpaid at the
effective time of the merger.
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No fractional shares of Lucent common stock will be issued to any INS
stockholder upon surrender of certificates previously representing INS common
stock. Promptly after the effective time of the merger, the exchange agent will
determine the excess of (1) the number of whole shares of Lucent common stock
delivered to the exchange agent by Lucent over (2) the aggregate number of whole
shares of Lucent common stock to be distributed to former holders of INS common
stock. The exchange agent will sell such excess shares on the New York Stock
Exchange and will hold the proceeds in trust for the former holders of INS
common stock. The exchange agent shall determine the portion of such proceeds to
which each former holder of INS common stock is entitled, if any, by multiplying
(1) the amount of aggregate net proceeds held in trust by (2) a fraction, the
numerator of which is the amount of the fractional share interest to which such
holder would otherwise be entitled and the denominator of which is the aggregate
amount of fractional share interests to which all former holders of INS common
stock are entitled.
As an alternative to the issuance and sale of excess shares described
above, Lucent may elect to pay each such stockholder an amount in cash equal to
the product obtained by multiplying (1) the fractional share interest to which
such holder would otherwise be entitled by (2) the closing price for a share of
Lucent common stock on the New York Stock Exchange Composite Transaction Tape on
the date on which the merger is completed.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of the certificate of
merger with the Delaware Secretary of State or such later time as is agreed upon
by Lucent and INS and specified in the certificate of merger. The filing of the
certificate of merger will occur as soon as practicable, but no later than the
second business day, after satisfaction or waiver of the conditions to the
completion of the merger described in the merger agreement unless another date
is agreed to in writing by Lucent and INS.
STOCK EXCHANGE LISTING OF LUCENT COMMON STOCK
It is a condition to the completion of the merger that Lucent common stock
issuable to INS stockholders in the merger be approved for listing on the New
York Stock Exchange, subject to official notice of issuance.
DELISTING AND DEREGISTRATION OF INS COMMON STOCK
If the merger is completed, INS common stock will be delisted from The
Nasdaq National Market and will be deregistered under the Securities Exchange
Act of 1934.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material United States federal tax
consequences of the merger to holders of INS common stock. The discussion does
not address all aspects of United States federal taxation that may be relevant
to you, and it may not be applicable to INS stockholders who, for United States
federal income tax purposes, are nonresident alien individuals, foreign
corporations, foreign partnerships, foreign trusts or foreign estates, who
acquired their INS common stock pursuant to the exercise of INS stock options or
otherwise as compensation, or who are otherwise subject to special tax rules.
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YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF THE MERGER TO YOU.
This discussion is based on the Internal Revenue Code of 1986, as amended,
regulations thereunder, current administrative rulings and practice, and
judicial precedent, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences to you as
discussed in this proxy statement-prospectus. This discussion assumes that you
hold your INS common stock as a capital asset within the meaning of section 1221
of the Internal Revenue Code.
No ruling has been or will be obtained from the Internal Revenue Service in
connection with the Merger. Opinions of counsel referred to in this document are
not binding on the Internal Revenue Service or the courts.
In the opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, the following will be the material federal income tax consequences
of the merger:
1. You will recognize no gain or loss if you receive solely Lucent common stock
in exchange for shares of INS common stock you hold, except with respect to
cash received instead of fractional shares of Lucent common stock.
2. The aggregate adjusted tax basis of the shares of Lucent common stock you
receive in the merger (including any fractional share of Lucent common stock
deemed to be received by you, as described in paragraph 4, below), will be
equal to the aggregate adjusted tax basis of the shares of INS common stock
surrendered by you for the shares of Lucent common stock.
3. The holding period of the shares of Lucent common stock you receive in the
merger (including any fractional share of Lucent common stock deemed to be
received by you, as described in paragraph 4, below), will include the
holding period of the shares of INS common stock you exchange for the shares
of Lucent common stock.
4. If you receive cash in the merger instead of a fractional share of Lucent
common stock, then you will be treated as if you received the fractional
share in the merger and then Lucent redeemed the fractional share in exchange
for the cash. You will generally be required to recognize gain or loss equal
to the difference between the amount of cash received and the portion of your
adjusted tax basis in the shares of Lucent common stock allocable to the
fractional share.
5. Neither Lucent, Intrepid Merger Inc., nor INS will recognize material amounts
of gain solely as a result of the Merger.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS
AND CIRCUMSTANCES OF YOUR STATUS AND ATTRIBUTES. AS A RESULT, THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT
APPLY TO YOU. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, YOU
ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO YOU, INCLUDING THE APPLICATION AND EFFECT OF
UNITED STATES FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS
OF CHANGES IN UNITED STATES FEDERAL AND OTHER TAX LAWS.
REGULATORY MATTERS
UNITED STATES ANTITRUST. Under the Hart-Scott-Rodino Act and related
rules, certain transactions, including the merger, may not be completed unless
certain waiting period requirements have been satisfied. On August 20, 1999,
Lucent and INS each filed a Notification and Report
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Form with the Antitrust Division of the Department of Justice and the Federal
Trade Commission, and expect the waiting period to expire on September 19, 1999,
unless earlier terminated, or extended by a "second request" for additional
information and materials by the Antitrust Division or the FTC. At any time
before or after the effective time of the merger, the Antitrust Division, the
Federal Trade Commission or others could take action under the antitrust laws,
including seeking to prevent the merger, to rescind the merger or to
conditionally approve the merger upon the divestiture of substantial assets of
Lucent or INS. There can be no assurance that a challenge to the merger on
antitrust grounds will not be made or, if such a challenge is made, that it
would not be successful.
OTHER FILINGS AND APPROVALS. The merger is also subject to German merger
control regulations, which require that a notification be filed with and
approval of the transaction be granted by the German Federal Cartel Office.
Lucent and INS submitted the necessary notification on September 13, 1999.
Lucent and INS expect the waiting period to expire on October 13, 1999, unless
terminated earlier.
Lucent and INS do not currently expect that other filings or approvals will
be required in other jurisdictions in connection with the merger. However, if
any such filings or approvals become necessary, Lucent and INS intend take all
necessary actions to comply with such filing requirements or obtain such
approvals.
GENERAL. It is possible that any of the governmental entities with which
filings are made may seek, as conditions for granting approval of the merger,
various regulatory concessions. There can be no assurance that:
- Lucent or INS will be able to satisfy or comply with such conditions
- compliance or non-compliance will not have adverse consequences for
Lucent after completion of the merger
- the required regulatory approvals will be obtained within the time frame
contemplated by Lucent and INS and referred to in this proxy
statement/prospectus or on terms that will be satisfactory to Lucent and
INS.
See "The Merger Agreement, Stock Option Agreement and Stockholder
Agreement -- The Merger Agreement -- Conditions to the Completion of the
Merger."
APPRAISAL RIGHTS
Under Delaware corporate law, holders of INS common stock are not entitled
to appraisal rights in connection with the merger because, on the record date,
INS common stock was designated and quoted for trading on The Nasdaq National
Market and will be converted into shares of Lucent common stock, which at the
effective time of the merger will be listed on the New York Stock Exchange.
CONTINUATION OF INS EMPLOYEE BENEFITS
Lucent has agreed to provide employee benefit plans, programs and
arrangements to employees of INS that are the same as those made generally
available to similarly situated non-represented employees of Lucent hired after
December 31, 1998. These plans, programs and arrangements will be made available
as soon as practicable after the merger. From the merger until that time, Lucent
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has agreed that it will provide the same benefit plans, programs and
arrangements of INS that were provided to employees of INS as were in effect on
August 9, 1999.
Lucent has agreed that:
- continuing employees of INS will be credited with their service to INS
and its affiliates for purposes of participation, vesting and entitlement
to benefits in Lucent's employee benefits plans, programs or arrangements
in which they subsequently participate after the effective time of the
merger, but not for retirement benefits under Lucent's defined benefit
plans or subsidies under Lucent's retiree health plans
- it will waive pre-existing condition limitations to any employee benefits
plans, programs or arrangements maintained by Lucent
- continuing employees will be given credit for amounts paid under a
corresponding benefit plan during the plan year in which the merger
occurs for purposes of applying deductibles, copayments and out-of-pocket
maximums as though those amounts had been paid in accordance with the
terms and conditions of employee benefits plans, programs or arrangements
maintained by Lucent.
EFFECT ON AWARDS OUTSTANDING UNDER INS STOCK PLANS; WARRANTS
Under the merger agreement, at the effective time of the merger, Lucent
will assume each stock option plan of INS. Each option to acquire shares of INS
common stock under such plans will be converted into an option to acquire Lucent
common stock on the same terms and conditions. The number of shares of Lucent
common stock to be subject to any such option will be equal to the number of
shares of INS common stock subject to such INS option multiplied by the 0.8473
exchange ratio and rounded down to the nearest whole share. The exercise price
per share of Lucent common stock under any such option will be equal to the
exercise price per share for the shares of INS common stock subject to such INS
option divided by the 0.8473 exchange ratio, rounded to the nearest one
hundredth of a cent. As of September 1, 1999, the number of shares of INS common
stock reserved for issuance pursuant to outstanding stock options under such
plans was approximately 18.7 million.
Except as provided above under "Interests of INS Directors and Management
in the Merger-Change in Control Agreements," the terms of the options to acquire
shares of Lucent common stock will be the same as the terms of the options to
acquire shares of INS common stock. In addition, INS has agreed to amend its
employee stock purchase plan to terminate the current offering period
approximately five business days before the effective date of the merger. No
further offering periods will be started after that time and INS employees will
become eligible to participate in Lucent's employee stock purchase plan within
one month after the effective date of the merger.
The outstanding warrant to purchase INS common stock will, at the effective
time of the merger, be converted into the right to receive the number of shares
of Lucent common stock, rounded down to the nearest whole share, equal to the
number of shares of INS common stock subject to such warrant immediately prior
to the effective time of the merger multiplied by the 0.8473 exchange ratio. The
exercise price per share of Lucent common stock under the warrant will be
divided by the 0.8473 exchange ratio.
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RESALE OF LUCENT COMMON STOCK
Lucent common stock issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act of 1933, except for
shares issued to any INS stockholder who may be deemed to be an "affiliate" of
INS or Lucent for purposes of Rule 145 under the Securities Act or for purposes
of qualifying the merger for pooling of interests accounting treatment. It is
expected that each such affiliate will agree not to transfer any Lucent common
stock received in the merger except in compliance with the resale provisions of
Rule 144 or 145 under the Securities Act or as otherwise permitted under the
Securities Act and will make no disposition of any Lucent common stock received
in connection with the merger unless, in the opinion of counsel to Lucent, the
transaction will not have any adverse consequences for Lucent with respect to
the treatment of the merger for tax purposes. In addition, it is expected that
each such affiliate will agree not to make any such disposition within 30 days
prior to the effective time of the merger, and, until after such time as
financial results covering at least 30 days of combined operations of Lucent and
INS after the merger have been published. The merger agreement requires INS to
use reasonable efforts to cause its affiliates to enter into such agreements,
and Lucent has agreed to use reasonable efforts to cause its affiliates to
comply with the transfer restrictions referred to in the preceding sentence.
This proxy statement/prospectus does not cover resales of Lucent common stock
received by any person upon completion of the merger, and no person is
authorized to make any use of this proxy statement/prospectus in connection with
any such resale.
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THE MERGER AGREEMENT, STOCK OPTION AGREEMENT
AND STOCKHOLDER AGREEMENT
The following description summarizes the material provisions of the merger
agreement, the stock option agreement and the stockholder agreement.
Stockholders should read carefully the merger agreement, the stock option
agreement and the stockholder agreement, which are attached as Annexes 1, 2 and
3 to this proxy statement/prospectus.
THE MERGER AGREEMENT
CONDITIONS TO THE COMPLETION OF THE MERGER. Each party's obligation to
effect the merger is subject to the satisfaction or waiver of various conditions
which include, in addition to other customary closing conditions, the following:
- holders of a majority of the voting power of all outstanding shares of
INS common stock having adopted the merger agreement
- the waiting period applicable to the merger under the Hart-Scott-Rodino
Act having expired or been terminated
- no judgment, order, statute, law or regulation entered, enacted, enforced
or issued by any court or other governmental entity of competent
jurisdiction or other legal restraint or prohibition being in effect, and
no suit, action or proceeding by any governmental entity being pending
that (1) would prevent the completion of the merger, (2) would limit or
prohibit Lucent or INS from owning or operating any material part of
their respective businesses or compel either of them to dispose of or
hold separate any material part of their businesses as a result of the
merger or (3) otherwise would be reasonably likely to have a material
adverse effect, as described below, on Lucent or INS; provided, however,
that each of the parties shall have used its reasonable efforts to
prevent the entry of any such legal restraint or prohibition and to
appeal as promptly as possible any such legal restraint or prohibition
that may be entered
- the registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, having become effective under the
Securities Act and not being the subject of any stop order or proceedings
seeking a stop order
- the shares of Lucent common stock issuable to INS stockholders in the
merger having been approved for listing on the New York Stock Exchange,
subject to official notice of issuance
- the representations and warranties of the other party set forth in the
merger agreement being true and correct as of the date of the merger
agreement and as of the date on which the merger is to be completed as
though made on and as of the date on which the merger is to be completed,
or, if such representations and warranties expressly relate to an earlier
date, then as of such date, except where the failure of such
representations and warranties to be so true and correct, without giving
effect to any included limitation as to "materially" or "material adverse
effect," does not have, and is not reasonably likely to have,
individually or in the aggregate, a material adverse effect on such other
party
- the other party to the merger agreement having performed in all material
respects all obligations required to be performed by it under the merger
agreement on or prior to the date on which the merger is to be completed
- INS having received from Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to INS, and Lucent having received from Cravath,
Swaine & Moore, counsel to
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Lucent, on the date on which the registration statement is declared
effective by the Securities and Exchange Commission and on the date on
which the merger is to be completed, an opinion in each case dated as of
such respective date and stating that the merger will qualify for United
States federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code. The issuance of such
opinions will be conditioned upon the receipt by such tax counsel of
customary representation letters from each of INS, Intrepid Merger Inc.
and Lucent, in each case, in form and substance reasonably satisfactory
to such tax counsel.
Lucent's obligation to effect the merger is subject to Lucent and INS each
having received letters dated as of the date on which the merger is to be
completed from PricewaterhouseCoopers LLP regarding such firm's concurrence with
Lucent management's and INS management's conclusions that pooling of interests
accounting is appropriate for the merger under Accounting Principles Board
Opinion No. 16 if completed in accordance with the merger agreement.
The merger agreement provides that a "material adverse change" or "material
adverse effect" means, when used in connection with INS or Lucent, any change,
effect, event, occurrence, condition or development or state of facts that is
materially adverse to the business, results of operations or financial condition
of such party and its subsidiaries taken as a whole, other than any change,
effect, event, occurrence, condition, development or state of facts:
- relating to the economy or securities markets in general
- relating to the industries in which such party operates in general
- arising as a result of the merger agreement or the transactions
contemplated by the merger agreement or the announcement or pendency of
the merger agreement, including actions by customers or competitors, loss
of personnel, customers, resellers or referrals or the delay or
cancelation of orders for services and products and, in the case of INS,
any failure to meet any revenue or earnings predictions or expectations
to the extent resulting from the foregoing
- in the case of INS, litigation brought or threatened against INS or any
member of the INS board of directors concerning the merger agreement.
INS can provide no assurance that all of the conditions precedent to the
merger will be satisfied or waived by the party permitted to do so. INS cannot
at this point determine whether it would resolicit proxies in the event that it
decides to waive any of the items listed above. This decision would depend upon
the facts and circumstances leading to INS' decision to complete the merger and
whether INS believes there has been a material change in the terms of the merger
and its effect on INS stockholders. In making its determination, INS would
consider, among other factors, the reasons for the waiver, the effect of the
waiver on the terms of the merger, whether the requirement being waived was
necessary in order to make the deal fair to the stockholders from a financial
point of view, the availability of alternative transactions and the prospects of
INS as an independent entity. If INS determines that a waiver of a condition
would materially change the terms of the merger, including the expected
qualification of the merger as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, it will resolicit proxies.
NO SOLICITATION. The merger agreement provides that INS will not, nor will
it permit any of its subsidiaries to, nor will it authorize or permit any of its
directors, officers or employees or any
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investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person:
- solicit, initiate or encourage, including by way of furnishing
information, or take any other action to facilitate, any inquiries or the
making of any proposal that is or may reasonably be expected to lead to a
takeover proposal, as described below
- participate in any discussions or negotiations regarding any takeover
proposal;
provided, however, that if, at any time prior to the date of the special
meeting, the INS board of directors determines in good faith, after consultation
with outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to INS stockholders under applicable law, INS may, in response
to a superior proposal, as described below, which was not solicited by it,
subject to providing prior oral and written notice of its decision to do so to
Lucent:
- furnish under a customary confidentiality agreement information about INS
and its subsidiaries to any person making a superior proposal
- participate in negotiations regarding such superior proposal.
The merger agreement provides that:
- the term "takeover proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of
15% or more of the assets of INS and its subsidiaries, taken as a whole,
or 15% or more of any class or series of equity securities of INS or any
of its subsidiaries, any tender offer or exchange offer that if completed
would result in any person beneficially owning 15% or more of any class
or series of equity securities of INS or any of its subsidiaries, or any
merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving INS or any of
its subsidiaries
- the term "superior proposal" means any proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than 50% of the combined voting power of the
shares of INS common stock or all or substantially all the assets of INS,
on terms that the INS board of directors determines in its good faith
judgment, based on the advice of a financial advisor of nationally
recognized reputation, to be more favorable to INS' stockholders than the
merger and for which financing, to the extent required, is then committed
or which, in the good faith judgment of the INS board of directors, is
reasonably capable of being obtained.
Except as expressly permitted by the merger agreement, neither the INS
board of directors nor any committee of the board will:
- withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Lucent, the approval or recommendation by the INS board
of directors or such committee of the merger or the merger agreement
- approve or recommend, or propose publicly to approve or recommend, any
takeover proposal
- approve or recommend, or propose to approve or recommend, or execute or
enter into any letter of intent, agreement in principle, acquisition
agreement, option agreement or other similar agreement related to any
takeover proposal, other than any such agreement entered into
concurrently with a termination as described in the next sentence in
order to facilitate such action.
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<PAGE> 45
Notwithstanding the foregoing, in response to a superior proposal received prior
to the special meeting which was not solicited by INS and which did not
otherwise result from a breach of the provisions of the merger agreement
described above, the INS board of directors may terminate the merger agreement,
but only at a time that is after the tenth business day following Lucent's
receipt of written notice advising Lucent that the INS board of directors is
prepared to accept a superior proposal. INS must pay a fee in the amount of $110
million to Lucent upon such termination. See "-- Termination" and
"-- Termination Fees."
TERMINATION. The merger agreement may be terminated at any time prior to
the effective time of the merger, whether before or after adoption of the merger
agreement by the stockholders of INS:
1. by mutual written consent of Lucent, Intrepid Merger Inc. and INS
2. by Lucent or INS, if the merger has not been completed by April 30,
2000;
provided, however, that this right to terminate the merger agreement will
not be available to a party whose failure to perform any of its obligations
under the merger agreement has resulted in the failure of the merger to be
completed by that date
3. by Lucent or INS, if the INS stockholders have not adopted the merger
agreement at an INS stockholders' meeting
4. by Lucent or INS, if any legal restraint or prohibition is in effect
and has become final and nonappealable (1) preventing the completion of the
merger, (2) which would limit or prohibit Lucent or INS from owning or
operating any material part of their respective businesses or compel either
of them to dispose of or hold separate any material part of their
businesses as a result of the merger or (3) which otherwise is reasonably
likely to have a material adverse effect on INS or Lucent;
provided that the party seeking to exercise this right to terminate the
merger agreement has used reasonable efforts to prevent the entry of and to
remove such legal restraint or prohibition
5. by Lucent or INS, if the other party has breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in the merger agreement, which
breach or failure to perform would give rise to the failure of a condition
to the merger and cannot be cured within 30 calendar days after written
notice
6. by INS, at any time prior to the date of the special meeting, in
response to a superior proposal which was not solicited by INS and which
did not otherwise result from a breach of the provisions of the merger
agreement described above under "-- No Solicitation," if INS has complied
with certain notice requirements and paid the termination fee
7. by Lucent, if INS or any of its directors or officers has taken any
of the actions that would be prohibited by the covenant described in "-- No
Solicitation" above.
TERMINATION FEES. If the merger agreement is terminated:
1. by Lucent or INS as described above in the second or third paragraph
under "-- Termination" at a time when a takeover proposal has been made
directly to INS or its stockholders generally or has otherwise become
publicly known or any person has publicly announced an intention to make a
takeover proposal
2. by INS as described above in the sixth paragraph under
"-- Termination"
3. by Lucent as described above in the seventh paragraph under
"-- Termination,"
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<PAGE> 46
then INS must pay Lucent a $110 million termination fee; provided, however,
that, no termination fee will be payable under the first and third clauses of
this section unless INS enters into an agreement concerning, or completes, a
takeover proposal involving at least 35% of the stock or assets of INS within 15
months of termination of the merger agreement.
The merger agreement further provides that if INS fails to pay any
termination fee due, INS must pay the costs and expenses in connection with any
action taken to collect payment, together with interest on the amount of the
termination fee.
CONDUCT OF BUSINESS PENDING THE MERGER. Under the merger agreement, INS
has agreed that, prior to the effective time of the merger, it will, and will
cause its subsidiaries to, carry on their respective businesses in the ordinary
course consistent with past practice and in compliance in all material respects
with applicable laws and regulations and will use commercially reasonable
efforts to preserve intact their current business organizations, to keep
available the services of their current officers and other key employees and
preserve their relationships with those persons having business dealings with
them. In addition, INS has agreed that, among other things and subject to
certain exceptions, neither it nor any of its subsidiaries may:
- declare, set aside or pay any dividends or other distributions on any of
its capital stock, other than certain dividends and distributions by a
wholly owned subsidiary, or split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities
in substitution for shares of its capital stock, or purchase, redeem or
otherwise acquire, directly or indirectly, any shares of capital stock of
INS or its subsidiaries or any other of its securities or any rights,
warrants or options to acquire any such securities, except for (1)
pursuant to existing stock repurchase rights in accordance with INS'
stock option plans, (2) a claim against the escrow fund established in
connection with INS' acquisition of VitalSigns or (3) a dividend
consisting of rights in connection with the implementation of the rights
plan by INS
- issue, deliver, sell, pledge or otherwise encumber or subject to any lien
any shares of capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such securities, other than (1) the issuance of rights to
INS stockholders pursuant to the INS rights plan, (2) certain issuances
under INS' stock option plans, (3) issuances of common stock under
options (either existing on the date of the merger agreement or issued
pursuant to clause (2)) or the existing warrant or pursuant to the
exercise of rights under the INS rights plan or (4) under INS' employee
stock purchase plan in accordance with its terms
- amend the certificate of incorporation of INS, the by-laws of INS or
other comparable organizational documents
- acquire or agree to acquire by merging or consolidating with, or by
purchasing assets of, any business or any person
- sell, lease, license, sell and leaseback, mortgage or otherwise encumber
or subject to any lien or otherwise dispose of any of its properties or
assets, other than in the ordinary course of business consistent with
past practice
- incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of INS or any of
its subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement
having the economic effect of any of the
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<PAGE> 47
foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice and except for
intercompany indebtedness between INS and any of its subsidiaries or
between such subsidiaries
- make any loans, advances or capital contributions to, or investments in,
any other person, except for employee loans or employee advances made in
the ordinary course of business consistent with past practice
- make or agree to make any new capital expenditures which, individually,
are in excess of $1 million or, in the aggregate, are in excess of $5
million
- make any tax election that is reasonably likely to adversely affect in
any material respect the tax liability or tax attributes of INS or settle
or compromise any material income tax liability
- pay, discharge, settle or satisfy any material claims, liabilities,
obligations or litigation, other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities recognized or
disclosed in the most recent consolidated financial statements of INS
included in the documents filed by INS with the Securities and Exchange
Commission or incurred since the date of such financial statements, or
waive the benefits of, or agree to modify in any manner, terminate,
release any person from or fail to enforce any confidentiality,
standstill or similar agreement to which INS or any of its subsidiaries
is a party or a beneficiary
- except as required by law or contemplated in the merger agreement and
except for labor agreements negotiated in the ordinary course, enter
into, adopt or amend in any material respect or terminate any benefit
plan or any other agreement, plan or policy involving INS or its
subsidiaries, and one or more of its directors, officers or employees, or
change any actuarial or other assumption used to calculate funding
obligations for any pension plan, or change the manner in which
contributions to any pension plan are made or the basis on which such
contributions are determined
- except for normal increases in the ordinary course of business consistent
with past practice or as contemplated in the merger agreement or by the
terms of any employment agreement the existence of which does not violate
the merger agreement, increase the cash compensation of any director,
officer or other employee or pay any benefit or amount not required by a
plan or arrangement as in effect on the date of the merger agreement to
any such person
- transfer or license to any person or entity or otherwise extend, amend or
modify any rights to the intellectual property rights of INS and its
subsidiaries other than in the ordinary course of business consistent
with past practices; provided that in no event shall INS license on an
exclusive basis or sell any intellectual property rights of INS and its
subsidiaries
- enter into or amend any agreements under which any person is granted
exclusive marketing, manufacturing or other rights concerning any INS
product, process or technology
- take any action that would cause the representations and warranties of
INS to become untrue in a way that is reasonably likely to have a
material adverse effect on INS or result in any other condition to the
merger not being satisfied.
AMENDMENT; EXTENSION AND WAIVER. Subject to applicable law:
- the merger agreement may be amended by the parties in writing at any
time, except that after the merger agreement has been adopted by the
stockholders of INS, no amendment
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<PAGE> 48
may be entered into which requires further approval by INS stockholders
unless such further approval is obtained
- at any time prior to the effective time of the merger, a party may, by
written instrument signed on behalf of such party, extend the time for
performance of the obligations of any other party to the merger
agreement, waive inaccuracies in representations and warranties of any
other party contained in the merger agreement or in any related document
and except as provided in the merger agreement, waive compliance by any
other party with any agreements or conditions in the merger agreement.
Under Section 251(d) of the Delaware General Corporation Law, no amendment
to the merger agreement made after the adoption of the merger agreement by the
stockholders of INS may, without further stockholder approval, alter or change
the amount or kind of shares, securities, cash, property and/or rights to be
received by INS stockholders in the merger, or alter or change any terms and
conditions of the merger agreement if such alteration or change would adversely
affect the holders of any class or series of stock of INS.
EXPENSES. Whether or not the merger is completed, all fees and expenses
incurred in connection with the merger, the merger agreement, the stock option
agreement and the stockholder agreement will be paid by the party incurring such
fees or expenses, except as otherwise provided in the merger agreement, the
stock option agreement and the stockholder agreement and except that Lucent and
INS will share equally the expenses incurred in connection with filing, printing
and mailing this proxy statement/prospectus and the registration statement of
which it is a part and the filing fees for the premerger notification and report
forms under the Hart-Scott-Rodino Act. Lucent will file any return and will pay
any state or local taxes, if any, resulting from the transfer of the beneficial
ownership of INS' real property as a result of the merger, other than any such
taxes that are solely the obligation of a stockholder of INS, in which case INS
shall pay any such taxes.
REPRESENTATIONS AND WARRANTIES. The merger agreement contains customary
representations and warranties relating to, among other things:
- corporate organization and similar corporate matters of each of Lucent
and INS
- subsidiaries of INS
- the capital structure of each of Lucent and INS
- authorization, execution, delivery, performance and enforceability of,
and required consents, approvals, orders and authorizations of
governmental authorities relating to, the merger agreement and related
matters of each of Lucent and INS
- documents filed by each of Lucent and INS with the Securities and
Exchange Commission, the accuracy of information contained in such
documents and the absence of undisclosed liabilities of each of Lucent
and INS
- the accuracy of information supplied by each of Lucent and INS in
connection with this proxy statement/prospectus and the registration
statement of which it is a part
- absence of material changes or events concerning each of Lucent and INS
- compliance with applicable laws by INS
- absence of changes in benefit plans of INS
- matters relating to the Employee Retirement Income Security Act for INS
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<PAGE> 49
- filing of tax returns and payment of taxes by INS
- required stockholder vote of INS and no required stockholder vote of
Lucent
- satisfaction of certain state takeover statutes' requirements by INS
- the absence of actions by INS that would prevent using the "pooling of
interests" method to account for the merger
- engagement and payment of fees of brokers, investment bankers, finders
and financial advisors by INS
- receipt of fairness opinion by INS from its financial advisor
- intellectual property and year 2000 matters of INS
- outstanding and pending material litigation of each of Lucent and INS
- certain contracts of INS
- title to properties for INS
- the authorization of a customary rights plan by the INS board of
directors
- interim operations of Intrepid Merger Inc.
AMENDMENTS TO THE INS CERTIFICATE OF INCORPORATION. As of the effective
time of the merger, the INS certificate of incorporation will be amended to
provide that the total number of shares of all classes of stock which the
corporation shall have authority to issue is 1,000 shares of common stock, par
value $1.00 per share, and, as so amended, such certificate of incorporation
shall be the certificate of incorporation of the surviving corporation until
changed or amended. For a summary of certain provisions of the INS certificate
of incorporation and the associated rights of INS stockholders, see "Comparison
of Rights of Common Stockholders of Lucent and INS."
AMENDMENTS TO THE INS BY-LAWS. The merger agreement provides that the
by-laws of Intrepid Merger Inc., as in effect immediately prior to the effective
time of the merger, will be the by-laws of the surviving corporation following
the merger until changed or amended. For a summary of certain provisions of the
INS by-laws and the associated rights of INS stockholders, see "Comparison of
Rights of Common Stockholders of Lucent and INS."
THE STOCK OPTION AGREEMENT
GENERAL. Immediately following the execution and delivery of the merger
agreement, Lucent and INS entered into a stock option agreement under which INS
granted Lucent an option to purchase up to 11,407,457 shares of INS common
stock, or such number of shares of INS common stock as represents 19.9% of the
then-outstanding shares of INS common stock, at a price per share of $53.91.
EXERCISE OF THE OPTION. Except as described below, the option is
exercisable at any time after the occurrence of any event unconditionally
entitling Lucent to receive the termination fee under the merger agreement. The
right to purchase shares under the stock option agreement will expire upon the
earliest to occur of:
- the effective time of the merger
- 15 months after the first occurrence of any event unconditionally
entitling Lucent to receive the termination fee
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<PAGE> 50
- termination of the merger agreement prior to the occurrence of any event
unconditionally entitling Lucent to receive the termination fee, unless
Lucent has the right to receive a termination fee following such
termination upon the occurrence of certain events, in which case the
option will not terminate until the later of (1) 15 business days
following the time such termination fee becomes unconditionally payable
and (2) the expiration of the period during which Lucent has such right
to receive a termination fee.
Any purchase of shares upon the exercise of the option is subject to compliance
with the Hart-Scott-Rodino Act and the obtaining or making of any governmental
or regulatory consents, approvals, orders, notifications, filings or
authorizations, the failure of which to have obtained or made would make the
issuance of shares subject to the option illegal. In the event that exercise of
the entire option is prohibited because any such governmental or regulatory
action has not yet been obtained or made at the time the option is exercisable,
the option may be exercised for up to the maximum amount of shares that may be
then acquired without such governmental or regulatory action. If Lucent receives
official notice that such governmental or regulatory action will not be issued
or granted or it is not granted within six months after a partial exercise in
accordance with the preceding sentence, then Lucent may exercise its right to
receive cash for any remaining shares subject to the option.
ADJUSTMENTS TO NUMBER AND TYPE OF SHARES. The number and type of
securities subject to the option and the purchase price will be adjusted for any
change in INS common stock by reason of a stock dividend, split-up, merger,
recapitalization, combination, exchange of shares or similar transaction, such
that Lucent will receive, upon exercise of the option, the number and type of
securities that Lucent would have received if the option had been exercised
immediately prior to the occurrence of such event, or the record date of such
event. The number of shares of INS common stock subject to the option will also
be adjusted in the event the number of shares of INS common stock increases or
decreases, other than pursuant to a transaction described in the previous
sentence, such that the number of shares of INS common stock subject to the
option represents 19.9% of the shares of INS common stock then outstanding,
without giving effect to shares subject to or issued under the option.
If INS agrees to consolidate with or merge into any person other than
Lucent or one of its subsidiaries, to permit any person other than Lucent or one
of its subsidiaries to merge into INS, or to sell or otherwise transfer all or
substantially all of its assets to any person other than Lucent or one of its
subsidiaries, then such agreement will provide that the option will, upon the
completion of such transaction, be converted into or exchanged for an option to
acquire the number and class of shares or other securities or property Lucent
would have received for INS common stock if the option had been exercised
immediately prior to such consolidation, merger, sale or transfer, or the record
date of such event.
CASH PAYMENT FOR THE OPTION. Instead of purchasing shares of INS common
stock under the option, Lucent may exercise its right to have INS pay to Lucent
an amount per share of INS common stock equal to the number of shares of INS
common stock subject to the option multiplied by the difference between:
- the average closing price on The Nasdaq National Market of shares of INS
common stock for the 10 trading days commencing on the 12th trading day
immediately preceding the option closing date and
- the exercise price of the option.
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<PAGE> 51
In addition, the stock option agreement provides that in no event will
Lucent's total profit from the option plus any termination fee paid to Lucent
exceed $150 million in the aggregate and, if Lucent's total profit from the
option would otherwise exceed such amount, Lucent is required to:
- reduce the number of shares of INS common stock subject to the option
- deliver to INS for cancelation shares of INS common stock previously
purchased by Lucent
- pay cash to INS or
- engage in any combination of the foregoing, so that Lucent's total profit
from the option plus the termination fee so paid to Lucent does not
exceed $150 million after taking into account the foregoing actions.
REGISTRATION RIGHTS AND LISTING. Lucent has certain rights to require
registration by INS of any shares purchased under the option under the
securities laws if necessary for Lucent to be able to sell such shares and to
require the listing of such shares on The Nasdaq National Market or another
national securities exchange.
ASSIGNABILITY. The stock option agreement may not be assigned or delegated
by Lucent or INS without the prior written consent of the other. The shares
subject to the option may not be sold, assigned, transferred or otherwise
disposed of except in an underwritten public offering or to a purchaser or
transferee who would not, immediately after such sale, assignment, transfer or
disposal, beneficially own more than 5.0% of the outstanding voting power of
INS; provided, however, that Lucent shall be permitted to sell any such shares
if the sale is made in connection with a tender or exchange offer that has been
approved or recommended by a majority of the INS board of directors.
EFFECT OF STOCK OPTION AGREEMENT. The stock option agreement is intended
to increase the likelihood that the merger will be completed on the terms set
forth in the merger agreement. Consequently, certain aspects of the stock option
agreement may discourage persons who might now or prior to the effective time of
the merger be interested in acquiring all of or a significant interest in INS
from considering or proposing such an acquisition, even if such persons were
prepared to offer higher consideration per share for INS common stock than that
implicit in the 0.8473 exchange ratio or a higher price per share for INS common
stock than the market price.
THE STOCKHOLDER AGREEMENT
GENERAL. Immediately prior to the execution and delivery of the merger
agreement, Lucent and Donald K. McKinney, on behalf of himself and certain
affiliated entities, entered into the stockholder agreement. Mr. McKinney and
such affiliated entities hold approximately 27% of issued and outstanding INS
common stock as of the record date.
VOTING. The stockholders signing the stockholder agreement agreed, among
other things, to vote their shares of INS common stock in favor of the adoption
of the merger agreement at every meeting of INS stockholders at which such
matters are considered and at every adjournment thereof. The stockholders
signing the agreement also agreed not to grant any proxy or power of attorney
with respect to any of their INS shares with respect to such matters other than
to certain officers of Lucent or any other person designated by Lucent.
NO SOLICITATION. The stockholders have agreed that they will not, nor
shall they permit any investment banker, attorney or other advisor or
representative retained by it to, directly or indirectly through another person,
solicit, initiate or encourage, or take any other action to facilitate,
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<PAGE> 52
any inquiries or the making of any proposal that is or may reasonably be
expected to lead to, a takeover proposal, as described in "-- The Merger
Agreement -- No Solicitation."
TERMINATION. The stockholders have also agreed that the stockholder
agreement and the obligations thereunder will be binding upon any person to
which legal or beneficial ownership of such shares shall pass, whether by
operation of law or otherwise.
The stockholders agreement provides that it will terminate upon the earlier
of the completion of the merger and 10 business days after the termination of
the merger agreement in accordance with its terms.
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<PAGE> 53
COMPARATIVE STOCK PRICES AND DIVIDENDS
Lucent common stock is listed for trading on the New York Stock Exchange
under the trading symbol "LU" and INS common stock is quoted on The Nasdaq
National Market under the trading symbol "INSS." The following table sets forth,
for the periods indicated, dividends and the high and low sales prices per share
of Lucent common stock on the New York Stock Exchange Composite Transaction Tape
and of INS common stock on The Nasdaq National Market. Lucent's per share data
has been restated to account for Lucent's two-for-one stock splits effective on
April 1, 1999 and on April 1, 1998. INS' per share data has been restated to
account for INS' three-for-two stock split effective April 6, 1999. For current
price information, stockholders are urged to consult publicly available sources.
<TABLE>
<CAPTION>
LUCENT INS
COMMON STOCK COMMON STOCK
------------------ DIVIDENDS ------------------ DIVIDENDS
CALENDAR PERIOD HIGH LOW DECLARED HIGH LOW DECLARED
- --------------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Second Quarter.................. $ 9 13/16 $ 7 7/16 $0.019 $ N/A $ N/A $N/A
Third Quarter................... 11 15/32 7 21/32 0.019 26 1/2 18 11/16 N/A
Fourth Quarter.................. 13 9/32 10 17/32 0.019 34 9/16 17 7/16 N/A
1997
First Quarter................... 15 5/32 11 3/16 0.000 26 11 15/16 N/A
Second Quarter.................. 18 35/64 12 15/32 0.019 18 1/2 10 5/16 N/A
Third Quarter................... 22 11/16 18 3/64 0.019 19 9/16 11 13/16 N/A
Fourth Quarter.................. 22 35/64 18 3/32 0.038 16 1/4 10 3/16 N/A
1998
First Quarter................... 32 1/16 18 23/64 0.000 20 11/16 14 N/A
Second Quarter.................. 41 27/32 32 0.020 28 5/16 18 3/4 N/A
Third Quarter................... 54 1/4 34 3/16 0.020 31 7/16 21 3/16 N/A
Fourth Quarter.................. 56 15/16 26 23/32 0.040 45 15/16 16 7/16 N/A
1999
First Quarter................... 60 47 0.000 47 7/16 30 15/16 N/A
Second Quarter.................. 68 11/16 51 7/8 0.020 49 1/2 33 5/8 N/A
Third Quarter
(through September 13,
1999)........................ 79 3/4 60 0.020 56 3/16 38 7/8 N/A
N/A -- Not applicable
</TABLE>
The following table sets forth the high and low sales prices per share of
Lucent common stock on the New York Stock Exchange Composite Transaction Tape
and of INS common stock on The Nasdaq National Market on August 9, 1999, the
last trading day before the public announcement of the merger agreement, and on
September 13, 1999, the last trading day for which this information could be
practicably calculated before the date of this proxy statement/prospectus:
<TABLE>
<CAPTION>
LUCENT INS
COMMON STOCK COMMON STOCK
-------------- ------------------
HIGH LOW HIGH LOW
------- --- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
August 9, 1999....................................... $65 1/4 $63 $48 1/8 $46
September 13, 1999................................... $68 1/8 $66 $55 15/16 $54 5/8
</TABLE>
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<PAGE> 54
DESCRIPTION OF LUCENT CAPITAL STOCK
The following summary of the capital stock of Lucent is subject in all
respects to applicable Delaware law, Lucent's certificate of incorporation and
by-laws and Lucent's rights agreement. See "Comparison of Rights of Common
Stockholders of Lucent and INS" and "Where You Can Find More Information."
The total authorized shares of capital stock of Lucent consist of (1) 6
billion shares of common stock, $.01 par value per share, and (2) 250 million
shares of preferred stock, $1.00 par value per share. At the close of business
on August 31, 1999, approximately 3.1 billion shares of Lucent common stock were
issued and outstanding and no shares of Lucent preferred stock were issued and
outstanding.
The Lucent board of directors is authorized to provide for the issuance
from time to time of Lucent preferred stock in series and, as to each series, to
fix the designation, the dividend rate and the preferences, if any, which
dividends on such series will have compared 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 to such series and the redemption price or prices and the other terms
of redemption, if any, applicable to such series. 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
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.
For a description of the rights to acquire Lucent junior preferred stock
that are attached to shares of Lucent common stock, see "Comparison of Rights of
Common Stockholders of Lucent and INS -- Rights Plan."
COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS
OF LUCENT AND INS
The rights of Lucent stockholders are currently governed by the Delaware
General Corporation Law, Lucent's certificate of incorporation and Lucent's
by-laws. The rights of INS stockholders are currently governed by the Delaware
General Corporation Law, INS' certificate of incorporation and INS' by-laws.
Upon completion of the merger, the rights of INS stockholders who become
stockholders of Lucent in the merger will be governed by the Delaware General
Corporation Law, Lucent's certificate of incorporation and Lucent's by-laws.
The following description summarizes the material differences which may
affect the rights of stockholders of Lucent and INS but does not purport to be a
complete statement of all such differences, or a complete description of the
specific provisions referred to in this summary. The identification of specific
differences is not intended to indicate that other equally or more significant
differences do not exist. Stockholders should read carefully the relevant
provisions of the Delaware General Corporation Law, Lucent's certificate of
incorporation, Lucent's by-laws, INS' certificate of incorporation and INS'
by-laws.
CAPITALIZATION
LUCENT. Lucent's authorized capital stock is described above under
"Description of Lucent Capital Stock."
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<PAGE> 55
INS. The total authorized shares of capital stock of INS consist of (1)
150 million shares of common stock, $0.001 par value per share, and (2) 5
million shares of preferred stock, $0.001 par value per share. At the close of
business on September 1, 1999, there were approximately 57,521,050 shares of INS
common stock outstanding and no shares of INS preferred stock outstanding.
The INS board of directors is authorized to issue preferred stock from time
to time in series, and to fix and determine, any or all of the designations,
powers, preferences, and rights, and the qualifications, limitations or
restrictions granted to or imposed upon any wholly unissued series of preferred
shares, and to fix, increase or decrease the number of shares comprising any
such series and the designation of any such series, or any of them, and to
provide for the dividend rights, voting rights and rights and terms of
redemption or conversion of the shares of any such series. The INS board of
directors, without stockholder approval, can issue INS preferred stock with
voting, conversion or other rights that could adversely affect the voting power
and other rights of the holders of INS common stock. INS preferred stock could
thus be issued quickly with terms calculated to delay or prevent a change in
control of INS or make removal of management more difficult. Additionally,
issuing INS preferred stock may cause the market price of INS common stock to
decrease.
VOTING RIGHTS
LUCENT. Each holder of Lucent common stock is entitled to one vote for
each share held of record and may not cumulate votes for the election of
directors.
INS. Each holder of INS common stock is entitled to one vote for each
share held of record and may not cumulate votes for the election of directors.
NUMBER, ELECTION, VACANCY AND REMOVAL OF DIRECTORS
LUCENT. Lucent's board of directors has nine members. Lucent's certificate
of incorporation provides that the Lucent board of directors will consist of at
least three directors and that the number of directors may be changed from time
to time by a resolution adopted by a majority of the total number of directors
which Lucent would have if there were no vacancies. Lucent's certificate of
incorporation also provides that the Lucent board of directors consists of three
classes of directors. The directors in each class serve on the Lucent board of
directors for approximately three years each.
Lucent's certificate of incorporation provides that if there is a vacancy
on the Lucent board of directors or if the number of directors is increased,
such vacancies will be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum, and not by
the stockholders. A director elected to fill a vacancy or newly created
directorship will serve for the remainder of the full term of the class of
directors in which the vacancy occurred or the new directorship was created and
until such director's successor will have been duly elected and qualified. No
decrease in the number of directors will shorten the term of any incumbent
director.
Under Lucent's certificate of incorporation, any director may be removed
from office only for cause by the affirmative vote of the holders of at least a
majority of the voting power of all shares of Lucent common stock entitled to
vote generally in the election of directors then outstanding, voting together as
a single class.
INS. INS' board of directors has five members and two vacancies. INS'
by-laws provide that the number of directors will be seven, subject to change by
a by-law adopted by the board of
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directors or stockholders. Neither INS' certificate of incorporation nor INS'
by-laws provides for a staggered board of directors.
Under INS' by-laws, vacancies on the INS board of directors and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by the remaining directors. INS' certificate of
incorporation and by-laws provide that vacancies on the INS board of directors
and newly created directorships resulting from any increase in the authorized
number of directors may be filled only by a majority vote of the directors then
in office, even though less than a quorum, except that vacancies on the INS
board of directors resulting from the removal of a director by the stockholders
of INS may be filled at a special meeting of the INS stockholders held for that
purpose.
INS' by-laws provide that any director or the entire INS board of directors
may be removed at any time, with or without cause, by the affirmative vote of
the holders of at least a majority of the shares of capital stock then entitled
to vote in the election of directors.
AMENDMENTS TO CERTIFICATES OF INCORPORATION
LUCENT. Lucent's certificate of incorporation provides that the
affirmative vote of the holders of at least 80% of the voting stock then
outstanding, voting together as a single class, will be required to alter,
amend, adopt any provision inconsistent with or repeal Articles V, VII and VIII
of Lucent's certificate of incorporation, which relate to stockholder action,
the Lucent board of directors and Lucent's by-laws, respectively.
INS. INS' certificate of incorporation provides that INS may amend or
repeal any provision of its certificate of incorporation to the extent and in
the manner provided by Delaware law. The Delaware General Corporate Law provides
that amending a corporation's certificate of incorporation requires a majority
vote of the outstanding shares of capital stock.
AMENDMENTS TO BY-LAWS
LUCENT. Lucent's certificate of incorporation and by-laws provide that
Lucent's by-laws may be altered or repealed and new by-laws may be adopted:
- 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 by-law
inconsistent with Section 2.2, 2.7 or 2.10 of Article II of Lucent's
by-laws, which relate to special meetings of stockholders, notice of
stockholder business and nominations and actions by written consent of
stockholders, respectively, or with Section 3.2, 3.9 or 3.11 of Article
III of Lucent's by-laws, which relate to the number and tenure of the
directors, vacancies on the Lucent board of directors and removal of
directors, respectively, by the stockholders requires the affirmative
vote of the holders of at least 80% of the voting stock then outstanding,
voting together as a single class
- by a majority of the total number of directors Lucent would have if there
were no vacancies.
INS. INS' certificate of incorporation gives the INS board of directors
the power to adopt, alter, amend or repeal INS' by-laws. INS' by-laws also
provide that by-laws may be adopted, amended or repealed by the stockholders.
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STOCKHOLDER ACTION
LUCENT. Lucent's certificate of incorporation provides that any action
required or permitted to be taken by the Lucent stockholders must be effected at
a duly called annual or special meeting and may not be effected by written
consent.
INS. INS' certificate of incorporation provides that any action required
or permitted to be taken by the INS stockholders must be effected at a duly
called annual or special meeting and may not be effected by written consent.
NOTICE OF CERTAIN STOCKHOLDER ACTIONS
LUCENT. Lucent's certificate of incorporation provides that a stockholder
must give advance written notice of nominations for election of directors and to
properly bring business before an annual meeting of stockholders. Under Lucent's
by-laws, a stockholder's written notice must generally be delivered to the
Secretary of Lucent not later than 45 days nor earlier than the 75 days prior to
the first anniversary of the record date for determining stockholders entitled
to vote at the preceding year's annual meeting.
In the event that Lucent calls a special meeting of stockholders for the
purpose of electing one or more directors to the Lucent board of directors, any
stockholder may nominate a director or directors, provided that written notice
must be delivered not earlier than 120 days prior to such special meeting and
not later than (1) 90 days prior to such special meeting or (2) 10 days
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Lucent board of directors to
be elected at such meeting.
INS. INS' by-laws provide that for business to be properly brought before
any meeting of stockholders, a stockholder must deliver notice, and such notice
must be received by INS not less than 120 days in advance of the date specified
in INS' proxy statement in connection with the previous year's annual meeting,
provided that if the date of the annual meeting has been changed by more than 30
days from the date contemplated at the time of the previous year's proxy
statement, or in the event no annual meeting was held in the previous meeting,
notice must be received not later than the close of business on the later of 120
calendar days prior to such meeting or the tenth calendar day following the day
notice of the meeting is provided.
SPECIAL STOCKHOLDER MEETINGS
LUCENT. Lucent's certificate of incorporation and by-laws provide that a
special meeting of Lucent's stockholders may be called only by the Lucent board
of directors by a resolution stating the purposes of the special meeting and
approved by a majority of the total number of directors Lucent would have if
there were no vacancies or by the chairman of the Lucent board of directors. Any
power of the stockholders to call a special meeting is specifically denied in
Lucent's certificate of incorporation.
INS. INS' by-laws provide that special meetings of the stockholders may be
called by either the chairman of the board of INS, the President of INS, or the
INS board of directors unless there are no directors in office, in which case
any officer or stockholder may call a special meeting.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Delaware General Corporation Law provides that a corporation's
certificate of incorporation may include a provision limiting the personal
liability of a director to the corporation or its
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stockholders for monetary damages for breach of fiduciary duty as a director.
However, no such provision can eliminate or limit the liability of a director
for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law
- violation of Section 174 of the Delaware General Corporation Law
regarding unlawful payment of dividends or unlawful stock purchases or
redemptions
- any transaction from which the director derived an improper personal
benefit
- any act or omission prior to the adoption of such a provision in the
certificate of incorporation.
LUCENT. Lucent's certificate of incorporation provides that no director
will be personally liable to Lucent or to its stockholders for monetary damages
for breach of fiduciary duty as a director, except, if required by law, for
liability:
- for any breach of the director's duty of loyalty to Lucent or its
stockholders
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
- under Section 174 of the Delaware General Corporation Law
- for any transaction from which the director derived an improper personal
benefit.
INS. INS' certificate of incorporation authorizes INS to eliminate or
limit the liability of directors to the maximum extent legally permissible.
DIVIDENDS
LUCENT. Lucent's by-laws provide that the Lucent board of directors may
from time to time declare, and Lucent may pay, dividends on its outstanding
shares in the manner and upon the terms and conditions provided by law and in
Lucent's certificate of incorporation.
INS. INS' by-laws provide that the INS board of directors may from time to
time declare dividends on its outstanding shares in accordance with applicable
law.
CONVERSION
LUCENT. Holders of Lucent common stock have no rights to convert their
shares into any other securities.
INS. Holders of INS common stock have no rights to convert their shares
into any other securities.
RIGHTS PLAN
LUCENT. Lucent has a rights agreement with The Bank of New York as rights
agent. The following description of Lucent's rights agreement is qualified in
its entirety by reference to the terms and conditions of the rights agreement.
Stockholders should read carefully the rights agreement. See "Where You Can Find
More Information" on page 56.
Under the rights agreement, rights attach to each share of Lucent common
stock outstanding and, when exercisable, entitle the registered holder to
purchase from Lucent one four-hundredth of
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a share of junior preferred stock, par value $1.00 per share, at a purchase
price of $22.50 per one four-hundredth of a share, subject to customary
anti-dilution adjustments.
The rights will not be exercisable until the earlier of:
- 10 days following a public announcement that a person or group has
acquired beneficial ownership of 10% or more of the outstanding shares of
Lucent common stock
- 10 business days, or such later date as may be determined by the Lucent
board of directors, following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of
which would result in a person or group acquiring beneficial ownership of
10% or more of the outstanding shares of Lucent common stock.
The rights will expire on March 31, 2006, unless such date is extended or unless
the rights are earlier redeemed or exchanged by Lucent, in each case as
summarized below.
In the event that a person or group acquires beneficial ownership of 10% or
more of the outstanding shares of Lucent common stock, each holder of a right,
other than rights beneficially owned by such person or group, which become void,
will have the right to receive upon exercise that number of shares of Lucent
common stock having a market value of two times the purchase price provided for
in the right. In the event that Lucent is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group acquires beneficial ownership of 10% or
more of the outstanding shares of Lucent common stock, each holder of a right
will have the right to receive upon exercise that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the purchase price provided for in the right.
At any time after a person or group acquires beneficial ownership of 10% or
more of the outstanding shares of Lucent common stock and prior to the
acquisition by such person or group of 50% or more of the then outstanding
shares of Lucent common stock, the Lucent board of directors may exchange the
rights, other than rights owned by such person or group which have become void,
in whole or in part, for Lucent common stock or junior preferred stock.
At any time prior to a person or group acquiring beneficial ownership of
10% or more of the outstanding shares of Lucent common stock, the Lucent board
of directors may redeem the rights in whole, but not in part, at a redemption
price of $0.0025 per right, subject to customary anti-dilution provisions, or
amend the terms of the rights, in each case without the consent of the holders
of the rights, at such time, on such basis and with such conditions as the
Lucent board of directors may establish.
Junior preferred shares purchasable upon exercise of the rights will not be
redeemable. The junior preferred shares have dividend, voting and liquidation
rights that are intended to result in the value of the one four-hundredth
interest in a junior preferred share purchasable upon exercise of each right
approximating the value of one share of Lucent common stock.
The rights may have antitakeover effects. The rights will cause substantial
dilution to a person or group of persons that attempts to acquire Lucent on
terms not approved by the Lucent board of directors. The rights should not
interfere with any merger or other business combination approved by the Lucent
board of directors prior to the time that a person or group has acquired such
10% beneficial ownership since the rights may be redeemed or amended by Lucent
until such time.
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INS. INS has entered into a stockholder rights agreement with ChaseMellon
Shareholder Services, L.L.C. as rights agent. As with most stockholder rights
agreements, the terms of the rights agreement are complex and not easily
summarized, particularly as they relate to the acquisition of INS common stock
and to exercisability. This summary may not contain all of the information that
is important to you, and is qualified in its entirety by reference to the terms
and conditions of the rights agreement. Accordingly, you should carefully read
the INS rights agreement, which is incorporated by reference into this proxy
statement/prospectus in its entirety. See "Where You Can Find More Information"
on page 56.
The rights agreement provides that each share of INS common stock
outstanding will have the right to purchase one one-thousandth of a share of INS
preferred stock, par value $.001, at a purchase price of $300 per one
one-thousandth of a share, subject to adjustment. Initially, the rights are
attached to outstanding certificates representing INS common stock, and no
separate certificates representing the rights will be distributed.
The rights will separate from the outstanding shares of INS common stock
and be represented by separate certificates approximately 10 days after someone
acquires or commences a tender offer for 15% of the outstanding INS common
stock. The rights will not separate from the INS common stock or become
exercisable as a result of the actions of Lucent or its affiliates in connection
with the merger. After the rights separate from the INS common stock,
certificates representing the rights will be mailed to record holders of INS
common stock. Once distributed, the rights certificates alone will represent the
rights. All shares of INS common stock issued prior to the date the rights
separate from the common stock will be issued with the rights attached. The
rights are not exercisable until the date the rights separate from the common
stock. The rights will expire on August 26, 2009 or upon the completion of the
merger, unless earlier redeemed or exchanged by INS.
If an acquiror obtains or has the right to obtain 15% or more of INS common
stock, then each right will entitle the holder to purchase a number of shares of
INS common stock with a then current market value of $600 for $300, subject to
adjustment. Each right will entitle the holder to purchase a number of shares of
common stock of the acquiror having a then current market value of twice the
purchase price if an acquiror, other than Lucent or its affiliates acting
pursuant to the merger, obtains 15% or more of INS common stock and any of the
following occurs:
- INS merges into another entity
- an acquiring entity merges into INS or
- INS sells more than 50% of its assets or earning power.
Any rights that are or were owned by an acquiror of more than 15% of the
outstanding common stock of INS will be null and void.
The rights agreement also contains exchange provisions which provide that
after an acquiror obtains 15% or more, but less than 50% of the outstanding
common stock of INS, the INS board of directors may, at its option, exchange all
or part of the then outstanding and exercisable rights for common shares. In
such an event, the exchange ratio is one common share per right, adjusted to
reflect any stock split, stock dividend or similar transaction. The board of
directors also may, at its option, redeem all of the outstanding rights prior to
the earlier of (1) the time that an acquiror obtains 15% or more of the INS
outstanding common stock or (2) the final expiration date of the rights
agreement. The redemption price is $.01 per right, subject to adjustment. If the
INS board elects to redeem the rights, the rights will no longer be exercisable
and the only remaining right of the holder of the rights will be to receive the
redemption price.
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Holders of rights will have no rights as stockholders of INS, including the
right to vote or receive dividends, simply by virtue of holding the rights. The
rights agreement provides that it may be amended by the INS board of directors
prior to the date any person acquires 15% of the outstanding common stock of INS
without the approval of the holders of the rights. However, after the date any
person acquires 15% of the common stock, the rights agreement may not be amended
in any manner which would adversely affect the interests of the holders of the
rights, excluding the interests of any acquiror. In addition, without the prior
written consent of Lucent, the rights agreement may not be amended to treat
Lucent or its affiliate as an acquiror or to make the merger or the transactions
related to it trigger a separation of the rights from the INS common stock. The
rights agreement also provides that no amendment may be made to adjust the time
period governing redemption at a time when the rights are not redeemable.
The rights agreement has potential anti-takeover effects. The rights may
cause substantial dilution to a person or group that attempts to acquire INS
without conditioning the offer on a substantial number of rights being acquired.
Accordingly, the existence of the rights may deter acquirors from making
takeover proposals or tender offers. However, the rights are not intended to
prevent a takeover, but rather are designed to enhance the ability of the INS
board to negotiate with an acquiror on behalf of all the INS stockholders. In
addition, the rights should not interfere with a proxy contest.
LEGAL MATTERS
The legality of Lucent common stock offered by this proxy
statement/prospectus will be passed upon for Lucent by Pamela F. Craven, Vice
President -- Law and Secretary of Lucent. As of September 7, 1999, Pamela F.
Craven owned 1,096 shares of Lucent common stock and options and stock units for
282,400 shares of Lucent common stock. Cravath, Swaine & Moore, New York, New
York from time to time acts as counsel for Lucent and its subsidiaries.
Certain United States federal income tax consequences of the merger will be
passed upon for INS by its counsel Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
EXPERTS
The financial statements incorporated in this proxy statement/prospectus by
reference in Exhibit 99.1 to Lucent's Current Report on Form 8-K dated August 2,
1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements incorporated in this proxy statement/prospectus by
reference to the INS Annual Report on Form 10-K for the year ended June 30,
1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Representatives of PricewaterhouseCoopers LLP are not expected to be
present at the special meeting.
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STOCKHOLDER PROPOSALS
INS will hold a 1999 Annual Meeting of INS stockholders only if the merger
is not completed. The deadline for submission of stockholder proposals for
inclusion in INS' proxy materials for the 1999 INS annual meeting has passed.
If the merger is not completed, INS stockholders may present proper
proposals for consideration at the next annual meeting of INS stockholders by
submitting their proposal in writing to the Secretary of INS in a timely manner.
INS' by-laws establish an advance notice procedure with regard to certain
matters, including stockholder proposals not included in INS' proxy statement,
to be brought before an annual meeting of stockholders. In general, nominations
for the election of directors may be made by:
- by or at the direction of the INS board of directors
- by any stockholder entitled to vote in the election of directors at the
meeting who has delivered written notice to INS not less than 120
calendar days in advance of the date that was specified in INS' proxy
statement in connection with the previous year's annual meeting, which
notice must contain specified information concerning the nominees and
concerning the stockholder proposing the nominations.
In addition, in certain circumstances, nominations may be made by any INS
stockholder entitled to vote who has delivered written notice to INS by the
close of business on the later of 120 calendar days in advance of such meeting
or the tenth calendar day following the date on which notice of the annual
meeting was mailed or such public disclosure was made.
The only business that will be conducted at an annual meeting of INS
stockholders is business that is brought before the meeting:
- by or at the direction of the board of directors
- by any stockholder entitled to vote who has delivered written notice to
INS 120 calendar days in advance of the date specified in INS' proxy
statement in connection with the previous year's annual meeting, which
notice must contain specific information concerning the matters to be
brought before the meeting and concerning the stockholder proposing those
matters.
If no annual meeting was held in the previous year or if the date of the
annual meeting has been changed by more than 30 days, notice by the stockholder
must be received not later than the close of business on the later of 120
calendar days in advance of such meeting or the tenth calendar day following the
day on which notice of the date of the annual meeting was mailed or public
disclosure was made. A copy of the full text of the by-law provisions discussed
above may be obtained by writing to the Secretary of INS.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the INS board of
directors knows of no matters that will be presented for consideration at the
special meeting other than as described in this proxy statement/prospectus.
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WHERE YOU CAN FIND MORE INFORMATION
Lucent and INS file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information that Lucent and INS file
with the Securities and Exchange Commission at the Securities and Exchange
Commission's public reference rooms at the following locations:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
New York Regional Office
7 World Trade Center
Suite 1300
New York, New York 10048
Chicago Regional Office
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. These Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the
Securities and Exchange Commission at "http://www.sec.gov." Reports, proxy
statements and other information concerning Lucent may also be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005. Reports, proxy statements and other information pertaining to INS are
also available for inspection at the offices of The Nasdaq Stock Market, which
is located at 1735 K Street, N.W., Washington, D.C. 20006.
Lucent filed a registration statement on Form S-4 on September 15, 1999 to
register with the Securities and Exchange Commission the Lucent common stock to
be issued to INS stockholders in the merger. This proxy statement/prospectus is
a part of that registration statement and constitutes a prospectus of Lucent in
addition to being a proxy statement of INS. As allowed by Securities and
Exchange Commission rules, this proxy statement/prospectus does not contain all
the information you can find in Lucent's registration statement or the exhibits
to the registration statement.
The Securities and Exchange Commission allows Lucent and INS to
"incorporate by reference" information into this proxy statement/prospectus,
which means that the companies can disclose important information to you by
referring you to other documents filed separately with the Securities and
Exchange Commission. The information incorporated by reference is considered
part of this proxy statement/prospectus, except for any information superseded
by information contained directly in this proxy statement/prospectus or in later
filed documents incorporated by reference in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that Lucent and INS have previously filed with the Securities and
Exchange Commission. These
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documents contain important business and financial information about Lucent and
INS that is not included in or delivered with this proxy statement/prospectus.
<TABLE>
<CAPTION>
LUCENT FILINGS
(FILE NO. 001-11639) PERIOD
- -------------------- ------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended September 30,
1998, as amended by Amendment No. 1
thereto filed on Form 10-K/A on May
17, 1999
Quarterly Reports on Form 10-Q Quarters ended December 31, 1998,
March 31, 1999 and June 30, 1999
Current Reports on Form 8-K Filed November 19, 1998, January 8,
1999, January 15, 1999, March 5,
1999, as amended by Amendment No. 1
thereto filed on Form 8-K/A on May
18, 1999, June 28, 1999 and August
2, 1999
Proxy Statement Filed December 22, 1998
The description of Lucent common Filed under Section 12 of the
stock and Lucent rights to Exchange Act on February 26, 1996,
acquire junior preferred stock as amended by Amendment No. 1
set forth in the Lucent thereto filed on Form 10/A on March
Registration Statement on Form 12, 1996, Amendment No. 2 thereto
10 filed on Form 10/A on March 22, 1996
and Amendment No. 3 thereto filed on
Form 10/A on April 1, 1996,
including any amendments or reports
filed for the purpose of updating
such descriptions
</TABLE>
<TABLE>
<CAPTION>
INS FILINGS
(FILE NO. 000-21131) PERIOD
- -------------------- ------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended June 30, 1999
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Current Reports on Form 8-K Filed August 16, 1999
Proxy Statement Filed September 28, 1998
The description of INS common Filed under Section 12 of the
stock set forth in the INS Exchange Act on August 2, 1996
Registration Statement on Form
8-A
</TABLE>
Lucent and INS also incorporate by reference additional documents that may
be filed with the Securities and Exchange Commission under Section 13(a), 13(c),
14 or 15(d) of the Exchange Act between the date of this proxy
statement/prospectus and the date of the special meeting. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.
Lucent has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Lucent and INS has supplied all
such information relating to INS.
INS stockholders should not send in their INS certificates until they
receive the transmittal materials from the exchange agent. INS stockholders of
record who have further questions about their share certificates or the exchange
of their INS common stock for Lucent common stock should call the exchange
agent.
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If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through the companies,
the Securities and Exchange Commission or the Securities and Exchange
Commission's Internet web site as described above. Documents incorporated by
reference are available from the companies without charge, excluding all
exhibits, except that if the companies have specifically incorporated by
reference an exhibit in this proxy statement/prospectus, the exhibit will also
be provided without charge. Stockholders may obtain documents incorporated by
reference in this proxy statement/prospectus by requesting them in writing or by
telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
Lucent Technologies Inc. International Network Service
c/o The Bank of New York 1213 Innsbruck Drive
Church Street Station Sunnyvale, California 94089
P.O. Box 11009 Investor Relations
New York, New York 10286-1009 Telephone: (650) 318-1151
Telephone: 1-888-LUCENT6
</TABLE>
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement/prospectus. This proxy statement/ prospectus is dated September
15, 1999. You should not assume that the information contained in this proxy
statement/prospectus is accurate as of any date other than that date. Neither
the mailing of this proxy statement/prospectus to stockholders nor the issuance
of Lucent common stock in the merger creates any implication to the contrary.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, business strategies,
operating efficiencies or synergies, competitive positions, growth opportunities
for existing products, plans and objectives of management, markets for stock of
Lucent and INS and other matters. Statements in this proxy statement/prospectus
that are not historical facts are hereby identified as "forward-looking
statements" for the purpose of the safe harbor provided by Section 21E of the
Exchange Act and Section 27A of the Securities Act. Such forward-looking
statements, including, without limitation, those relating to the future business
prospects, revenues and income, in each case relating to Lucent and INS,
wherever they occur in this proxy statement/prospectus, are necessarily
estimates reflecting the best judgment of the senior management of Lucent and
INS and involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the forward-looking
statements. Such forward-looking statements should, therefore, be considered in
light of various important factors, including those set forth in this proxy
statement/prospectus. Important factors that could cause actual results to
differ materially from estimates or projections contained in the forward-looking
statements include without limitation:
- the ability to integrate the operations of Lucent and INS, including
their respective product lines
- the effects of vigorous competition in the markets in which Lucent and
INS operate.
Words such as "estimate," "project," "plan," "intend," "expect," "believe"
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are found at various places throughout this
proxy statement/prospectus and the other documents incorporated by reference,
including, but not limited to, the Annual Report on Form 10-K for the fiscal
year ended September 30, 1998 of Lucent, including any amendments, and the
Annual Report on Form 10-K for the fiscal year ended June 30, 1999 of INS,
including any amendments. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this proxy
statement/prospectus. Neither Lucent nor INS undertakes any obligation to
publicly update or release any revisions to these forward-looking statements to
reflect events or circumstances after the date of this proxy
statement/prospectus or to reflect the occurrence of unanticipated events.
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ANNEX 1
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 9, 1999
BY AND AMONG
LUCENT TECHNOLOGIES INC.,
INTREPID MERGER INC.
AND
INTERNATIONAL NETWORK SERVICES
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger................................................. 1
SECTION 1.02. Closing.................................................... 2
SECTION 1.03. Effective Time............................................. 2
SECTION 1.04. Effects of the Merger...................................... 2
SECTION 1.05. Certificate of Incorporation and By-laws................... 2
SECTION 1.06. Board of Directors and Officers............................ 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock.................................... 2
(a) Capital Stock of Sub................................... 2
(b) Cancelation of Treasury Stock and Lucent-Owned Stock... 3
(c) Conversion of INS Common Stock......................... 3
(d) Anti-Dilution Provisions............................... 3
SECTION 2.02. Exchange of Certificates................................... 3
(a) Exchange Agent......................................... 3
(b) Exchange Procedures.................................... 3
(c) Distributions with Respect to Unexchanged Shares....... 4
(d) No Further Ownership Rights in INS Common Stock........ 4
(e) No Fractional Shares................................... 4
(f) Termination of Exchange Fund........................... 5
(g) No Liability........................................... 6
(h) Investment of Exchange Fund............................ 6
(i) Lost Certificates..................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of INS...................... 6
(a) Organization, Standing and Corporate Power............. 6
(b) Subsidiaries........................................... 7
(c) Capital Structure...................................... 7
(d) Authority; Noncontravention............................ 8
(e) SEC Documents; Undisclosed Liabilities................. 9
(f) Information Supplied................................... 10
(g) Absence of Certain Changes or Events................... 10
(h) Litigation............................................. 11
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(i) Compliance with Applicable Laws....................... 11
(j) Absence of Changes in Benefit Plans.................... 12
(k) ERISA Compliance....................................... 12
(l) Taxes................................................. 13
(m) Voting Requirements.................................... 14
(n) State Takeover Statutes................................ 14
(o) Accounting Matters..................................... 15
(p) Brokers................................................ 15
(q) Opinion of Financial Advisor........................... 15
(r) Intellectual Property; Year 2000....................... 15
(s) Certain Contracts...................................... 16
(t) Title to Properties.................................... 16
(u) INS Rights Agreement................................... 17
SECTION 3.02. Representations and Warranties of Lucent and Sub........... 17
(a) Organization, Standing and Corporate Power............. 17
(b) Capital Structure...................................... 17
(c) Authority; Noncontravention............................ 18
(d) SEC Documents; Undisclosed Liabilities................. 19
(e) Information Supplied................................... 19
(f) Absence of Certain Changes or Events................... 20
(g) Voting Requirements.................................... 20
(h) Tax Matters............................................ 20
(i) Interim Operations of Sub............................. 20
(j) Litigation............................................. 20
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business........................................ 20
(a) Conduct of Business by INS............................. 20
(b) Advice of Changes...................................... 23
SECTION 4.02. No Solicitation by INS..................................... 23
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Form S-4 and the INS Proxy Statement;
INS Stockholders Meeting................................. 24
SECTION 5.02. Letters of INS's Accountants............................... 25
SECTION 5.03. Letters of Lucent's Accountants............................ 25
SECTION 5.04. Access to Information; Confidentiality..................... 26
SECTION 5.05. Commercially Reasonable Efforts............................ 26
SECTION 5.06. Stock Options.............................................. 27
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SECTION 5.07. Employee Matters........................................... 28
SECTION 5.08. Indemnification, Exculpation and Insurance................. 28
SECTION 5.09. Fees and Expenses.......................................... 29
SECTION 5.10. Public Announcements....................................... 30
SECTION 5.11. Affiliates................................................. 30
SECTION 5.12. Listings................................................... 30
SECTION 5.13. Litigation................................................. 31
SECTION 5.14. Tax Treatment.............................................. 31
SECTION 5.15. Pooling of Interests....................................... 31
SECTION 5.16. Stockholder Agreement Legend............................... 31
SECTION 5.17. Rights Agreement........................................... 31
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation To Effect the
Merger................................................... 31
(a) INS Stockholder Approval............................... 31
(b) HSR Act................................................ 31
(c) No Litigation.......................................... 31
(d) Form S-4............................................... 32
(e) NYSE Listing........................................... 32
SECTION 6.02. Conditions to Obligations of Lucent and Sub................ 32
(a) Representations and Warranties......................... 32
(b) Performance of Obligations of INS...................... 32
(c) Tax Opinions........................................... 32
(d) Pooling Letters........................................ 32
SECTION 6.03. Conditions to Obligations of INS........................... 33
(a) Representations and Warranties......................... 33
(b) Performance of Obligations of Lucent and Sub........... 33
(c) Tax Opinions........................................... 33
SECTION 6.04. Frustration of Closing Conditions.......................... 33
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination................................................ 33
SECTION 7.02. Effect of Termination...................................... 34
SECTION 7.03. Amendment.................................................. 34
SECTION 7.04. Extension; Waiver.......................................... 34
SECTION 7.05. Procedure for Termination, Amendment, Extension or
Waiver................................................... 34
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ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties.............. 35
SECTION 8.02. Notices.................................................... 35
SECTION 8.03. Definitions................................................ 36
SECTION 8.04. Interpretation............................................. 36
SECTION 8.05. Counterparts............................................... 37
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries............. 37
SECTION 8.07. Governing Law.............................................. 37
SECTION 8.08. Assignment................................................. 37
SECTION 8.09. Enforcement................................................ 37
SECTION 8.10. Severability............................................... 37
Annex I Index of Defined Terms
Exhibit A Form of Affiliate Letter
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AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 9,
1999, among LUCENT TECHNOLOGIES INC., a Delaware corporation ("Lucent"),
INTREPID MERGER INC., a Delaware corporation and a wholly owned subsidiary
of Lucent ("Sub"), and INTERNATIONAL NETWORK SERVICES, a Delaware
corporation ("INS").
WHEREAS the respective Boards of Directors of Lucent, Sub and INS have
approved and declared advisable this Agreement and the merger of Sub with and
into INS (the "Merger"), upon the terms and subject to the conditions set forth
in this Agreement, whereby each issued and outstanding share of common stock,
par value $0.001 per share, of INS ("INS Common Stock"), other than shares owned
by Lucent, Sub or INS, will be converted into the right to receive the Merger
Consideration;
WHEREAS the respective Boards of Directors of Lucent, Sub and INS have each
determined that the Merger and the other transactions contemplated hereby are
consistent with, and in furtherance of, their respective business strategies and
goals;
WHEREAS Lucent, Sub and INS desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
WHEREAS for U.S. federal income tax purposes, it is intended that (a) the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations promulgated thereunder and (b) this Agreement constitutes a plan of
reorganization;
WHEREAS for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction;
WHEREAS simultaneously with the execution and delivery of this Agreement
and as a condition and inducement to the willingness of Lucent and Sub to enter
into this Agreement, Lucent and certain principal stockholders of INS
(collectively, the "Stockholder") are entering into an agreement (the
"Stockholder Agreement") pursuant to which the Stockholder will agree to vote to
adopt and approve the Merger Agreement and to take certain other actions in
furtherance of the Merger upon the terms and subject to the conditions set forth
in the Stockholder Agreement; and
WHEREAS immediately following the execution and delivery of this Agreement,
INS and Lucent will enter into a stock option agreement (the "Option
Agreement"), pursuant to which INS will grant Lucent the option to purchase
shares of INS Common Stock, upon the terms and subject to the conditions set
forth therein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Sub shall be merged with and into INS at the Effective Time.
Following the Effective Time, INS shall be the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the DGCL.
<PAGE> 73
SECTION 1.02. Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VI (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
satisfaction or waiver of those conditions), unless another time or date is
agreed to by the parties hereto. The Closing will be held at such location in
the City of New York as is agreed to by the parties hereto.
SECTION 1.03. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the DGCL.
The Merger shall become effective at such time as the Certificate of Merger is
duly filed with the Delaware Secretary of State, or at such subsequent date or
time as Lucent and INS shall agree and specify in the Certificate of Merger (the
time the Merger becomes effective being hereinafter referred to as the
"Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and By-laws. (a) The
certificate of incorporation of INS, as in effect immediately prior to the
Effective Time, shall be amended as of the Effective Time of the Merger so that
Article FOURTH of such certificate of incorporation reads in its entirety as
follows: "The total number of shares of all classes of stock which the
corporation shall have authority to issue is 1,000 shares of common stock, par
value $1.00 per share.", and, as so amended, such certificate of incorporation
shall be the certificate of incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
(b) The by-laws of Sub, as in effect immediately prior to the Effective
Time, shall be the by-laws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
SECTION 1.06. Board of Directors and Officers. (a) The directors of Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
(b) The officers of Sub immediately prior to the Effective Time shall be
the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
INS Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of capital
stock of Sub shall be converted into one share of common stock of the
Surviving Corporation.
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(b) Cancelation of Treasury Stock and Lucent-Owned Stock. Each share of
INS Common Stock that is owned by INS, Sub or Lucent shall automatically be
canceled and shall cease to exist, and no consideration shall be delivered
or deliverable in exchange therefor.
(c) Conversion of INS Common Stock. Subject to Section 2.02(e), each
issued and outstanding share of INS Common Stock (other than shares to be
canceled in accordance with Section 2.01(b)) shall be converted into the
right to receive 0.8473 (the "Exchange Ratio") fully paid and nonassessable
shares of common stock, par value $0.01 per share, of Lucent ("Lucent
Common Stock") (the "Merger Consideration"). As of the Effective Time, all
such shares of INS Common Stock shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each holder of a
certificate representing any such shares of INS Common Stock shall cease to
have any rights with respect thereto, except the right to receive the
Merger Consideration and any cash in lieu of fractional shares of Lucent
Common Stock to be issued or paid in consideration therefor upon surrender
of such certificate in accordance with Section 2.02, without interest.
(d) Anti-Dilution Provisions. In the event Lucent changes (or
establishes a record date for changing) the number of shares of Lucent
Common Stock issued and outstanding prior to the Effective Date as a result
of a stock split, stock dividend, recapitalization, subdivision,
reclassification, combination, exchange of shares or similar transaction
with respect to the outstanding Lucent Common Stock and the record date
therefor shall be prior to the Effective Date, the Exchange Ratio shall be
proportionately adjusted to reflect such stock split, stock dividend,
recapitalization, subdivision, reclassification, combination, exchange of
shares of similar transaction.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, Lucent shall enter into an agreement with such bank or trust
company as may be designated by Lucent (the "Exchange Agent"), which shall
provide that Lucent shall deposit with the Exchange Agent as of the Effective
Time, for the benefit of the holders of shares of INS Common Stock, for exchange
in accordance with this Article II, through the Exchange Agent, certificates
representing the shares of Lucent Common Stock (such shares of Lucent Common
Stock, together with any dividends or distributions with respect thereto with a
record date after the Effective Time, any Excess Shares and any cash (including
cash proceeds from the sale of the Excess Shares) payable in lieu of any
fractional shares of Lucent Common Stock being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 2.01 in exchange for outstanding
shares of INS Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of INS Common Stock (the "Certificates") whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Lucent and INS may reasonably
specify) and (ii) instructions for use in surrendering the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancelation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall receive in exchange
therefor a certificate representing that number of whole shares of Lucent Common
Stock which such holder has the right to receive pursuant to the provisions of
this Article II, certain dividends or other
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distributions in accordance with Section 2.02(c) and cash in lieu of any
fractional share of Lucent Common Stock in accordance with Section 2.02(e), and
the Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of INS Common Stock which is not registered in the
transfer records of INS, a certificate representing the proper number of shares
of Lucent Common Stock may be issued to a person other than the person in whose
name the Certificate so surrendered is registered if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the person
requesting such issuance shall pay any transfer or other taxes required by
reason of the issuance of shares of Lucent Common Stock to a person other than
the registered holder of such Certificate or establish to the satisfaction of
Lucent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.02(b), each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration and any cash in lieu of fractional shares of
Lucent Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with this Section 2.02. No interest
shall be paid or will accrue on any cash payable to holders of Certificates
pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Lucent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Lucent Common Stock represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.02(e), and all such dividends, other distributions and
cash in lieu of fractional shares of Lucent Common Stock shall be paid by Lucent
to the Exchange Agent and shall be included in the Exchange Fund, in each case
until the surrender of such Certificate in accordance with this Article II.
Subject to the effect of applicable escheat or similar laws, following surrender
of any such Certificate there shall be paid to the holder of the certificate
representing whole shares of Lucent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Lucent Common Stock, and the amount of any
cash payable in lieu of a fractional share of Lucent Common Stock to which such
holder is entitled pursuant to Section 2.02(e) and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of Lucent
Common Stock.
(d) No Further Ownership Rights in INS Common Stock. All shares of Lucent
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to this Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of INS Common Stock
theretofore represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by INS on such shares of INS Common Stock which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of INS Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Lucent Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend
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or distribution of Lucent shall relate to such fractional share interests and
such fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of Lucent.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (A) the number of whole shares of Lucent
Common Stock delivered to the Exchange Agent by Lucent pursuant to Section
2.02(a) over (B) the aggregate number of whole shares of Lucent Common Stock to
be distributed to former holders of INS Common Stock pursuant to Section 2.02(b)
(such excess being herein called the "Excess Shares"). Following the Effective
Time, the Exchange Agent shall, on behalf of former stockholders of INS, sell
the Excess Shares at then-prevailing prices on the New York Stock Exchange, Inc.
(the "NYSE"), all in the manner provided in Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE through one or more member firms of the NYSE and shall be executed
in round lots to the extent practicable. The Exchange Agent shall use reasonable
efforts to complete the sale of the Excess Shares as promptly following the
Effective Time as, in the Exchange Agent's sole judgment, is practicable
consistent with obtaining the best execution of such sales in light of
prevailing market conditions. Until the net proceeds of such sale or sales have
been distributed to the holders of Certificates formerly representing INS Common
Stock, the Exchange Agent shall hold such proceeds in trust for such holders
(the "Common Shares Trust"). INS shall pay all commissions, transfer taxes and
other out-of-pocket transaction costs, including the expenses and compensation
of the Exchange Agent, incurred in connection with such sale of the Excess
Shares. The Exchange Agent shall determine the portion of the Common Shares
Trust to which each former holder of INS Common Stock is entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such former holder of INS Common Stock is
entitled (after taking into account all shares of INS Common Stock held at the
Effective Time by such holder) and the denominator of which is the aggregate
amount of fractional share interests to which all former holders of INS Common
Stock are entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and (iii),
Lucent may elect at its option, exercised prior to the Effective Time, in lieu
of the issuance and sale of Excess Shares and the making of the payments
hereinabove contemplated, to pay each former holder of INS Common Stock an
amount in cash equal to the product obtained by multiplying (A) the fractional
share interest to which such former holder (after taking into account all shares
of INS Common Stock held at the Effective Time by such holder) would otherwise
be entitled by (B) the closing price for a share of Lucent Common Stock as
reported on the NYSE Composite Transaction Tape (as reported in The Wall Street
Journal, or, if not reported thereby, any other authoritative source) on the
Closing Date, and, in such case, all references herein to the cash proceeds of
the sale of the Excess Shares and similar references shall be deemed to mean and
refer to the payments calculated as set forth in this Section 2.02(e)(iv).
(v) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Certificates formerly representing INS Common
Stock with respect to any fractional share interests, the Exchange Agent shall
make available such amounts to such holders of Certificates formerly
representing INS Common Stock subject to and in accordance with the terms of
Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to Lucent, upon demand, and any holders of
the Certificates who have not theretofore
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complied with this Article II shall thereafter look only to Lucent for payment
of their claim for Merger Consideration, any dividends or distributions with
respect to Lucent Common Stock and any cash in lieu of fractional shares of
Lucent Common Stock.
(g) No Liability. None of Lucent, Sub, INS or the Exchange Agent shall be
liable to any person in respect of any shares of Lucent Common Stock, any
dividends or distributions with respect thereto, any cash in lieu of fractional
shares of Lucent Common Stock or any cash from the Exchange Fund, in each case
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificate shall not have been surrendered prior
to one year after the Effective Time (or immediately prior to such date on which
any amounts payable pursuant to this Article II would otherwise escheat to or
become the property of any Governmental Entity), any such amounts shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Lucent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Lucent.
(i) Lost Certificates. 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, if required by Lucent, the
posting by such person of a bond in such reasonable amount as Lucent may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificate the applicable Merger Consideration with respect thereto
and, if applicable, any unpaid dividends and distributions on shares of Lucent
Common Stock deliverable in respect thereof and any cash in lieu of fractional
shares, in each case pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of INS. Except as disclosed
in (x) the INS Filed SEC Documents, (y) INS's audited financial statements for
the fiscal year ended June 27, 1999, as delivered to Lucent prior to the date
hereof (the "Audited 1999 Financials") or (z) the Disclosure Schedule delivered
by INS to Lucent prior to the execution of this Agreement (the "INS Disclosure
Schedule") and making reference to the particular subsection of this Agreement
to which exception is being taken, INS represents and warrants to Lucent and Sub
as follows:
(a) Organization, Standing and Corporate Power. Each of INS and its
subsidiaries is a corporation or other legal entity duly organized, validly
existing and in good standing (with respect to jurisdictions which
recognize such concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may
be, and authority to carry on its business as now being conducted, except
for those jurisdictions where the failure to be so organized, existing or
in good standing individually or in the aggregate is not reasonably likely
to have a material adverse effect on INS. Each of INS and its subsidiaries
is duly qualified or licensed to do business and is in good standing (with
respect to jurisdictions which recognize such concept) in each jurisdiction
in which the nature of its business or the ownership, leasing or operation
of its assets makes such qualification or licensing necessary, except for
those jurisdictions where the failure to be so qualified or licensed or to
be in good standing individually or in the aggregate is not reasonably
likely to have a material adverse
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effect on INS. INS has made available to Lucent prior to the execution of
this Agreement complete and correct copies of its certificate of
incorporation and by-laws, as amended to the date of this Agreement.
(b) Subsidiaries. Section 3.01(b) of the INS Disclosure Schedule sets
forth a true and complete list of each of INS's subsidiaries. All the
outstanding shares of capital stock of, or other equity interests in (other
than shares held by directors or officers of INS or its subsidiaries for
regulatory reasons), each subsidiary of INS have been validly issued, are
fully paid and nonassessable and are owned directly or indirectly by INS,
free and clear of all pledges, claims, liens, charges, encumbrances,
mortgages and security interests of any kind or nature whatsoever
(collectively, "Liens") and free of any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other ownership
interests except restrictions under applicable law.
(c) Capital Structure. The authorized capital stock of INS consists of
150,000,000 shares of INS Common Stock and 5,000,000 shares of preferred
stock, par value $0.001 per share, of INS ("INS Authorized Preferred
Stock"). At the close of business on August 6, 1999, (i) 57,323,907 shares
of INS Common Stock were issued and outstanding; (ii) no shares of INS
Common Stock were held by INS in its treasury; (iii) no shares of INS
Authorized Preferred Stock were issued and outstanding; (iv) 26,470,779
shares of INS Common Stock were reserved, net of exercises, for issuance
pursuant to the INS 1996 Stock Plan, the INS 1992 Flexible Incentive Stock
Plan, the INS 1998 Nonstatutory Stock Plan, the INS 1998 Director Option
Plan, the INS 1996 Employee Stock Purchase Plan (the "ESPP"), the
VitalSigns Software, Inc. 1996 Stock Option Plan and the VitalSigns
Software, Inc. Pre-Plan Options (such plans, collectively, the "INS Stock
Plans") (of which 19,216,448 are subject to outstanding INS Stock Options);
and (v) 394,500 shares of INS Common Stock were reserved for issuance upon
exercise of an outstanding warrant (the "Warrant"). Except as set forth
above, at the close of business on August 6, 1999, no shares of capital
stock or other voting securities of INS were issued, reserved for issuance
or outstanding. There are no outstanding stock appreciation rights ("SARs")
or rights (other than the INS Stock Options) to receive shares of INS
Common Stock on a deferred basis granted under the INS Stock Plans or
otherwise. INS has delivered to Lucent a complete and correct list, as of
August 6, 1999, of each holder of outstanding stock options or other rights
to purchase or receive INS Common Stock granted under the INS Stock Plans
(collectively, "INS Stock Options"), the number of shares of INS Common
Stock subject to each such INS Stock Option, the name of the INS Stock Plan
pursuant to which such INS Stock Options were granted and the exercise
prices of such INS Stock Options. No bonds, debentures, notes or other
indebtedness of INS having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which stockholders of INS or any of its subsidiaries may vote are issued or
outstanding or subject to issuance. All outstanding shares of capital stock
of INS are, and all shares which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and will be
delivered free and clear of all Liens (other than Liens created by or
imposed upon the holders thereof) and not subject to preemptive rights.
Except as set forth in this Section 3.01(c) (including pursuant to the
conversion or exercise of the securities referred to above) and except
pursuant to the INS Stock Options issued after the date hereof as expressly
permitted by the terms of Section 4.01(a)(ii), (x) there are not issued,
reserved for issuance or outstanding (A) any shares of capital stock or
other voting securities of INS or any of its subsidiaries (other than
shares of capital stock or other voting securities of such subsidiaries
that are directly or indirectly owned by INS), (B) any securities of INS or
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any of its subsidiaries convertible into or exchangeable or exercisable for
shares of capital stock or other voting securities of, or other ownership
interests in, INS or any of its subsidiaries or (C) any warrants, calls,
options or other rights to acquire from INS or any of its subsidiaries, and
no obligation of INS or any of its subsidiaries to issue, any capital stock
or other voting securities of, or other ownership interests in, or any
securities convertible into or exchangeable or exercisable for any capital
stock or other voting securities of, or other ownership interests in, INS
or any of its subsidiaries and (y) there are not any outstanding
obligations of INS or any of its subsidiaries to repurchase, redeem or
otherwise acquire any such securities or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities. INS is not a
party to any voting agreement with respect to the voting of any such
securities. Other than the capital stock of, or other equity interests in,
its subsidiaries, INS does not directly or indirectly beneficially own any
securities or other beneficial ownership interests in any other entity.
(d) Authority; Noncontravention. INS has all requisite corporate power
and authority to enter into this Agreement and, subject to the INS
Stockholder Approval, to consummate the transactions contemplated by this
Agreement. INS has all requisite corporate power and authority to enter
into the Option Agreement and to consummate the transactions contemplated
thereby. The execution and delivery of this Agreement and the Option
Agreement by INS and the consummation by INS of the transactions
contemplated by this Agreement and the Option Agreement have been duly
authorized by all necessary corporate action on the part of INS, subject,
in the case of the Merger, to the INS Stockholder Approval. This Agreement
and the Option Agreement have been duly executed and delivered by INS and,
assuming the due authorization, execution and delivery by each of the other
parties thereto, constitute legal, valid and binding obligations of INS,
enforceable against INS in accordance with their terms. The execution and
delivery of this Agreement and the Option Agreement do not, and the
consummation of the transactions contemplated by this Agreement and the
Option Agreement and compliance with the provisions of this Agreement and
the Option Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancelation or acceleration of any
obligation or to the loss of a benefit under, or result in the creation of
any Lien upon any of the properties or assets of INS or any of its
subsidiaries under, (i) the certificate of incorporation or by-laws of INS
or the comparable organizational documents of any of its subsidiaries, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease or
other contract, agreement, obligation, commitment, arrangement,
understanding, instrument, permit, concession, franchise, license or
similar authorization applicable to INS or any of its subsidiaries or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, (A) any
judgment, order or decree or (B) any statute, law, ordinance, rule or
regulation, in each case applicable to INS or any of its subsidiaries or
their respective properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate are not reasonably likely to
(x) have a material adverse effect on INS, (y) impair the ability of INS to
perform its obligations under this Agreement or the Option Agreement or (z)
prevent or materially delay the consummation of the transactions
contemplated by this Agreement or the Option Agreement. No consent,
approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any federal, state, local or
foreign government, any court, administrative, regulatory or other
governmental agency, commission or authority or any non-governmental
self-regulatory agency, commission or authority (each a "Governmental
Entity") is required by or with respect to INS or any of its subsidiaries
in connection with the execution and delivery of this Agreement or the
Option Agreement by INS or the consumma-
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tion by INS of the transactions contemplated by this Agreement or the
Option Agreement, except for (1) the filing of a premerger notification and
report form by INS under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and any applicable filings and
approvals under similar foreign antitrust or competition laws and
regulations; (2) the filing with the Securities and Exchange Commission
(the "SEC") of (A) a proxy statement relating to the INS Stockholders
Meeting (such proxy statement, as amended or supplemented from time to
time, the "INS Proxy Statement"), and (B) such reports under Section 13(a),
13(d), 15(d) or 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as may be required in connection with this Agreement,
the Option Agreement and the Stockholder Agreement and the transactions
contemplated by this Agreement, the Option Agreement and the Stockholder
Agreement; (3) the filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate documents with the relevant authorities
of other states in which INS is qualified to do business and such filings
with Governmental Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; (4) such filings with and approvals of The
Nasdaq National Market ("Nasdaq") to permit the shares of INS Common Stock
that are to be issued pursuant to the Option Agreement to be quoted on
Nasdaq; and (5) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be made or
obtained individually or in the aggregate is not reasonably likely to (x)
have a material adverse effect on INS, (y) impair the ability of INS to
perform its obligations under this Agreement or the Option Agreement or (z)
prevent or materially delay the consummation of the transactions
contemplated by this Agreement or the Option Agreement.
(e) SEC Documents; Undisclosed Liabilities. INS has filed all required
reports, schedules, forms, statements and other documents (including
exhibits and all other information incorporated therein) with the SEC since
July 1, 1997 (collectively, the "INS SEC Documents"). As of their
respective dates, the INS SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such INS
SEC Documents, and none of the INS SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any INS SEC
Document has been revised or superseded by a later filed INS SEC Document,
none of the INS SEC Documents contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of INS included in the INS SEC Documents comply as to form, as
of their respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto (the "Accounting Rules"), have
been prepared in accordance with generally accepted accounting principles
("GAAP") (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of INS and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal recurring year-end
audit adjustments). The Audited 1999 Financials have been prepared in
accordance with GAAP applied on a consistent basis (except as may be
indicated in the notes
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thereto) and fairly present in all material respects the consolidated
financial position of INS and its consolidated subsidiaries as of June 27,
1999, and the consolidated results of their operations and cash flows for
the fiscal year then ended. Except (i) as reflected in such financial
statements or in the notes thereto or (ii) for liabilities incurred in
connection with this Agreement or the Option Agreement or the transactions
contemplated hereby or thereby, neither INS nor any of its subsidiaries has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) which, individually or in the aggregate, are
reasonably likely to have a material adverse effect on INS.
(f) Information Supplied. None of the information supplied or to be
supplied by INS specifically for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by
Lucent in connection with the issuance of Lucent Common Stock in the Merger
(the "Form S-4") will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) the INS Proxy Statement will,
at the date it is first mailed to INS's stockholders or at the time of the
INS Stockholders Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The INS Proxy
Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder.
No representation or warranty is made by INS with respect to statements
made or incorporated by reference therein based on information supplied by
Lucent specifically for inclusion or incorporation by reference in the INS
Proxy Statement.
(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the Option Agreement or the
transactions contemplated hereby or thereby and except as disclosed in the
INS SEC Documents filed and publicly available prior to the date of this
Agreement (as amended to the date of this Agreement, the "INS Filed SEC
Documents") or as disclosed in the Audited 1999 Financials, since June 27,
1999, INS and its subsidiaries have conducted their business only in the
ordinary course, and since such date there has not been (1) any material
adverse change in INS, (2) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to any of INS's capital stock (other than as expressly permitted by
the terms of Section 4.01(a)(i)(C)), (3) any split, combination or
reclassification of any of INS's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of INS's capital stock, (4) (A) any
granting by INS or any of its subsidiaries to any current or former
director, executive officer or other employee of INS or its subsidiaries of
any increase in compensation, bonus or other benefits, except for normal
increases in cash compensation in the ordinary course of business
consistent with past practice or as was required under any employment
agreements in effect as of the date of the most recent financial statements
included in the INS Filed SEC Documents and other than as expressly
permitted by the terms of Section 4.01(a)(ii), (B) any granting by INS or
any of its subsidiaries to any such current or former director, executive
officer or employee of any increase in severance or termination pay, except
to non-key employees in the ordinary course of business consistent with
past practice, (C) any entry by INS or any of its subsidiaries into, or any
amendments of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current
or former director, executive officer or employee, except with non-key
employees in the ordinary course of business consistent with
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past practice or (D) any amendment to, or modification of, any INS Stock
Option, (5) except insofar as may have been required by a change in GAAP,
any change in accounting methods, principles or practices by INS or any of
its subsidiaries materially affecting their respective assets, liabilities
or businesses, (6) any tax election that individually or in the aggregate
is reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of INS or any of its subsidiaries or (7) any
settlement or compromise of any material income tax liability.
(h) Litigation. There is no suit, action or proceeding pending or, to
the knowledge of INS, threatened against or affecting INS or any of its
subsidiaries that, individually or in the aggregate, is reasonably likely
to have a material adverse effect on INS nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against INS or any of its subsidiaries having, or which is
reasonably likely to have, individually or in the aggregate, a material
adverse effect on INS; provided that for purposes of this paragraph (h) any
such suit, action, proceeding, judgment, decree, injunction, rule or order
arising after the date hereof shall not be deemed to have a material
adverse effect on INS if and to the extent such suit, action, proceeding,
judgment, decree, injunction, rule or order (or any relevant part thereof)
is based on this Agreement or the transactions contemplated hereby.
(i) Compliance with Applicable Laws. (i) INS and its subsidiaries hold
all material permits, licenses, variances, exemptions, orders,
registrations and approvals of all Governmental Entities (the "INS
Permits") that are required for them to own, lease or operate their assets
and to carry on their businesses, except where the failure to have any such
INS Permits individually or in the aggregate is not reasonably likely to
have a material adverse effect on INS. INS and its subsidiaries are in
compliance in all material respects with the terms of the INS Permits and
all applicable statutes, laws, ordinances, rules and regulations, except
where the failure so to comply individually or in the aggregate is not
reasonably likely to have a material adverse effect on INS. No action,
demand, requirement or investigation by any Governmental Entity and no
suit, action or proceeding by any person, in each case with respect to INS
or any of its subsidiaries or any of their respective properties, is
pending or, to the knowledge of INS, threatened, other than, in each case,
those the outcome of which individually or in the aggregate are not (A)
reasonably likely to have a material adverse effect on INS or (B)
reasonably likely to impair the ability of INS to perform its obligations
under this Agreement, or prevent or materially delay the consummation of
any of the transactions contemplated by this Agreement; provided that for
purposes of this paragraph (i)(i) any such action, demand, requirement or
investigation or any such suit, action or proceeding arising after the date
hereof shall not be deemed to have a material adverse effect on INS if and
to the extent such action, demand, requirement or investigation or such
suit, action or proceeding (or any relevant part thereof) is based on this
Agreement or the transactions contemplated hereby.
(ii) To INS's knowledge and except as is not, individually or in the
aggregate, reasonably likely to have a material adverse effect on INS, (A)
there have been no Releases of any Hazardous Materials at, on or under any
facility or property currently or formerly owned, leased, or operated by
INS or any of its subsidiaries, (B) neither INS nor any of its subsidiaries
is the subject of any pending or threatened investigation or proceeding
under Environmental Law relating in any manner to the off-site treatment,
storage or disposal of any Hazardous Materials generated at any facility or
property currently or formerly owned, leased or operated by INS or any of
its subsidiaries and (C) neither INS nor any of its subsidiaries has
assumed or otherwise agreed to be responsible for any liabilities arising
under Environmental Law. The
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term "Environmental Law" means any and all applicable laws or regulations
or other requirements of any Governmental Entity concerning the protection
of human health or the environment. The term "Hazardous Materials" means
all explosive or regulated radioactive materials, hazardous or toxic
substances, wastes or chemicals, petroleum (including crude oil or any
fraction thereof) or petroleum distillates, asbestos or asbestos-containing
materials, and all other materials or chemicals regulated under any
Environmental Law. The term "Release" means any spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching,
emanation or migration in, into, onto, or through the environment.
(j) Absence of Changes in Benefit Plans. Since the date of the most
recent audited financial statements included in the INS Filed SEC
Documents, there has not been any adoption or amendment by INS or any of
its subsidiaries of any collective bargaining agreement or 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,
welfare benefit or other plan, arrangement or understanding providing
benefits to any current or former employee, officer or director of INS or
any of its wholly owned subsidiaries (collectively, the "INS Benefit
Plans"), or any change in any actuarial or other assumption used to
calculate funding obligations with respect to any INS pension plans, or any
change in the manner in which contributions to any INS pension plans are
made or the basis on which such contributions are determined.
(k) ERISA Compliance. (i) With respect to the INS Benefit Plans, no
event has occurred and, to the knowledge of INS, there exists no condition
or set of circumstances, in connection with which INS or any of its
subsidiaries could be subject to any liability that individually or in the
aggregate is reasonably likely to have a material adverse effect on INS
under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code or any other applicable law.
(ii) Each INS Benefit Plan has been administered in accordance with its
terms, except for any failures so to administer any INS Benefit Plan that
individually or in the aggregate are not reasonably likely to have a
material adverse effect on INS. INS, its subsidiaries and all the INS
Benefit Plans are in compliance with the applicable provisions of ERISA,
the Code and all other applicable laws and the terms of all applicable
collective bargaining agreements, except for any failures to be in such
compliance that individually or in the aggregate are not reasonably likely
to have a material adverse effect on INS. Each INS Benefit Plan that is
intended to be qualified under Section 401(a) or 401(k) of the Code has
received a favorable determination letter from the IRS that it is so
qualified and each trust established in connection with any INS Benefit
Plan that is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS
that such trust is so exempt. To the knowledge of INS, no fact or event has
occurred since that date of any determination letter from the IRS which is
reasonably likely to materially adversely affect the qualified status of
any such INS Benefit Plan or the exempt status of any such trust. There are
no pending or, to the knowledge of INS, threatened lawsuits, claims,
grievances, investigations or audits of any INS Benefit Plan that,
individually or in the aggregate, are reasonably likely to have a material
adverse effect on INS.
(iii) No INS Benefit Plan is a "defined benefit" plan (as defined in
Section 3(35) of ERISA) or is subject to the minimum funding requirements
of Section 302 of ERISA or Section 412 of the Code and neither INS nor any
of its subsidiaries has incurred any liability
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under Title IV of ERISA which has not been satisfied in full. No INS
Benefit Plan has incurred an "accumulated funding deficiency" (within the
meaning of Section 302 of ERISA or Section 412 of the Code) whether or not
waived. No INS Benefit Plan is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA and neither INS nor any of its subsidiaries or
affiliates (as defined in Section 8.03) has been required to contribute to
any such multiemployer plan in the past six years.
(iv) INS and its subsidiaries are in compliance with all federal, state
and local requirements regarding employment, except for any failures to
comply that individually or in the aggregate are not reasonably likely to
have a material adverse effect on INS. Neither INS nor any of its
subsidiaries is a party to any collective bargaining or other labor union
contract applicable to persons employed by INS or any of its subsidiaries
and no collective bargaining agreement is being negotiated by INS or any of
its subsidiaries. As of the date of this Agreement, there is no labor
dispute, strike or work stoppage against INS or any of its subsidiaries
pending or, to the knowledge of INS, threatened which may interfere with
the respective business activities of INS or any of its subsidiaries,
except where such dispute, strike or work stoppage individually or in the
aggregate is not reasonably likely to have a material adverse effect on
INS. As of the date of this Agreement, to the knowledge of INS, none of
INS, any of its subsidiaries or any of their respective representatives or
employees has committed any unfair labor practice in connection with the
operation of the respective business of INS or any of its subsidiaries, and
there is no charge or complaint against INS or any of its subsidiaries by
the National Labor Relations Board or any comparable governmental agency
pending or threatened in writing, in each case except where such actions,
charges or complaints, individually or in the aggregate, are not reasonably
likely to have a material adverse effect on INS.
(v) No employee of INS will be entitled to any additional benefits or
any acceleration of the time of payment or vesting of any benefits under
any INS Benefit Plan as a result of the transactions contemplated by this
Agreement, the Option Agreement or the Stockholder Agreement. No amount
payable, or economic benefit provided, by INS or its subsidiaries
(including any acceleration of the time of payment or vesting of any
benefit) could be considered an "excess parachute payment" under Section
280G of the Code. No person is entitled to receive any additional payment
from INS or its subsidiaries or any other person (a "Parachute Gross-Up
Payment") in the event that the excise tax of Section 4999 of the Code is
imposed on such person. The Board of Directors of INS or any of its
subsidiaries has not granted to any person any right to receive any
Parachute Gross-Up Payment.
(vi) Except as provided under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, no INS Benefit Plan provides
post-retirement health insurance plans, the total cost of which is not
incurred by the former employee.
(l) Taxes. (i) Each of INS and its subsidiaries has filed all material
tax returns and reports required to be filed by it and all such returns and
reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file, to
be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate are not reasonably likely to have a
material adverse effect on INS. INS and each of its subsidiaries has paid
(or INS has paid on its behalf) all taxes shown as due on such returns, and
the Audited 1999 Financials reflect an adequate reserve for all taxes
payable by INS and
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its subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against INS or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the aggregate
are not reasonably likely to have a material adverse effect on INS. The
federal income tax returns of INS and each of its subsidiaries consolidated
in such returns have closed by virtue of the applicable statute of
limitations.
(iii) Neither INS nor any of its subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(iv) The INS Benefit Plans and other INS employee compensation
arrangements in effect as of the date of this Agreement have been designed
so that the disallowance of a material deduction under Section 162(m) of
the Code for employee remuneration will not apply to any amounts paid or
payable by INS or any of its subsidiaries under any such plan or
arrangement and, to the knowledge of INS, no fact or circumstance exists
that is reasonably likely to cause such disallowance to apply to any such
amounts.
(v) Neither INS nor any of its subsidiaries has constituted either a
"distributing corporation" or a "controlled corporation" in a distribution
of stock qualifying for tax-free treatment under Section 355 of the Code
(x) in the two years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a "plan" or "series
of related transactions" (within the meaning of Section 355(e) of the Code)
in conjunction with the Merger.
(vi) As used in this Agreement, "taxes" shall include all (x) federal,
state, local or foreign income, property, sales, excise and other taxes or
similar governmental charges, including any interest, penalties or
additions with respect thereto, (y) liability for the payment of any
amounts of the type described in (x) as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (z) liability for
the payment of any amounts as a result of being party to any tax sharing
agreement or as a result of any express or implied obligation to indemnify
any other person with respect to the payment of any amounts of the type
described in clause (x) or (y).
(m) Voting Requirements. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of INS Common Stock
at the INS Stockholders Meeting to adopt this Agreement (the "INS
Stockholder Approval") is the only vote of the holders of any class or
series of INS's capital stock necessary to approve and adopt this
Agreement, the Option Agreement and the transactions contemplated hereby
and thereby.
(n) State Takeover Statutes. The Board of Directors of INS (including
the disinterested directors thereof) has approved the terms of this
Agreement, the Option Agreement and the Stockholder Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement, the Option Agreement and the Stockholder Agreement and such
approval constitutes approval of the Merger and the other transactions
contemplated by this Agreement, the Option Agreement and the Stockholder
Agreement by the INS Board of Directors under the provisions of Section 203
of the DGCL and represents all the action necessary to ensure that such
Section 203 does not apply to Lucent in connection with the Merger and the
other transactions contemplated by this Agreement, the Option Agreement and
the Stockholder Agreement. To the knowledge of INS, no other state takeover
statute is
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applicable to the Merger or the other transactions contemplated hereby, by
the Option Agreement and by the Stockholder Agreement.
(o) Accounting Matters. Neither INS nor any of its affiliates has
taken, failed to take or agreed to take any action that would prevent the
business combination to be effected by the Merger to be accounted for as a
pooling of interests.
(p) Brokers. No broker, investment banker, financial advisor or other
person, other than Morgan Stanley & Co. Incorporated, the fees and expenses
of which will be paid by INS, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement and the Option Agreement
based upon arrangements made by or on behalf of INS. INS has furnished to
Lucent true and complete copies of all agreements under which any such fees
or expenses are payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees are payable.
(q) Opinion of Financial Advisor. INS has received the written opinion
of Morgan Stanley & Co. Incorporated, dated the date of this Agreement, to
the effect that, as of such date, the Exchange Ratio is fair from a
financial point of view to the stockholders of INS (other than Lucent and
its affiliates), a signed copy of which opinion has been or promptly will
be delivered to Lucent.
(r) Intellectual Property; Year 2000. (i) INS and its subsidiaries own,
or are validly licensed or otherwise have the right to use, all patents,
patent rights, trademarks, trade secrets, trade names, service marks,
copyrights and other proprietary intellectual property rights and computer
programs (the "Intellectual Property Rights") which are material to the
conduct of the business of INS and its subsidiaries.
(ii) To the knowledge of INS, neither INS nor any of its subsidiaries
has interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property Rights or other proprietary
information of any other person, except for any such interference,
infringement, misappropriation or other conflict which is not, individually
or in the aggregate, reasonably likely to have a material adverse effect on
INS. Neither INS nor any of its subsidiaries has received any written
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or other conflict (including any claim that
INS or any such subsidiary must license or refrain from using any
Intellectual Property Rights or other proprietary information of any other
person) which has not been settled or otherwise fully resolved. To INS's
knowledge, no other person has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property Rights of INS or any of its subsidiaries, except for any such
interference, infringement, misappropriation or other conflict which is
not, individually or in the aggregate, reasonably likely to have a material
adverse effect on INS.
(iii) As the business of INS and its subsidiaries is presently conducted
and proposed to be conducted without giving effect to any change with
respect thereto that may be made by Lucent, to INS's knowledge, Lucent's
use after the Closing of the Intellectual Property Rights which are
material to the conduct of the business of INS and its subsidiaries taken
as a whole will not interfere with, infringe upon, misappropriate or
otherwise come into conflict with the Intellectual Property Rights of any
other person.
(iv) INS has taken reasonable steps to protect INS's rights in INS's
confidential information and trade secrets that it wishes to protect or any
trade secrets or confidential
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information of third parties provided to INS, and, without limiting the
foregoing, INS has and enforces a policy requiring (x) each employee to
execute a proprietary information/confidentiality agreement substantially
in the form provided to Lucent and (y) each contractor to enter into an
agreement containing provisions protecting INS's Intellectual Property and
confidential information, and all current and former employees and
contractors of INS have executed such agreements, except where the failure
to do so is not reasonably expected to be material to INS.
(v) INS has substantially completed a program directed at ensuring that
its and its subsidiaries' software products (including prior and current
software products and technology and software products and technology
currently under development) will, when used in accordance with associated
documentation on a specified platform or platforms that is or are year 2000
compliant, be capable upon installation of (i) operating in the same manner
on dates in both the Twentieth and Twenty-First centuries and (ii)
accurately processing, providing and receiving date data from, into and
between the Twentieth and Twenty-First centuries, including the years 1999
and 2000, and making leap-year calculations and that, to the knowledge of
INS, all other non-INS products (e.g., hardware, software and firmware)
used by INS in or in combination with INS software products, properly
exchange data with INS software products. In addition, INS has taken the
necessary steps to ensure that operations and all material systems utilized
to support such operations will not be materially adversely impacted by the
year 2000 date change or any other date change. INS further represents and
warrants: (i) the accuracy of year 2000 product information provided on its
external website; and (ii) that based on all currently available
information, INS believes it has sufficient resources to complete all
necessary customer year 2000 upgrades.
(s) Certain Contracts. Neither INS nor any of its subsidiaries is a
party to or bound by any non-competition agreement or any other similar
agreement or obligation which purports to limit in any material respect the
manner in which, or the localities in which, the business of INS and its
subsidiaries is conducted.
(t) Title to Properties. (i) Section 3.01(t) of the INS Disclosure
Schedule sets forth a true and complete list of all material real property
and leasehold property owned or leased by INS or any of its subsidiaries
with required payments of over $400,000 per annum. Each of INS and its
subsidiaries has good and valid title to, or valid leasehold interests in
or valid rights to, all its material properties and assets except for such
as are no longer used or useful in the conduct of its businesses or as have
been disposed of in the ordinary course of business and except for defects
in title, easements, restrictive covenants and similar encumbrances that
individually or in the aggregate do not materially interfere with its
ability to conduct its business as currently conducted. All such material
assets and properties, other than assets and properties in which INS or any
of its subsidiaries has a leasehold interest, are free and clear of all
Liens except for Liens that individually or in the aggregate do not
materially interfere with the ability of INS and its subsidiaries to
conduct their respective businesses as currently conducted.
(ii) Each of INS and its subsidiaries has complied in all material
respects with the terms of all leases listed in Section 3.01(t) of the INS
Disclosure Schedule to which it is a party and under which it is in
occupancy, and all such leases are in full force and effect. Each of INS
and its subsidiaries enjoys peaceful and undisturbed possession under all
such leases, except for failures to do so that individually or in the
aggregate is not reasonably likely to have a material adverse effect on
INS.
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(u) INS Rights Agreement. The Board of Directors of INS has authorized
its management to adopt a rights plan on customary terms (the "INS Rights
Agreement") granting rights ("INS Rights") to stockholders of INS. The
terms of the INS Rights Agreement will provide that (i) it is inapplicable
to the Merger and the other transactions contemplated by this Agreement,
the Option Agreement and the Stockholder Agreement, (ii) (1) neither Lucent
nor Sub is deemed to be an Acquiring Person (as such term is to be defined
in the INS Rights Agreement) pursuant to the INS Rights Agreement and (2) a
Distribution Date, a Triggering Event or Stock Acquisition Date (as such
terms are to be defined in the INS Rights Agreement) does not occur solely
by reason of the execution and delivery of this Agreement, the Option
Agreement, the Stockholder Agreement, the consummation of the Merger, or
the consummation of the other transactions contemplated by this Agreement,
the Option Agreement and the Stockholder Agreement and (iii) the Acquiring
Person threshold is 15%, and INS agrees that the foregoing provisions of
the INS Rights Agreement may not be amended by INS without the prior
written consent of Lucent.
SECTION 3.02. Representations and Warranties of Lucent and Sub. Except as
disclosed in the Lucent Filed SEC Documents or as set forth on the Disclosure
Schedule delivered by Lucent to INS prior to the execution of this Agreement
(the "Lucent Disclosure Schedule") and making reference to the particular
subsection of this Agreement to which exception is being taken, Lucent and Sub
represent and warrant to INS as follows:
(a) Organization, Standing and Corporate Power. Each of Lucent and Sub
is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its business as now
being conducted. Each of Lucent and Sub is duly qualified or licensed to do
business and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its assets makes such
qualification or licensing necessary, except for those jurisdictions where
the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate is not reasonably likely to have a
material adverse effect on Lucent. Lucent has made available to INS prior
to the execution of this Agreement complete and correct copies of its
certificate of incorporation and by-laws and the certificate of
incorporation and by-laws of Sub, in each case as amended to the date of
this Agreement.
(b) Capital Structure. The authorized capital stock of Lucent consists
of 6 billion shares of Lucent Common Stock and 250 million shares of
preferred stock, par value $1.00 per share, of Lucent ("Lucent Authorized
Preferred Stock"), of which 15 million shares have been designated Series A
Junior Participating Preferred Stock (the "Lucent Junior Preferred Stock").
As of June 30, 1999, (i) approximately 3 billion shares of Lucent Common
Stock were issued and outstanding, (ii) no shares of Lucent Junior
Preferred Stock were issued and outstanding and (iii) other than the Lucent
Junior Preferred Stock, no other shares of Lucent Authorized Preferred
Stock have been designated or issued. As of the date of this Agreement, no
bonds, debentures, notes or other indebtedness of Lucent having the right
to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of Lucent may vote are
issued or outstanding. All outstanding shares of capital stock of Lucent
are, and all shares which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Lucent has made available to INS a complete and correct
copy of the Rights Agreement dated as of April 4, 1996, as amended (the
"Lucent Rights Agreement") between Lucent and The
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Bank of New York, as Rights Agent, relating to rights ("Lucent Rights") to
purchase Lucent Junior Preferred Stock.
(c) Authority; Noncontravention. Each of Lucent and Sub has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. Lucent has all
requisite corporate power and authority to enter into the Option Agreement
and to consummate the transactions contemplated thereby. The execution and
delivery of this Agreement by Lucent and Sub, and the execution and
delivery of the Option Agreement by Lucent, and the consummation by Lucent
and Sub of the transactions contemplated by this Agreement and the
consummation by Lucent of the transactions contemplated by the Option
Agreement have been duly authorized by all necessary corporate action on
the part of Lucent and Sub, as applicable. This Agreement has been duly
executed and delivered by Lucent and Sub and, assuming the due
authorization, execution and delivery by each of the other parties thereto,
constitutes a legal, valid and binding obligation of Lucent and Sub,
enforceable against each of them in accordance with its terms. The Option
Agreement has been duly executed and delivered by Lucent, and, assuming the
due authorization, execution and delivery by each of the other parties
thereto, constitutes a legal, valid and binding obligation of Lucent,
enforceable against Lucent in accordance with its terms. The execution and
delivery of this Agreement and the Option Agreement do not, and the
consummation of the transactions contemplated by this Agreement and the
Option Agreement and compliance with the provisions of this Agreement and
the Option Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancelation or acceleration of any
obligation or loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of Lucent or Sub under, (i) the
certificate of incorporation or by-laws of Lucent or Sub, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other contract,
agreement, obligation, commitment, arrangement, understanding, instrument,
permit, concession, franchise, license or similar authorization applicable
to Lucent or Sub or their respective properties or assets or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, (A) any judgment, order or decree or (B) any statute, law,
ordinance, rule or regulation, in each case, applicable to Lucent or Sub or
their respective properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate are not reasonably likely to
(x) have a material adverse effect on Lucent, (y) impair the ability of
Lucent or Sub to perform its obligations under this Agreement or, in the
case of Lucent, to perform its obligations under the Option Agreement or
(z) prevent or materially delay the consummation of the transactions
contemplated by this Agreement or, in the case of Lucent, the Option
Agreement. No consent, approval, order or authorization of, action by, or
in respect of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Lucent or Sub in
connection with the execution and delivery of this Agreement by Lucent and
Sub or the execution and delivery of the Option Agreement by Lucent or the
consummation by Lucent and Sub of the transactions contemplated by this
Agreement or the consummation by Lucent of the transactions contemplated by
the Option Agreement, except for (1) the filing of a premerger notification
and report form by Lucent under the HSR Act and any applicable filings and
approvals under similar foreign antitrust or competition laws and
regulations; (2) the filing with the SEC of (A) the Form S-4 and (B) such
reports under Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as
may be required in connection with this Agreement, the Option Agreement and
the Stockholder Agreement and the transactions contemplated by this
Agreement, the Option Agreement and the Stockholder Agreement;
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(3) the filing of the Certificate of Merger with the Delaware Secretary of
State and appropriate documents with the relevant authorities of other
states in which Lucent is qualified to do business and such filings with
Governmental Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; (4) such filings with and approvals of the
NYSE to permit the shares of Lucent Common Stock that are to be issued in
the Merger to be listed on the NYSE; and (5) such other consents,
approvals, orders, authorizations, registrations, declarations and filings
the failure of which to be made or obtained individually or in the
aggregate is not reasonably likely to (x) have a material adverse effect on
Lucent, (y) impair the ability of Lucent or Sub to perform its obligations
under this Agreement or, in the case of Lucent, to perform its obligations
under the Option Agreement or (z) prevent or materially delay the
consummation of the transactions contemplated by this Agreement or, in the
case of Lucent, the Option Agreement.
(d) SEC Documents; Undisclosed Liabilities. Lucent has filed all
required reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) with
the SEC since October 1, 1997 (collectively, the "Lucent SEC Documents").
As of their respective dates, the Lucent SEC Documents complied in all
material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Lucent SEC Documents, and none of
the Lucent SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Except to the
extent that information contained in any Lucent SEC Document has been
revised or superseded by a later filed Lucent SEC Document, none of the
Lucent SEC Documents contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of
Lucent included in the Lucent SEC Documents comply as to form, as of their
respective dates of filing with the SEC, in all material respects with the
Accounting Rules, have been prepared in accordance with GAAP (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects
the consolidated financial position of Lucent and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal recurring year-end audit adjustments).
Except (i) as reflected in such financial statements or in the notes
thereto or (ii) for liabilities incurred in connection with this Agreement
or the Option Agreement or the transactions contemplated hereby or thereby,
neither Lucent nor any of its subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) which, individually or in the aggregate, are reasonably likely
to have a material adverse effect on Lucent.
(e) Information Supplied. None of the information supplied or to be
supplied by Lucent specifically for inclusion or incorporation by reference
in (i) the Form S-4 will, at the time the Form S-4 becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or (ii) the INS Proxy Statement
will, at the date it is first mailed to INS's stockholders or at the time
of the INS Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
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therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Form S-4
will comply as to form in all material respects with the requirements of
the Exchange Act and the rules and regulations thereunder. No
representation or warranty is made by Lucent with respect to statements
made or incorporated by reference therein based on information supplied by
INS specifically for inclusion or incorporation by reference in the Form
S-4.
(f) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement, the Option Agreement or the
Stockholder Agreement or the transactions contemplated hereby or thereby
and except as disclosed in the Lucent SEC Documents filed and publicly
available prior to the date of this Agreement (the "Lucent Filed SEC
Documents"), since March 31, 1999, Lucent and its subsidiaries have
conducted their business only in the ordinary course, and there has not
been any material adverse change in Lucent.
(g) Voting Requirements. No vote of the holders of shares of Lucent
Common Stock or any other class or series of capital stock of Lucent is
necessary to approve and adopt this Agreement, the Option Agreement and the
Stockholder Agreement and the transactions contemplated hereby and thereby.
(h) Tax Matters. Neither Lucent nor any of its subsidiaries has taken
any action or knows of any fact, agreement, plan or other circumstance that
is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(i) Interim Operations of Sub. Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
(j) Litigation. There is no suit, action or proceeding pending, or to
the knowledge of Lucent, threatened against or affecting Lucent or any of
its subsidiaries that, individually or in the aggregate, is reasonably
likely to have a material adverse effect on Lucent nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Lucent or any of its subsidiaries having, or
which is reasonably likely to have, individually or in the aggregate, a
material adverse effect on Lucent; provided that, for purposes of this
paragraph (j), any such suit, action, proceeding, judgment, decree,
injunction, rule or order arising after the date hereof shall not be deemed
to have a material adverse effect on Lucent if and to the extent such suit,
action proceeding, judgment, decree, injunction, rule or order (or any
relevant part thereof) is based on this Agreement, the Option Agreement or
the transactions contemplated hereby or thereby.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business. (a) Conduct of Business by INS. Except
as set forth in Section 4.01(a) of the INS Disclosure Schedule, as otherwise
expressly contemplated by this Agreement or the Option Agreement or as consented
to in writing by Lucent, during the period from the date of this Agreement to
the Effective Time, INS shall, and shall cause its subsidiaries to, carry on
their respective businesses in the ordinary course consistent with past practice
and in compliance in all material respects with all applicable laws and
regulations and, to the extent consistent therewith, use commercially reasonable
efforts to (x) preserve intact their current business organizations, (y) keep
available the services of their current officers and other key
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employees and (z) preserve their relationships with those persons having
business dealings with them, in each case to the end that their goodwill and
ongoing businesses shall not be impaired in any material respect at the
Effective Time. Without limiting the generality of the foregoing (but subject to
the above exceptions), during the period from the date of this Agreement to the
Effective Time, INS shall not, and shall not permit any of its subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of INS to
its parent, (x) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock, property or otherwise) in
respect of, any of its capital stock, (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (z) purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of INS or any of its subsidiaries
or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities, other than pursuant to (A) the
exercise of existing stock repurchase rights outstanding as of the date
hereof in accordance with the present terms of the INS Stock Plans, (B) a
claim made against the escrow fund established in connection with INS's
acquisition of VitalSigns Software, Inc. in accordance with the present
terms of the escrow fund or (C) the declaration and payment of a dividend
consisting of INS Rights in connection with the implementation of the INS
Rights Agreement;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any shares of its capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities,
other than (w) the issuance of the INS Rights, (x) the issuance of INS
Stock Options granted consistent with past practice to employees (other
than executive officers) of INS representing in the aggregate not more than
1,200,000 shares of INS Common Stock (net of INS Stock Option
cancelations), if issued within the three month period commencing on the
date of this Agreement and, if applicable, up to an additional 400,000
shares of INS Common Stock (net of INS Stock Option cancelations) per month
for each month thereafter, (y) the issuance of INS Common Stock upon the
exercise of (A) INS Stock Options, (B) the Warrant and (C) the INS Rights,
in each case outstanding as of the date hereof in accordance with their
present terms, or upon the exercise of the INS Stock Options referred to in
clause (x) in accordance with their terms or (z) the issuance of INS Common
Stock pursuant to the ESPP in accordance with its present terms and not in
violation of this Agreement;
(iii) amend INS's certificate of incorporation, by-laws or other
comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing assets of, or by any other manner, any business or any person;
(v) sell, lease, license, sell and leaseback, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its
properties or assets (including securitizations), other than in the
ordinary course of business consistent with past practice;
(vi) (x) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of INS or any of
its subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
incurred in the ordinary course of business (or
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to refund existing or maturing indebtedness) consistent with past practice
and except for intercompany indebtedness between INS and any of its
subsidiaries or between such subsidiaries, or (y) make any loans, advances
or capital contributions to, or investments in, any other person, except
for employee loans or employee advances made in the ordinary course of
business consistent with past practice;
(vii) make or agree to make any new capital expenditure or expenditures
which, individually, are in excess of $1.0 million or, in the aggregate,
are in excess of $5.0 million;
(viii) make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of INS or any of its subsidiaries or settle or
compromise any material income tax liability;
(ix) (x) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), or litigation (whether or not commenced prior to
the date of this Agreement) other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities recognized or
disclosed in the Audited 1999 Financials or incurred since the date of such
financial statements, or (y) waive the benefits of, agree to modify in any
manner, terminate, release any person from or fail to enforce any
confidentiality, standstill or similar agreement to which INS or any of its
subsidiaries is a party or of which INS or any of its subsidiaries is a
beneficiary;
(x) except as required by law or contemplated hereby and except for
labor agreements negotiated in the ordinary course, enter into, adopt or
amend or terminate any INS Benefit Plan or any other agreement, plan or
policy involving INS or its subsidiaries, and one or more of its directors,
officers or employees, or change any actuarial or other assumption used to
calculate funding obligations with respect to any pension plan, or change
the manner in which contributions to any pension plan are made or the basis
on which such contributions are determined;
(xi) except for normal increases in the ordinary course of business
consistent with past practice or as contemplated hereby or by the terms of
any employment agreement the existence of which does not constitute a
violation of this Agreement, increase the cash compensation of any
director, officer or other employee or pay any benefit or amount not
required by a plan or arrangement as in effect on the date of this
Agreement to any such person;
(xii) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Intellectual Property Rights of INS and
its subsidiaries other than in the ordinary course of business consistent
with past practices; provided that in no event shall INS license on an
exclusive basis or sell any Intellectual Property Rights of INS and its
subsidiaries;
(xiii) enter into or amend any agreements pursuant to which any person
is granted exclusive marketing, manufacturing or other rights with respect
to any INS product, process or technology;
(xiv) take any action that would, or that is reasonably likely to, (A)
result in any representation or warranty made by INS becoming untrue or
inaccurate such that the condition set forth in Section 6.02(a) would not
be satisfied or (B) result in any other condition to the Merger set forth
in Article VI not being satisfied; or
(xv) authorize, commit or agree to take any of the foregoing actions.
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(b) Advice of Changes. INS and Lucent shall promptly advise the other
party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it (and, in the case of Lucent, made by Sub)
contained in this Agreement or the Option Agreement becoming untrue or
inaccurate such that the condition set forth in Section 6.02(a) or Section
6.03(a), respectively, would not be satisfied, (ii) the failure by it (and, in
the case of Lucent, by Sub) to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement or the Option Agreement and (iii) any change or event
causing, or which is reasonably likely to cause, any of the conditions set forth
in Article VI not to be satisfied; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of the
parties (or remedies with respect thereto) or the conditions to the obligations
of the parties under this Agreement or the Option Agreement.
SECTION 4.02. No Solicitation by INS. (a) INS shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), 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 Takeover Proposal (as
defined below) or (ii) participate in any discussions or negotiations regarding
any Takeover Proposal; provided, however, that if, at any time prior to the date
of the INS Stockholders Meeting (the "Applicable Period"), the Board of
Directors of INS determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to INS's stockholders under applicable law, INS and its representatives
may, in response to a Superior Proposal which was not solicited by it or which
did not otherwise result from a breach of this Section 4.02(a), and subject to
providing prior written notice of its decision to take such action to Lucent (a
"Section 4.02 Notice") and compliance with Section 4.02(c), (x) furnish
information with respect to INS and its subsidiaries to any person making a
Superior Proposal pursuant to a customary confidentiality agreement (as
determined by INS after consultation with its outside counsel) and (y)
participate in discussions or negotiations regarding such Superior Proposal. For
purposes of this Agreement, "Takeover Proposal" means any inquiry, proposal or
offer from any person relating to any direct or indirect acquisition or purchase
of 15% or more of the assets of INS and its subsidiaries, taken as a whole, or
15% or more of any class or series of equity securities of INS or any of its
subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class or series of
equity securities of INS or any of its subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving INS or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
(b) Neither the Board of Directors of INS nor any committee thereof shall
(i) withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Lucent, the approval or recommendation by such Board of Directors or
such committee of the Merger or this Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any Takeover Proposal, or (iii)
approve or recommend, or propose to approve or recommend, or execute or enter
into, any letter of intent, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement or propose
publicly or agree to do any of the foregoing (each, an "Acquisition Agreement")
related to any Takeover Proposal, other than any such agreement entered into
concurrently with a termination pursuant to the next sentence in order to
facilitate such action. Notwithstanding the foregoing, during the Applicable
Period, in response to a Superior Proposal which was not solicited by INS and
which did not otherwise result from a breach of
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Section 4.02(a), if the Board of Directors of INS determines in good faith,
after consultation with outside counsel, that it is necessary to do so in order
to comply with its fiduciary duties to INS's stockholders under applicable law,
the Board of Directors of INS may (subject to this and the following sentence)
terminate this Agreement (and concurrently with or after such termination, if it
so chooses, cause INS to enter into any Acquisition Agreement with respect to
any Superior Proposal), but only at a time that is during the Applicable Period
and is after the tenth business day following Lucent's receipt of written notice
advising Lucent that the Board of Directors of INS is prepared to accept a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal. For purposes
of this Agreement, a "Superior Proposal" means any proposal made by a third
party to acquire, directly or indirectly, including pursuant to a tender offer,
exchange offer, merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for consideration consisting of
cash and/or securities, more than 50% of the combined voting power of the shares
of INS Common Stock then outstanding or all or substantially all the assets of
INS and otherwise on terms which the Board of Directors of INS determines in its
good faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to INS's stockholders than the
Merger and for which financing, to the extent required, is then committed or
which, in the good faith judgment of the Board of Directors of INS, is
reasonably capable of being obtained by such third party.
(c) In addition to the obligations of INS set forth in paragraphs (a) and
(b) of this Section 4.02, INS shall promptly (and no later than 48 hours) advise
Lucent orally and in writing of any request for information or of any inquiry
with respect to a Takeover Proposal, the material terms and conditions of such
request, inquiry or Takeover Proposal and the identity of the person making such
request, inquiry or Takeover Proposal. INS will promptly keep Lucent informed of
the status and details (including amendments or changes or proposed amendments
or changes) of any such request, inquiry or Takeover Proposal.
(d) Nothing contained in this Section 4.02 or elsewhere in this Agreement
shall prohibit INS from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to INS's stockholders if, in the good faith judgment of the Board
of Directors of INS, after consultation with outside counsel, failure so to
disclose would be inconsistent with its obligations under applicable law;
provided, however, that neither INS nor its Board of Directors nor any committee
thereof shall withdraw or modify, or propose to withdraw or modify, its position
with respect to this Agreement or the Merger or approve or recommend, or propose
to approve or recommend, a Takeover Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Form S-4 and the INS Proxy Statement; INS
Stockholders Meeting. (a) As soon as practicable following the date of this
Agreement, Lucent and INS shall prepare and INS shall file with the SEC the INS
Proxy Statement and Lucent and INS shall prepare and Lucent shall file with the
SEC the Form S-4, in which the INS Proxy Statement will be included as a
prospectus. Each of INS and Lucent shall use all reasonable efforts to have the
Form S-4 declared effective under the Securities Act as promptly as practicable
after such filing. INS will use all reasonable efforts to cause the INS Proxy
Statement to be mailed to INS's stockholders as promptly as practicable after
the Form S-4 is declared effective under the Securities Act. Lucent shall also
take any action (other than qualifying to do business in any jurisdiction in
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which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the issuance of Lucent Common Stock in the Merger and INS shall
furnish all information concerning INS and the holders of capital stock of INS
as may be reasonably requested in connection with any such action and the
preparation, filing and distribution of the INS Proxy Statement. No filing of,
or amendment or supplement to, or correspondence to the SEC or its staff with
respect to, the Form S-4 will be made by Lucent, or the INS Proxy Statement will
be made by INS, without providing the other party a reasonable opportunity to
review and comment thereon. Lucent will advise INS, promptly after it receives
notice thereof, of the time when the Form S-4 has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Lucent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Form S-4 or comments thereon and
responses thereto or requests by the SEC for additional information. INS will
advise Lucent, promptly after it receives notice thereof, of any request by the
SEC for the amendment of the INS Proxy Statement or comments thereon and
responses thereto or requests by the SEC for additional information. If at any
time prior to the Effective Time any information relating to INS or Lucent, or
any of their respective affiliates, officers or directors, should be discovered
by INS or Lucent which should be set forth in an amendment or supplement to any
of the Form S-4 or the INS Proxy Statement, so that any of such documents would
not include any misstatement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the party which discovers such
information shall promptly notify the other parties hereto and an appropriate
amendment or supplement describing such information shall be promptly filed with
the SEC and, to the extent required by law, disseminated to the stockholders of
INS.
(b) INS shall, as soon as practicable following the date of this Agreement,
establish a record date (which will be as soon as practicable following the date
of this Agreement) for, duly call, give notice of, convene and hold a meeting of
its stockholders (the "INS Stockholders Meeting") solely for the purpose of
obtaining the INS Stockholder Approval. INS shall, through its Board of
Directors, recommend to its stockholders the approval and adoption of this
Agreement, the Merger and the other transactions contemplated hereby. Without
limiting the generality of the foregoing but subject to its right to terminate
this Agreement pursuant to Section 4.02(b), INS agrees that its obligations
pursuant to the first sentence of this Section 5.01(b) shall not be affected by
the commencement, public proposal, public disclosure or communication to INS of
any Takeover Proposal.
SECTION 5.02. Letters of INS's Accountants. (a) INS shall use reasonable
efforts to cause to be delivered to Lucent two letters from INS's independent
public accountants, one dated a date within two business days before the date on
which the Form S-4 shall become effective and one dated a date within two
business days before the Closing Date, each addressed to Lucent, in form and
substance reasonably satisfactory to Lucent and customary in scope and substance
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(b) INS shall provide all reasonable cooperation to each of Lucent's
independent public accountants and INS's independent public accountants to
enable them to issue the letters referred to in Section 6.02(d) and shall use
all reasonable efforts to cause them to do so.
SECTION 5.03. Letters of Lucent's Accountants. (a) Lucent shall use
reasonable efforts to cause to be delivered to INS two letters from Lucent's
independent accountants, one dated a date
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within two business days before the date on which the Form S-4 shall become
effective and one dated a date within two business days before the Closing Date,
each addressed to INS, in form and substance reasonably satisfactory to INS and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
(b) Lucent shall provide all reasonable cooperation to each of Lucent's
independent public accountants and INS's independent public accountants to
enable them to issue the letters referred to in Section 6.02(d) and shall use
all reasonable efforts to cause them to do so, unless Section 6.02(d) is
otherwise waived by Lucent.
SECTION 5.04. Access to Information; Confidentiality. Upon reasonable
notice and subject to the Confidentiality Agreement dated April 23, 1999,
between Lucent and INS (the "Confidentiality Agreement"), INS shall, and shall
cause each of its subsidiaries to, afford to Lucent and to its officers,
employees, accountants, counsel, financial advisors and other representatives,
reasonable access during normal business hours during the period prior to the
Effective Time to all its properties, books, contracts, commitments, personnel
and records and, during such period, INS shall, and shall cause each of its
subsidiaries to, furnish promptly to Lucent (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (b) all
other information concerning its business, properties and personnel as Lucent
may reasonably request (including INS's outside accountants work papers). INS
shall not be required to provide access to or disclose information where such
access or disclosure would contravene any law, rule, regulation, order or
decree. No review pursuant to this Section 5.04 shall have an effect for the
purpose of determining the accuracy of any representation or warranty given by
either party hereto to the other party hereto. Lucent will hold, and will cause
its officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic information in accordance
with the terms of the Confidentiality Agreement.
SECTION 5.05. Commercially Reasonable Efforts. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, the Option Agreement and
the Stockholder Agreement, including using commercially reasonable efforts to
accomplish the following: (i) the taking of all commercially reasonable acts
necessary to cause the conditions to Closing to be satisfied as promptly as
practicable, (ii) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all steps as may be necessary to obtain an
approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement, the
Option Agreement or the Stockholder Agreement or the consummation of the
transactions contemplated by this Agreement, the Option Agreement or the
Stockholder Agreement, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated or
reversed, and (v) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement, the Option Agreement and the Stockholder
Agreement.
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(b) In connection with and without limiting the foregoing, INS and its
Board of Directors and Lucent and its Board of Directors shall (i) take all
action necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Merger, this Agreement, the Option
Agreement, the Stockholder Agreement or any of the other transactions
contemplated by this Agreement, the Option Agreement or the Stockholder
Agreement and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Merger, this Agreement, the Option
Agreement, the Stockholder Agreement or any other transaction contemplated by
this Agreement, the Option Agreement or the Stockholder Agreement, take all
action necessary to ensure that the Merger and the other transactions
contemplated by this Agreement, the Option Agreement and the Stockholder
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement, the Option Agreement and the Stockholder
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement, the Option
Agreement and the Stockholder Agreement.
SECTION 5.06. Stock Options. (a) As soon as practicable following the date
of this Agreement, the Board of Directors of INS (or, if appropriate, any
committee thereof administering the INS Stock Plans) shall adopt such
resolutions or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding INS Stock Options granted under
the INS Stock Plans, whether vested or unvested, as necessary to provide
that, at the Effective Time, each INS Stock Option outstanding immediately
prior to the Effective Time shall be amended and converted into an option
to acquire, on the same terms and conditions as were applicable under such
INS Stock Option the number of shares of Lucent Common Stock (rounded down
to the nearest whole share) equal to (A) the number of shares of INS Common
Stock subject to such INS Stock Option immediately prior to the Effective
Time multiplied by (B) the Exchange Ratio, at an exercise price per share
of Lucent Common Stock (rounded to the nearest one-hundredth of a cent)
equal to (x) the exercise price per share of such INS Common Stock
immediately prior to the Effective Time divided by (y) the Exchange Ratio
(each, as so adjusted, an "Adjusted Option"); and
(ii) make such other changes to the INS Stock Plans as INS and Lucent
may agree are appropriate to give effect to the Merger.
(b) As soon as practicable after the Effective Time, Lucent shall deliver
to the holders of INS Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective INS Stock Plans and the agreements
evidencing the grants of such INS Stock Options and that such INS Stock Options
and agreements shall be assumed by Lucent and shall continue in effect on the
same terms and conditions (subject to the adjustments required by this Section
5.06 after giving effect to the Merger).
(c) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by following procedures to be
communicated by Lucent with the notice contemplated by Section 5.06(b), together
with the consideration therefor and the federal withholding tax information, if
any, required in accordance with the related INS Stock Plan.
(d) Except as otherwise contemplated by this Section 5.06 and except to the
extent required under the respective terms of the INS Stock Options or under the
respective terms of the change of control agreements with certain employees of
INS as in effect on the date hereof, all restrictions or limitations on transfer
and vesting with respect to INS Stock Options awarded under the INS Stock Plans
or any other plan, program or arrangement of INS or any of its subsidiaries, to
the extent that
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such restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such options after giving effect to the
Merger and the assumption by Lucent as set forth above.
(e) After the Closing and within five business days after receipt by Lucent
of all required information from INS, 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 Adjusted Options. Such registration statement shall be kept effective (and
the current status of the prospectus or prospectuses required thereby shall be
maintained) at least for so long as the Adjusted Options remain outstanding. INS
shall cooperate with, and assist Lucent in the preparation of, such registration
statement.
(f) INS shall take, or cause to be taken, all action necessary to amend the
ESPP to terminate the ESPP and all future offering periods thereunder, in each
case, effective as of the date that is five business days prior to the Closing
Date. Within one month after the Closing Date, employees of INS will become
eligible to participate in Lucent's employee stock purchase plan, subject to the
terms and conditions of such plan.
SECTION 5.07. Employee Matters. (a) As soon as practicable after the
Closing Date (the "Benefits Date"), Lucent shall provide, or cause to be
provided, employee benefit plans, programs and arrangements to employees of INS
that are the same as those made generally available to similarly situated
non-represented employees of Lucent who are hired by Lucent after December 31,
1998. From the Effective Time to the Benefits Date (which the parties
acknowledge may occur on different dates with respect to different plans,
programs or arrangements of Lucent), Lucent shall provide, or cause to be
provided, the employee benefit plans, programs and arrangements of INS (other
than equity-based plans, programs and arrangements) provided to employees of INS
as of the date hereof.
(b) With respect to each benefit plan, program, practice, policy or
arrangement maintained by Lucent (the "Lucent Plans") in which employees of INS
subsequently participate, (i) service with INS and its subsidiaries prior to the
Effective Time shall be credited against all service and waiting period
requirements under the Lucent Plans (provided that such recognition shall not be
for the purpose of determining (x) retirement benefits under Lucent's defined
benefit pension plans (unless otherwise required by law) or (y) any Lucent
subsidy under Lucent's retiree health plans), (ii) the Lucent Plans shall not
provide any pre-existing condition exclusions and (iii) the deductibles,
copayments and out-of-pocket maximums in effect under the Lucent Plans shall be
reduced by any deductibles, copayments and out-of-pocket maximums paid by such
individuals under the INS Benefit Plans for the plan year in which the Effective
Time occurs.
SECTION 5.08. Indemnification, Exculpation and Insurance. (a) Lucent
agrees that all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time now existing in
favor of the current or former directors or officers of INS and its subsidiaries
as provided in their respective certificate of incorporation or by-laws (or
comparable organizational documents) and any indemnification agreements of INS
(as each is in effect on the date hereof), the existence of which does not
constitute a breach of this Agreement, shall be assumed by the Surviving
Corporation in the Merger, without further action, as of the Effective Time and
shall survive the Merger and shall continue in full force and effect in
accordance with their terms, and Lucent shall cause the Surviving Corporation to
honor all such rights.
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(b) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, or otherwise dissolves the Surviving Corporation, then, and in
each such case, Lucent shall cause proper provision to be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 5.08.
(c) Lucent shall, at its option, for a period of not less than six years
after the Effective Time, either (i) maintain INS's current directors' and
officers' liability insurance covering acts or omissions occurring prior to the
Effective Time ("D&O Insurance") with respect to those persons who are currently
covered by INS's directors' and officers' liability insurance policy on terms
with respect to such coverage and amount no less favorable than those of such
policy in effect on the date hereof or (ii) cause to be provided by a reputable
insurance company coverage no less favorable to such directors or officers, as
the case may be, than the D&O Insurance, in each case so long as the annual
premium therefor would not be in excess of 200% of the last annual premium paid
for the D&O Insurance prior to the date of this Agreement (such 200% amount the
"Maximum Premium"). If the existing or substituted directors' and officers'
liability insurance expires, is terminated or canceled during such six-year
period, Lucent will obtain as much D&O Insurance as can be obtained for the
remainder of such period for an annualized premium not in excess of the Maximum
Premium. INS represents that the Maximum Premium is $350,000.
(d) The provisions of this Section 5.08 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.09. Fees and Expenses. (a) All fees and expenses incurred in
connection with the Merger, this Agreement, the Option Agreement, the
Stockholder Agreement and the transactions contemplated by this Agreement, the
Option Agreement and the Stockholder Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except that each of Lucent and INS shall bear and pay one-half of (1) the costs
and expenses incurred in connection with the filing, printing and mailing of the
Form S-4 and the INS Proxy Statement (including SEC filing fees) and (2) the
filing fees for the premerger notification and report forms under the HSR Act.
Lucent shall file any return with respect to, and shall pay, any state or local
taxes (including any penalties or interest with respect thereto), if any, which
are attributable to the transfer of the beneficial ownership of INS's real
property (collectively, the "Real Estate Transfer Taxes") as a result of the
Merger (other than any such taxes that are solely the obligations of a
stockholder of INS, in which case INS shall pay any such taxes). INS shall
cooperate with Lucent in the filing of such returns including, in the case of
INS, supplying in a timely manner a complete list of all real property interests
held by INS and any information with respect to such property that is reasonably
necessary to complete such returns. The fair market value of any real property
of INS subject to the Real Estate Transfer Taxes shall be as agreed to between
Lucent and INS.
(b) In the event that (1) a bona fide Takeover Proposal shall have been
made known to INS or any of its subsidiaries or has been made directly to the
stockholders of INS generally or shall have otherwise become publicly known or
any person shall have publicly announced an intention (whether or not
conditional) to make a Takeover Proposal and thereafter this Agreement is
terminated by either Lucent or INS pursuant to Section 7.01(b)(i) or (ii) or (2)
this Agreement is terminated (x) by INS pursuant to Section 7.01(f) or (y) by
Lucent pursuant to Section 7.01(d),
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then INS shall promptly, but in no event later than the date of such
termination, pay Lucent a fee equal to $110 million (the "Termination Fee"),
payable by wire transfer of same day funds; provided, however, that no
Termination Fee shall be payable to Lucent pursuant to clause (1) of this
paragraph (b) or pursuant to a termination by Lucent pursuant to Section 7.01(d)
unless and until within 15 months of such termination INS or any of its
subsidiaries enters into any Acquisition Agreement or consummates any Takeover
Proposal (for the purposes of the foregoing proviso the terms "Acquisition
Agreement" and "Takeover Proposal" shall have the meanings assigned to such
terms in Section 4.02 except that the references to "15%" in the definition of
"Takeover Proposal" in Section 4.02(a) shall be deemed to be references to "35%"
and "Takeover Proposal" shall only be deemed to refer to a transaction involving
INS, or with respect to assets (including the shares of any subsidiary), INS and
its subsidiaries, taken as a whole, and not any of its subsidiaries alone), in
which event the Termination Fee shall be payable upon the first to occur of such
events. INS acknowledges that the agreements contained in this Section 5.09(b)
are an integral part of the transactions contemplated by this Agreement, and
that without these agreements Lucent would not enter into this Agreement;
accordingly, if INS fails promptly to pay the amount due pursuant to this
Section 5.09(b), and, in order to obtain such payment, Lucent commences a suit
which results in a judgment against INS for the fee set forth in this Section
5.09(b), INS shall pay to Lucent its costs and expenses (including attorneys'
fees and expenses) in connection with such suit, together with interest on the
amount of the fee at the prime rate of Citibank, N.A. in effect on the date such
payment was required to be made.
SECTION 5.10. Public Announcements. Lucent and INS will consult with each
other before issuing, and provide each other the opportunity to review, comment
upon and concur with, any press release or other public statements with respect
to the transactions contemplated by this Agreement, including the Merger, the
Option Agreement and the Stockholder Agreement, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as either party may determine is required by applicable law, the SEC,
court process or by obligations pursuant to any listing agreement with any
national securities exchange or national trading system. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by this Agreement, the Option Agreement and the Stockholder
Agreement shall be in the form heretofore agreed to by the parties.
SECTION 5.11. Affiliates. INS shall deliver to Lucent at least 30 days
prior to the Closing Date, a letter identifying all persons who are, at the time
of such letter, "affiliates" of INS for purposes of Rule 145 under the
Securities Act or for purposes of qualifying the Merger for pooling of interests
accounting treatment under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations. INS shall use reasonable efforts to cause
each such person to deliver to Lucent at least 30 days prior to the Closing
Date, a written agreement substantially in the form attached as Exhibit A
hereto. Lucent shall use reasonable efforts to cause all persons who are
"affiliates" of Lucent for purposes of qualifying the Merger for pooling of
interests accounting treatment under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations to deliver to INS at least 30
days prior to the Closing Date, a written agreement complying with the fourth
paragraph of Exhibit A hereto.
SECTION 5.12. Listings. Lucent shall use reasonable efforts to cause the
Lucent Common Stock issuable in the Merger to be approved for listing on the
NYSE, subject to official notice of issuance, as promptly as practicable after
the date hereof, and in any event prior to the Closing Date. INS shall use
reasonable efforts to cause the shares of INS Common Stock to be issued pursuant
to the Option Agreement to be approved for quotation on Nasdaq, subject to
official notice
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of issuance, as promptly as practicable after the date hereof, and in any event
prior to the Closing Date.
SECTION 5.13. Litigation. INS shall give Lucent the opportunity to
participate in the defense of any litigation against INS and/or its directors
relating to the transactions contemplated by this Agreement, the Option
Agreement and the Stockholder Agreement.
SECTION 5.14. Tax Treatment. Each of Lucent and INS shall use reasonable
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368 of the Code and to obtain the opinions of counsel referred to in
Sections 6.02(c) and 6.03(c), including the execution of the letters of
representation referred to therein.
SECTION 5.15. Pooling of Interests. Each of INS and Lucent shall use
reasonable efforts to cause the transactions contemplated by this Agreement,
including the Merger, the Option Agreement and the Stockholder Agreement to be
accounted for as a pooling of interests under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations, and each of INS and
Lucent agrees that it shall take no action that would cause such accounting
treatment not to be obtained.
SECTION 5.16. Stockholder Agreement Legend. INS will inscribe upon any
certificate representing Subject Shares (as defined in the Stockholder
Agreement) tendered by the Stockholder (as defined in the Stockholder Agreement)
in connection with any proposed transfer of any Subject Shares by the
Stockholder in accordance with the terms of the Stockholder Agreement the
following legend: "THE SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF
INTERNATIONAL NETWORK SERVICES, REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDER AGREEMENT DATED AS OF AUGUST 9, 1999, AND ARE SUBJECT TO THE TERMS
THEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE
OFFICES OF INTERNATIONAL NETWORK SERVICES."; and INS will return such
certificate containing such inscription to the Stockholder within three business
days following INS's receipt thereof.
SECTION 5.17. Rights Agreement. INS's Board of Directors shall not,
without the prior written consent of Lucent, (a) amend the INS Rights Agreement
after it is adopted or (b) take any action with respect to, or make any
determination under, the INS Rights Agreement, including, a redemption of the
INS Rights or any action to facilitate a Takeover Proposal.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) INS Stockholder Approval. The INS Stockholder Approval shall have
been obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) No Litigation. No judgment, order, decree, statute, law, ordinance,
rule or regulation, entered, enacted, promulgated, enforced or issued by
any court or other Governmental Entity of competent jurisdiction or other
legal restraint or prohibition (collectively, "Re-
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straints") shall be in effect, and there shall not be pending or threatened
any suit, action or proceeding by any Governmental Entity (i) preventing
the consummation of the Merger, (ii) prohibiting or limiting the ownership
or operation by INS or Lucent and their respective subsidiaries of any
material portion of the business or assets of INS or Lucent and their
respective subsidiaries taken as a whole, or compelling INS or Lucent and
their respective subsidiaries to dispose of or hold separate any material
portion of the business or assets of INS or Lucent and their respective
subsidiaries taken as a whole, as a result of the Merger or any of the
other transactions contemplated by this Agreement, the Option Agreement or
the Stockholder Agreement or (iii) which otherwise is reasonably likely to
have a material adverse effect on INS or Lucent, as applicable; provided,
however, that each of the parties shall have used its reasonable efforts to
prevent the entry of any such Restraints and to appeal as promptly as
possible any such Restraints that may be entered.
(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(e) NYSE Listing. The shares of Lucent Common Stock issuable to INS's
stockholders as contemplated by this Agreement shall have been approved for
listing on the NYSE, subject to official notice of issuance.
SECTION 6.02. Conditions to Obligations of Lucent and Sub. The obligation
of Lucent and Sub to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties
of INS set forth herein shall be true and correct as of the date hereof and
as of the Effective Time, with the same effect as if made at and as of such
time (except to the extent expressly made as of an earlier date, in which
case as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth
therein) does not have, and is not reasonably likely to have, individually
or in the aggregate, a material adverse effect on INS. Lucent shall have
received a certificate signed on behalf of INS by the chief executive
officer of INS to such effect.
(b) Performance of Obligations of INS. INS shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date. Lucent shall have received a
certificate signed on behalf of INS by the chief executive officer of INS
to such effect.
(c) Tax Opinions. Lucent shall have received from Cravath, Swaine &
Moore, counsel to Lucent, on the date on which the Form S-4 is declared
effective by the SEC and on the Closing Date, an opinion, in each case
dated as of such respective date and stating that the Merger will qualify
for U.S. federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code. The issuance of such opinion shall be
conditioned upon the receipt by such tax counsel of customary
representation letters from each of Lucent, Sub and INS, in each case, in
form and substance reasonably satisfactory to such tax counsel.
(d) Pooling Letters. Each of Lucent and INS shall have received
letters, dated as of the Closing Date, in each case addressed to Lucent and
INS, from PricewaterhouseCoopers LLP stating in substance that
PricewaterhouseCoopers LLP concurs with the conclusion of Lucent's and
INS's management that no conditions exist that would preclude accounting
for the merger as a pooling of interests under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations.
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SECTION 6.03. Conditions to Obligations of INS. The obligation of INS to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Lucent and Sub set forth herein shall be true and correct as of the date
hereof and as of the Effective Time, with the same effect as if made at and
as of such time (except to the extent expressly made as of an earlier date,
in which case as of such date), except where the failure of such
representations and warranties to be so true and correct (without giving
effect to any limitation as to "materiality" or "material adverse effect"
set forth therein) does not have, and is not reasonably likely to have,
individually or in the aggregate, a material adverse effect on Lucent. INS
shall have received a certificate signed on behalf of Lucent by an
authorized signatory of Lucent to such effect.
(b) Performance of Obligations of Lucent and Sub. Lucent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date. INS
shall have received a certificate signed on behalf of Lucent by an
authorized signatory of Lucent to such effect.
(c) Tax Opinions. INS shall have received from Wilson Sonsini Goodrich
& Rosati, counsel to INS, on the date on which the Form S-4 is declared
effective by the SEC and on the Closing Date, an opinion, in each case
dated as of such respective date and stating that the Merger will qualify
for U.S. federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code. The issuance of such opinion shall be
conditioned upon the receipt by such tax counsel of customary
representation letters from each of INS, Sub and Lucent, in each case, in
form and substance reasonably satisfactory to such tax counsel.
SECTION 6.04. Frustration of Closing Conditions. None of Lucent, Sub or
INS may rely on the failure of any condition set forth in Section 6.01, 6.02 or
6.03, as the case may be, to be satisfied if such failure was caused by such
party's failure to use reasonable efforts to consummate the Merger and the other
transactions contemplated by this Agreement, the Option Agreement and the
Stockholder Agreement, as required by and subject to Section 5.05.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the INS Stockholder
Approval:
(a) by mutual written consent of Lucent, Sub and INS;
(b) by either Lucent or INS:
(i) if the Merger shall not have been consummated by April 30, 2000;
provided, however, that the right to terminate this Agreement pursuant
to this Section 7.01(b)(i) shall not be available to any party whose
failure to perform any of its obligations under this Agreement results
in the failure of the Merger to be consummated by such time;
(ii) if the INS Stockholder Approval shall not have been obtained at
an INS Stockholders Meeting duly convened therefor or at any adjournment
or postponement thereof; or
(iii) if any Restraint having any of the effects set forth in
Section 6.01(c) shall be in effect and shall have become final and
nonappealable; provided that the party seeking to
33
<PAGE> 105
terminate this Agreement pursuant to this Section 7.01(b)(iii) shall
have used reasonable efforts to prevent the entry of and to remove such
Restraint;
(c) by Lucent, if INS shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.02(a) or (b), and (B) is incapable of being or has not been cured by INS
within 30 calendar days after giving written notice to INS of such breach
or failure to perform;
(d) by Lucent, if INS or any of its directors or officers shall
participate in discussions or negotiations in breach of Section 4.02;
(e) by INS, if Lucent shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.03(a) or (b), and (B) is incapable of being or has not been cured by
Lucent within 30 calendar days after the giving of written notice to Lucent
of such breach or failure to perform; or
(f) by INS in accordance with Section 4.02(b); provided that, in order
for the termination of this Agreement pursuant to this paragraph (f) to be
deemed effective, INS shall have complied with all provisions of Section
4.02, including the notice provisions therein, and with applicable
requirements, including the payment of the Termination Fee, of Section
5.09.
SECTION 7.02. Effect of Termination. In the event of termination of this
Agreement by either INS or Lucent as provided in Section 7.01, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Lucent or INS, other than the provisions of Section
3.01(p), the last sentence of Section 5.04, Section 5.09, this Section 7.02 and
Article VIII, which provisions survive such termination, and except to the
extent that such termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by the parties at
any time before or after the INS Stockholder Approval; provided, however, that
after any such approval, there shall not be made any amendment that by law
requires further approval by the stockholders of INS or the approval of the
stockholders of Lucent without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time,
a party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.03, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require, in the case of Lucent or INS,
action by its Board of Directors or, with respect to any
34
<PAGE> 106
amendment to this Agreement, the duly authorized committee of its Board of
Directors to the extent permitted by law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of 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 8.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Lucent or Sub, to
Lucent Technologies Inc.
600 Mountain Avenue
Room 6A 311
Murray Hill, NJ 07974
Telecopy No.: Separately supplied
Attention: Pamela F. Craven
Vice President-Law
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Telecopy No.: Separately supplied
Attention: Robert A. Kindler
Robert I. Townsend, III; and
(b) if to INS, to
International Network Services
1213 Innsbruck Drive
Sunnyvale, CA 94089
Telecopy No.: Separately supplied
Attention: Susan H. Thornton
35
<PAGE> 107
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Telecopy No.: Separately supplied
Attention: Elizabeth Flint
SECTION 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person, where "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise;
(b) "business day" means any day other than Saturday, Sunday or any
other day on which banks are legally permitted to be closed in New York;
(c) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers after reasonable inquiry;
(d) "material adverse change" or "material adverse effect" means, when
used in connection with INS or Lucent, any change, effect, event,
occurrence, condition or development or state of facts that is materially
adverse to the business, results of operations or financial condition of
such party and its subsidiaries taken as a whole, other than any change,
effect, event, occurrence, condition, development or state of facts (i)
relating to the economy or securities markets in general, (ii) relating to
the industries in which such party operates in general, (iii) arising as a
result of this Agreement or the transactions contemplated hereby or the
announcement or pendency thereof (including (w) actions by customers or
competitors, (x) loss of personnel, customers, resellers or referrals, (y)
the delay or cancelation of orders for services and products and (z) any
failure by INS to meet any revenue or earnings predictions or expectations
to the extent resulting from the foregoing clauses (w), (x) and (y)) or
(iv) in the case of INS, litigation brought or threatened against INS or
any member of its Board of Directors in respect of this Agreement;
(e) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(f) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.
SECTION 8.04. Interpretation. When a reference is made in this Agreement
to an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this
36
<PAGE> 108
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted successors and
assigns.
SECTION 8.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein), the
Option Agreement, the Stockholder Agreement and the Confidentiality Agreement
(a) constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Article
II, Section 5.06, and Section 5.08, are not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 8.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.09. Enforcement. Each of the parties hereto agrees that
irreparable damage would occur and that the parties would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a federal court sitting in the State of
Delaware or a Delaware state court.
SECTION 8.10. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and
37
<PAGE> 109
provisions of this Agreement shall nevertheless remain in full force and effect.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible to the fullest extent permitted by applicable law in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
IN WITNESS WHEREOF, Lucent, Sub and INS have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
LUCENT TECHNOLOGIES INC.,
by /s/ PATRICIA F. RUSSO
------------------------------------
Name: Patricia F. Russo
Title: Executive Vice President,
Strategy and
Corporate Operations
INTREPID MERGER INC.,
by /s/ PAMELA F. CRAVEN
------------------------------------
Name: Pamela F. Craven
Title: Vice President, Secretary
and Treasurer
INTERNATIONAL NETWORK SERVICES,
by /s/ JOHN L. DREW
------------------------------------
Name: John L. Drew
Title: President and Chief
Executive Officer
38
<PAGE> 110
ANNEX I
TO THE MERGER AGREEMENT
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Accounting Rules................... 8
Acquisition Agreement.............. 20
Adjusted Option.................... 23
affiliate.......................... 30
Agreement.......................... 1
Applicable Period.................. 19
Audited 1999 Financials............ 5
Benefits Date...................... 23
business day....................... 30
Certificate of Merger.............. 2
Certificates....................... 3
Closing............................ 1
Closing Date....................... 1
Code............................... 1
Common Shares Trust................ 4
Confidentiality Agreement.......... 22
control............................ 30
D&O Insurance...................... 24
DGCL............................... 1
Effective Time..................... 2
Environmental Law.................. 10
ERISA.............................. 10
ESPP............................... 6
Excess Shares...................... 4
Exchange Act....................... 7
Exchange Agent..................... 3
Exchange Fund...................... 3
Exchange Ratio..................... 2
Form S-4........................... 8
GAAP............................... 8
Governmental Entity................ 7
Hazardous Materials................ 10
HSR Act............................ 7
INS................................ 1
INS Authorized Preferred Stock..... 6
INS Benefit Plans.................. 10
INS Common Stock................... 1
INS Disclosure Schedule............ 5
INS Filed SEC Documents............ 9
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
INS Permits........................ 9
INS Proxy Statement................ 7
INS Rights......................... 14
INS Rights Agreement............... 14
INS SEC Documents.................. 8
INS Stock Options.................. 6
INS Stock Plans.................... 6
INS Stockholder Approval........... 12
INS Stockholders Meeting........... 21
Intellectual Property Rights....... 13
knowledge.......................... 30
Liens.............................. 6
Lucent............................. 1
Lucent Authorized Preferred
Stock............................ 14
Lucent Common Stock................ 2
Lucent Disclosure Schedule......... 14
Lucent Filed SEC Documents......... 17
Lucent Junior Preferred Stock...... 15
Lucent Plans....................... 24
Lucent Rights...................... 15
Lucent Rights Agreement............ 15
Lucent SEC Documents............... 16
material adverse change............ 30
material adverse effect............ 30
Maximum Premium.................... 24
Merger............................. 1
Merger Consideration............... 2
Nasdaq............................. 8
NYSE............................... 4
Option Agreement................... 1
Parachute Gross-Up Payment......... 11
person............................. 30
Real Estate Transfer Taxes......... 25
Release............................ 10
Restraints......................... 26
SARs............................... 6
SEC................................ 7
Section 4.02 Notice................ 19
Securities Act..................... 8
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Stockholder........................ 1
Stockholder Agreement.............. 1
Sub................................ 1
subsidiary......................... 31
Superior Proposal.................. 20
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Surviving Corporation.............. 1
Takeover Proposal.................. 19
taxes.............................. 12
Termination Fee.................... 25
Warrant............................ 6
</TABLE>
<PAGE> 112
EXHIBIT A
TO THE MERGER AGREEMENT
FORM OF AFFILIATE LETTER
Dear Sirs:
The undersigned, a holder of shares of common stock, par value $.001 per
share ("INS Common Stock"), of International Network Services, a Delaware
corporation ("INS"), is entitled to receive in connection with the merger (the
"Merger") of a subsidiary of Lucent Technologies Inc., a Delaware corporation
("Lucent"), with and into INS, securities of Lucent, as the parent of the
surviving corporation in the Merger (the "Lucent Securities"). The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of INS within the
meaning of Rule 145 ("Rule 145") promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), by the Securities and Exchange Commission
(the "SEC") and may be deemed an "affiliate" of INS for purposes of qualifying
the Merger for pooling of interests accounting treatment under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations, although
nothing contained herein should be construed as an admission of either such
fact.
If in fact the undersigned were an affiliate under the Securities Act, the
undersigned's ability to sell, assign or transfer the Lucent Securities received
by the undersigned in exchange for any shares of INS Common Stock in connection
with the Merger may be restricted unless such transaction is registered under
the Securities Act or an exemption from such registration is available. The
undersigned understands that such exemptions are limited and the undersigned has
obtained or will obtain advice of counsel as to the nature and conditions of
such exemptions, including information with respect to the applicability to the
sale of such securities of Rules 144 and 145(d) promulgated under the Securities
Act. The undersigned understands that Lucent will not be required to maintain
the effectiveness of any registration statement under the Securities Act for the
purposes of resale of Lucent Securities by the undersigned.
The undersigned hereby represents to and covenants with Lucent that the
undersigned will not sell, assign or transfer any of the Lucent Securities
received by the undersigned in exchange for shares of INS Common Stock in
connection with the Merger except (i) pursuant to an effective registration
statement under the Securities Act, (ii) in conformity with the volume and other
limitations of Rule 145 or (iii) in a transaction which, in the opinion of
counsel to Lucent or other counsel satisfactory to Lucent or as described in a
"no-action" or interpretive letter from the Staff of the SEC specifically issued
with respect to a transaction to be engaged in by the undersigned, is not
required to be registered under the Securities Act.
The undersigned hereby further represents to and covenants with Lucent that
the undersigned has not, within the preceding 30 days, sold, transferred or
otherwise disposed of any shares of INS Common Stock held by the undersigned and
that the undersigned will not sell, transfer or otherwise dispose of any Lucent
Securities received by the undersigned in connection with the Merger until after
such time as results covering at least 30 days of post-Merger combined
operations of INS and Lucent have been published by Lucent, in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing
or announcement which includes such combined results of operations, except as
would not otherwise reasonably be expected to adversely affect the qualification
of the Merger as a pooling-of-interests.
<PAGE> 113
In the event of a sale or other disposition by the undersigned of Lucent
Securities pursuant to Rule 145, the undersigned will supply Lucent with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto and the opinion of counsel or no-action letter referred to above.
The undersigned understands that Lucent may instruct its transfer agent to
withhold the transfer of any Lucent Securities disposed of by the undersigned,
but that (provided such transfer is not prohibited by any other provision of
this letter agreement) upon receipt of such evidence of compliance, Lucent shall
cause the transfer agent to effectuate the transfer of the Lucent Securities
sold as indicated in such letter.
Lucent covenants that it will take all such actions as may be reasonably
available to it to permit the sale or other disposition of Lucent Securities by
the undersigned under Rule 145 in accordance with the terms thereof.
The undersigned acknowledges and agrees that the legends set forth below
will be placed on certificates representing Lucent Securities received by the
undersigned in connection with the Merger or held by a transferee thereof, which
legends will be removed by delivery of substitute certificates upon receipt of
an opinion in form and substance reasonably satisfactory to Lucent from
independent counsel reasonably satisfactory to Lucent to the effect that such
legends are no longer required for purposes of the Securities Act.
There will be placed on the certificates for Lucent Securities issued to
the undersigned, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued pursuant to a
business combination which is being accounted for as a pooling of
interests, in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies. The shares have not been acquired by the
holder with a view to, or for resale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933. The shares may
not be sold, pledged or otherwise transferred (i) until such time as Lucent
Technologies Inc. shall have published financial results covering at least
30 days of combined operations after the Effective Time and (ii) except in
accordance with an exemption from the registration requirements of the
Securities Act of 1933."
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Lucent Securities
and (ii) the receipt by Lucent of this letter is an inducement to Lucent's
obligations to consummate the Merger.
Very truly yours,
Dated:
2
<PAGE> 114
ANNEX I
TO EXHIBIT A
[Name] [Date]
On , the undersigned sold the securities of Lucent Technologies
Inc., a Delaware corporation ("Lucent"), described below in the space provided
for that purpose (the "Securities"). The Securities were received by the
undersigned in connection with the merger of a subsidiary of Lucent with and
into International Network Services, a Delaware corporation.
Based upon the most recent report or statement filed by Lucent with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Securities Act
or in transactions directly with a "market maker" as that term is defined in
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended. The
undersigned further represents that the undersigned has not solicited or
arranged for the solicitation of orders to buy the Securities, and that the
undersigned has not made any payment in connection with the offer or sale of the
Securities to any person other than to the broker who executed the order in
respect of such sale.
Very truly yours,
[Space to be provided for description of the Securities.]
<PAGE> 115
ANNEX 2
STOCK OPTION AGREEMENT dated as of August 9, 1999 (the "Agreement"), by
and between INTERNATIONAL NETWORK SERVICES, a Delaware corporation
("Issuer"), and LUCENT TECHNOLOGIES INC., a Delaware corporation
("Grantee").
RECITALS
A. Grantee, Intrepid Merger Inc., a Delaware corporation and a wholly owned
subsidiary of Grantee ("Sub"), and Issuer have entered into an Agreement and
Plan of Merger dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; defined terms used but not defined herein
have the meanings set forth in the Merger Agreement), providing for, among other
things, the merger of Sub with and into Issuer, with Issuer as the surviving
corporation in the Merger and becoming a wholly owned subsidiary of Grantee; and
B. As a condition and inducement to Grantee's willingness to enter into the
Merger Agreement, Grantee has requested that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Issuer
and Grantee agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 11,407,457 (as adjusted as set forth herein)
shares (the "Option Shares") of Common Stock, par value $0.001 per share
("Issuer Common Stock"), of Issuer at a purchase price of $53.91 (as
adjusted as set forth herein) per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise the Option, with
respect to any or all of the Option Shares at any time or times, subject to
the provisions of Section 2(c), after the occurrence of any event as a
result of which Grantee is unconditionally entitled to receive the
Termination Fee pursuant to Section 5.09(b) of the Merger Agreement (a
"Purchase Event"); provided, however, that (i) except as provided in the
last sentence of this Section 2(a), the Option will terminate and be of no
further force and effect upon the earliest to occur of (A) the Effective
Time, (B) 15 months after the first occurrence of a Purchase Event, and (C)
termination of the Merger Agreement in accordance with its terms prior to
the occurrence of a Purchase Event, unless, in the case of clause (C),
Grantee has the right to receive a Termination Fee following such
termination upon the occurrence of certain events, in which case the Option
will not terminate until the later of (x) 15 business days following the
time such Termination Fee becomes unconditionally payable and (y) the
expiration of the period in which Grantee has such right to receive a
Termination Fee, and (ii) any purchase of Option Shares upon exercise of
the Option will be subject to compliance with the HSR Act and the obtaining
or making of any consents, approvals, orders, notifications, filings or
authorizations, the failure of which to have obtained or made would have
the effect of making the issuance of Option Shares to Grantee illegal (the
"Regulatory Approvals"). Notwithstanding the termination of the Option,
Grantee will be entitled to purchase the Option Shares if it has exercised
the Option in accordance with the terms hereof prior to the termination of
the Option and such termination of the Option will not affect any rights
hereunder which by their terms do not terminate or expire prior to or as of
such date.
(b) In the event that Grantee is entitled to and wishes to exercise the
Option, it will send to Issuer a written notice (an "Exercise Notice"; the
date of which being herein referred to as
<PAGE> 116
the "Notice Date") to that effect which Exercise Notice also specifies the
number of Option Shares, if any, Grantee wishes to purchase pursuant to
this Section 2(b), the number of Option Shares, if any, with respect to
which Grantee wishes to exercise its Cash-Out Right (as defined herein)
pursuant to Section 6(c), the denominations of the certificate or
certificates evidencing the Option Shares which Grantee wishes to purchase
pursuant to this Section 2(b) and a date (an "Option Closing Date"),
subject to the following sentence, not earlier than seven business days nor
later than 20 business days from the Notice Date for the closing of such
purchase (an "Option Closing"). Any Option Closing will be at an agreed
location and time in New York, New York on the applicable Option Closing
Date or at such later date as may be necessary so as to comply with the
first sentence of Section 2(a).
(c) Notwithstanding anything to the contrary contained herein, any
exercise of the Option and purchase of Option Shares shall be subject to
compliance with applicable laws and regulations, which may prohibit the
purchase of all the Option Shares specified in the Exercise Notice without
first obtaining or making certain Regulatory Approvals. In such event, if
the Option is otherwise exercisable and Grantee wishes to exercise the
Option, the Option may be exercised in accordance with Section 2(b) and
Grantee shall acquire the maximum number of Option Shares specified in the
Exercise Notice that Grantee is then permitted to acquire under the
applicable laws and regulations, and if Grantee thereafter obtains the
Regulatory Approvals to acquire the remaining balance of the Option Shares
specified in the Exercise Notice, then Grantee shall be entitled to acquire
such remaining balance. Issuer agrees to use its reasonable efforts to
assist Grantee in seeking the Regulatory Approvals.
In the event (i) Grantee receives official notice that a Regulatory
Approval required for the purchase of any Option Shares will not be issued
or granted or (ii) such Regulatory Approval has not been issued or granted
within six months of the date of the Exercise Notice, Grantee shall have
the right to exercise its Cash-Out Right pursuant to Section 6(c) with
respect to the Option Shares for which such Regulatory Approval will not be
issued or granted or has not been issued or granted.
3. Payment and Delivery of Certificates. (a) At any Option Closing,
Grantee will pay to Issuer in immediately available funds by wire transfer
to a bank account designated in writing by Issuer an amount equal to the
Purchase Price multiplied by the number of Option Shares to be purchased at
such Option Closing plus the amount of any transfer, stamp or other similar
taxes or charges imposed in connection therewith.
(b) At any Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), Issuer will
deliver to Grantee a certificate or certificates representing the Option
Shares to be purchased at such Option Closing, which Option Shares will be
free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever. If at the time of issuance of Option Shares pursuant to an
exercise of the Option hereunder, Issuer shall have issued any securities
similar to rights under a stockholder rights plan, then each Option Share
issued pursuant to such exercise will also represent such a corresponding
right with terms substantially the same as and at least as favorable to
Grantee as are provided under any such stockholder rights plan then in
effect.
(c) Certificates for the Option Shares delivered at an Option Closing
will have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN
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EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK
OPTION AGREEMENT DATED AS OF AUGUST 9, 1999, A COPY OF WHICH MAY BE
OBTAINED FROM THE SECRETARY OF INTERNATIONAL NETWORK SERVICES AT ITS
PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares have
been sold in reliance on and in accordance with Rule 144 under the
Securities Act or Grantee has delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel in form and substance
reasonably satisfactory to Issuer and its counsel, to the effect that such
legend is not required for purposes of the Securities Act and (ii) the
reference to restrictions pursuant to this Agreement in the above legend
will be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions
of this Agreement under circumstances that do not require the retention of
such reference.
4. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
Authorized Stock. Issuer has taken all necessary corporate and
other action to authorize and reserve and, subject to the expiration or
termination of any required waiting period under the HSR Act, to permit
it to issue, and, at all times from the date hereof until the obligation
to deliver Option Shares upon the exercise of the Option terminates,
shall have reserved for issuance, upon exercise of the Option, shares of
Issuer Common Stock necessary for Grantee to exercise the Option, and
Issuer will take all necessary corporate action to authorize and reserve
for issuance all additional shares of Issuer Common Stock or other
securities which may be issued pursuant to Section 6 upon exercise of
the Option. The shares of Issuer Common Stock to be issued upon due
exercise of the Option, including all additional shares of Issuer Common
Stock or other securities which may be issuable upon exercise of the
Option or any other securities which may be issued pursuant to Section
6, upon issuance pursuant hereto, will be duly and validly issued, fully
paid and nonassessable, and will be delivered free and clear of all
liens, claims, charges and encumbrances of any kind or nature
whatsoever, including without limitation any preemptive rights of any
stockholder of Issuer.
5. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:
Purchase Not for Distribution. Any Option Shares or other
securities acquired by Grantee upon exercise of the Option will not be
transferred or otherwise disposed of except in a transaction registered,
or exempt from registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event of
any change in Issuer Common Stock by reason of a stock dividend, split-up,
merger, recapitalization, combination, exchange of shares, or similar
transaction, the type and number of shares or securities subject to the
Option, and the Purchase Price thereof, will be adjusted appropriately, and
proper provision will be made in the agreements governing such transaction,
so that Grantee will receive upon exercise of the Option the number and
class of shares or other
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securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior to
such event or the record date therefor, as applicable. Without limiting the
parties' relative rights and obligations under the Merger Agreement, if the
number of outstanding shares of Issuer Common Stock increases or decreases
after the date of this Agreement (other than pursuant to an event described
in the first sentence of this Section 6(a)), the number of shares of Issuer
Common Stock subject to the Option will be adjusted so that it equals 19.9%
of the number of shares of Issuer Common Stock then issued and outstanding,
without giving effect to any shares subject to or issued pursuant to the
Option.
(b) Without limiting the parties' relative rights and obligations under
the Merger Agreement, in the event that Issuer enters into an agreement (i)
to consolidate with or merge into any person, other than Grantee or one of
its subsidiaries, and Issuer will not be the continuing or surviving
corporation in such consolidation or merger, (ii) to permit any person,
other than Grantee or one of its subsidiaries, to merge into Issuer and
Issuer will be the continuing or surviving corporation, but in connection
with such merger, the shares of Issuer Common Stock outstanding immediately
prior to the consummation of such merger will be changed into or exchanged
for stock or other securities of Issuer or any other person or cash or any
other property, or the shares of Issuer Common Stock outstanding
immediately prior to the consummation of such merger will, after such
merger, represent less than 50% of the outstanding voting securities of the
merged company, or (iii) to sell or otherwise transfer all or substantially
all of its assets to any person, other than Grantee or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction will make proper provision so that the Option will, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of shares or
other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior to
such consolidation, merger, sale, or transfer, or the record date therefor,
as applicable and make any other necessary adjustments.
(c) If, at any time during the period commencing on a Purchase Event and
ending on the termination of the Option in accordance with Section 2,
Grantee sends to Issuer an Exercise Notice indicating Grantee's election to
exercise its right (the "Cash-Out Right") pursuant to this Section 6(c),
then Issuer shall pay to Grantee, on the Option Closing Date, in exchange
for the cancelation of the Option with respect to such number of Option
Shares as Grantee specifies in the Exercise Notice, an amount in cash equal
to such number of Option Shares multiplied by the difference between (i)
the average closing price, for the 10 trading days commencing on the 12th
trading day immediately preceding the Option Closing Date, per share of
Issuer Common Stock as reported on The Nasdaq National Market (or, if not
listed on The Nasdaq National Market, as reported on any other national
securities exchange or national securities quotation system on which the
Issuer Common Stock is listed or quoted, as reported in The Wall Street
Journal (Northeast edition), or, if not reported thereby, any other
authoritative source) (the "Closing Price") and (ii) the Purchase Price.
Notwithstanding the termination of the Option, Grantee will be entitled to
exercise its rights under this Section 6(c) if it has exercised such rights
in accordance with the terms hereof prior to the termination of the Option.
(d) (i) Notwithstanding any other provision of this Agreement, in no
event shall Grantee's Total Profit (as hereinafter defined) plus any
Termination Fee paid to Grantee pursuant to Section 5.09(b) of the Merger
Agreement exceed in the aggregate $150 million
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<PAGE> 119
and, if the total amount that otherwise would be received by Grantee would
exceed such amount, Grantee, at its election, shall either (a) reduce the
number of shares of Issuer Common Stock subject to the Option, (b) deliver
to Issuer for cancelation shares of Issuer Common Stock previously
purchased by Grantee, (c) pay cash to Issuer or (d) take any action
representing any combination of the preceding clauses (a), (b) and (c), so
that Grantee's actually realized Total Profit, when aggregated with such
Termination Fee so paid to Grantee, shall not exceed $150 million after
taking into account the foregoing actions.
(ii) Notwithstanding any other provision of this Agreement, the Option
may not be exercised for a number of Option Shares as would, as of the date
of exercise, result in a Notional Total Profit (as defined below) which,
together with any Termination Fee theretofore paid to Grantee, would exceed
$150 million; provided, that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
(iii) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (A) the amount received by Grantee
pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to the exercise of the Cash-Out Right under Section 6(c) and (B)
the net cash amounts or the fair market value of any property received by
Grantee pursuant to the sale of Option Shares (or other securities).
(iv) As used herein, the term "Notional Total Profit" with respect to
any number of Option Shares as to which Grantee may propose to exercise the
Option shall be the Total Profit determined as of the date of such proposal
assuming for such purpose that the Option was exercised on such date for
such number of Option Shares and assuming that such Option Shares, together
with all other Option Shares held by Grantee and its affiliates as of such
date, were sold for cash at the closing market price on The Nasdaq National
Market (or, if shares of Issuer Common Stock are not then listed or traded
on The Nasdaq National Market, on any other national securities exchange or
national quotation system on which shares of Issuer Common Stock are so
listed or traded) for shares of Issuer Common Stock as of the close of
business on the preceding trading day (less customary brokerage
commissions).
7. Registration Rights. (a) Issuer will, if requested by Grantee in
writing at any time and from time to time within two years of the exercise
of the Option, as expeditiously as possible prepare and file up to three
registration statements under the Securities Act if such registration is
necessary in order to permit the sale or other disposition of any or all
shares of securities that have been acquired by or are issuable to Grantee
upon exercise of the Option in accordance with the intended method of sale
or other disposition stated by Grantee, including a "shelf" registration
statement under Rule 415 under the Securities Act or any successor
provision, and Issuer will use its best efforts to qualify such shares or
other securities under any applicable state securities laws. Grantee agrees
to cause, and to cause any underwriters of any sale or other disposition to
cause, any sale or other disposition pursuant to such registration
statement to be effected on a widely distributed basis so that upon
consummation thereof no purchaser or transferee will own beneficially more
than 5.0% of the then-outstanding voting power of Issuer. Issuer will use
reasonable efforts to cause each such registration statement to become
effective, to obtain all consents or waivers of other parties which are
required therefor, and to keep such registration statement effective for
such period not in excess of 120 calendar days from the day such
registration statement first becomes effective as may be reasonably
necessary to effect such sale or other disposition. The obligations of
Issuer hereunder to file a registration statement and to maintain its
effectiveness may be suspended for up to 120 calendar days in the aggregate
if the Board of Directors of Issuer shall have determined that
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<PAGE> 120
the filing of such registration statement or the maintenance of its
effectiveness would require premature disclosure of material nonpublic
information that would materially and adversely affect Issuer or otherwise
interfere with or adversely affect any pending or proposed offering of
securities of Issuer or any other material transaction involving Issuer.
Any registration statement prepared and filed under this Section 7, and any
sale covered thereby, will be at Issuer's expense except for underwriting
discounts or commissions, brokers' fees and the fees and disbursements of
Grantee's counsel related thereto. Grantee will provide all information
reasonably requested by Issuer for inclusion in any registration statement
to be filed hereunder. If, during the time periods referred to in the first
sentence of this Section 7, Issuer effects a registration under the
Securities Act of Issuer Common Stock for its own account or for any other
stockholders of Issuer (other than on Form S-4 or Form S-8, or any
successor form), it will allow Grantee the right to participate in such
registration, and such participation will not affect the obligation of
Issuer to effect demand registration statements for Grantee under this
Section 7; provided that, if the managing underwriters of such offering
advise Issuer in writing that in their opinion the number of shares of
Issuer Common Stock requested to be included in such registration exceeds
the number which can be sold in such offering, Issuer will first reduce the
shares requested to be included therein by Grantee before reducing any
other shares intended to be included therein by Issuer. In connection with
any registration pursuant to this Section 7, Issuer and Grantee will
provide each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification, and contribution
in connection with such registration.
If a requested registration pursuant to this Section 7(a) involves an
underwritten offering, the underwriter or underwriters thereof shall be a
nationally recognized firm or firms selected by Issuer. Notwithstanding
anything else contained in this Section 7(a), each requested registration
shall be for a number of shares of Issuer Common Stock which represent at
least one-fourth of the total number of shares of Issuer Common Stock
purchased by Grantee hereunder.
(b) Notwithstanding Section 7(a), if Issuer receives a written request
(the "Registration Notice") from Grantee requesting that Issuer register
any or all shares of securities that have been acquired by Grantee upon
exercise of the Option (the "Registrable Securities"), Issuer will
thereupon have the option exercisable by written notice delivered to
Grantee within ten business days after receipt of the Registration Notice,
to purchase all or any part of the Registrable Securities for cash at a
price (the "Option Price") equal to the product of (i) the number of
Registrable Securities so purchased and (ii) the per share average of the
closing sale prices of Issuer Common Stock on The Nasdaq National Market
(or any other national securities exchange or national securities quotation
system on which the shares of Issuer Common Stock are then listed or
quoted) for the twenty trading days immediately preceding the date of the
Registration Notice. Any such purchase of Registrable Securities by Issuer
hereunder will take place at a closing to be held at the principal
executive offices of Issuer or its counsel at any reasonable date and time
designated by Issuer in such notice within ten business days after delivery
of such notice. The payment for the shares to be purchased will be made by
delivery at the time of such closing of the Option Price in immediately
available funds.
8. Transfers. The Option Shares may not be sold, assigned, transferred,
or otherwise disposed of except (i) in an underwritten public offering as
provided in Section 7 or (ii) to any purchaser or transferee who would not,
to the knowledge of Grantee after reasonable inquiry (which shall include
obtaining a representation from the purchaser or transferee), immedi-
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ately following such sale, assignment, transfer or disposal, beneficially
own more than 5.0% of the then-outstanding voting power of the Issuer;
provided, however, that Grantee shall be permitted to sell any Option
Shares if such sale is made pursuant to a tender or exchange offer that has
been approved or recommended by a majority of the members of the Board of
Directors of Issuer (which majority shall include a majority of directors
who were directors as of the date hereof).
9. Quotation. If Issuer Common Stock or any other securities to be
acquired upon exercise of the Option are then quoted on The Nasdaq National
Market (or any other national securities exchange or national securities
quotation system), Issuer, upon the request of Grantee, will promptly file
an application to have the shares of Issuer Common Stock or other
securities to be acquired upon exercise of the Option quoted on The Nasdaq
National Market (and any such other national securities exchange or
national securities quotation system) and will use reasonable efforts to
obtain approval of such quotation as promptly as practicable.
10. Loss or Mutilation. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancelation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered will
constitute an additional contractual obligation on the part of Issuer,
whether or not the Agreement so lost, stolen, destroyed, or mutilated shall
at any time be enforceable by anyone.
11. Miscellaneous. (a) Expenses. Except as provided in Section 7, each
of the parties hereto will bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants, and counsel.
(b) Amendment. This Agreement may not be amended, except by an
instrument in writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive
any provision of this Agreement, or to extend the time for performance,
will be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise will not constitute a
waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement, the
Merger Agreement (including the documents and instruments attached thereto
as exhibits or schedules or delivered in connection therewith), the
Stockholder Agreement and the Confidentiality Agreement (i) constitute the
entire agreement, and supersede all prior agreements and understandings,
both written and oral, between the parties with respect to the subject
matter of this Agreement, and (ii) except as provided in Section 8.06 of
the Merger Agreement, are not intended to confer upon any person other than
the parties any rights or remedies.
(e) Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
thereof.
(f) Notices. All notices, requests, claims, demands, and other
communications under this Agreement shall be sent in the manner and to the
addresses set forth in the Merger Agreement.
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(g) Assignment. Neither this Agreement, the Option nor any of the
rights, interests, or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise, by Issuer
or Grantee without the prior written consent of the other. Any assignment
or delegation in violation of the preceding sentence will be void. Subject
to the first and second sentences of this Section 11(g), this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
(h) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee will execute and deliver all other documents
and instruments and take all other actions that may be reasonably necessary
in order to consummate the transactions provided for by such exercise.
(i) Enforcement. The parties agree that irreparable damage would occur
and that the parties would not have any adequate remedy at law in the event
that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any Federal
court located in the State of Delaware or in Delaware state court, the
foregoing being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (i) consents
to submit itself to the personal jurisdiction of any Federal court located
in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (ii) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (iii) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated
by this Agreement in any court other than a Federal court sitting in the
State of Delaware or a Delaware state court.
(j) Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled
to the extent possible.
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IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first written above.
INTERNATIONAL NETWORK SERVICES,
by /s/ JOHN L. DREW
------------------------------------
Name: John L. Drew
Title: President and Chief
Executive Officer
LUCENT TECHNOLOGIES INC.,
by /s/ PATRICIA F. RUSSO
------------------------------------
Name: Patricia F. Russo
Title: Executive Vice President,
Strategy and Corporate
Operations
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ANNEX 3
STOCKHOLDER AGREEMENT dated as of August 9, 1999 (this "Agreement"),
between LUCENT TECHNOLOGIES INC., a Delaware corporation ("Lucent"), and
the stockholders listed on Schedule A attached hereto (collectively, the
"Stockholder").
WHEREAS Lucent, Intrepid Merger Inc., a Delaware corporation and a wholly
owned subsidiary of Lucent ("Sub"), and International Network Services, a
Delaware corporation (the "Company"), propose to enter into an Agreement and
Plan of Merger dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; defined terms used but not defined herein
have the meanings set forth in the Merger Agreement), providing for, among other
things, the merger of Sub with and into the Company, upon the terms and subject
to the conditions set forth in the Merger Agreement;
WHEREAS the Stockholder beneficially owns the number of shares of capital
stock of the Company set forth opposite the Stockholder's name on Schedule A
attached hereto (such shares of capital stock of the Company, together with any
other shares of capital stock of the Company acquired by the Stockholder after
the date hereof and during the term of this Agreement (including through the
exercise of any stock options, warrants or similar instruments), being
collectively referred to herein as the "Subject Shares"); and
WHEREAS as a condition to its willingness to enter into the Merger
Agreement, Lucent has requested that the Stockholder enter into this Agreement.
NOW, THEREFORE, to induce Lucent to enter into, and in consideration of its
entering into, the Merger Agreement, and in consideration of the premises and
the representations, warranties and agreements contained herein, the parties
hereto agree as follows:
1. Agreement to Vote Shares. The Stockholder agrees during the term of
this Agreement to vote, or cause to be voted, its Subject Shares, in person
or by proxy, (i) in favor of the Merger, the adoption and approval of the
Merger Agreement and the approval of the transactions contemplated by the
Merger Agreement at every meeting of the stockholders of the Company at
which such matters are considered and at every adjournment thereof and (ii)
in such manner as Lucent may direct with respect to all other proposals
submitted to the stockholders of the Company which, directly or indirectly,
in any way relate to the Merger; provided, however, that clause (ii) of
this Section 1 shall not be construed to require any action which would
contravene paragraph 47(c) of Opinion 16 of the Accounting Principles Board
and applicable SEC rules and regulations.
2. Grant of Irrevocable Proxy. The Stockholder hereby irrevocably
grants to, and appoints, Pamela F. Craven and Jean F. Rankin and any other
individual who shall hereafter be designated by Lucent, and each of them,
the Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of the Stockholder, to
vote, or cause to be voted, the Stockholder's Subject Shares, or grant a
consent or approval in respect of such Subject Shares, at any meeting of
stockholders of the Company or at any adjournment thereof or in any other
circumstances upon which their vote, consent or other approval is sought,
in favor of the Merger, the adoption and approval of the Merger Agreement
and the approval of the transactions contemplated by the Merger Agreement.
3. No Other Grant of Proxy. The Stockholder will not, directly or
indirectly, grant any proxies or powers of attorney with respect to his
Subject Shares to any person in connection with or directly affecting the
Merger other than as set forth in Section 2.
<PAGE> 125
4. Transfers. Other than this Agreement, the Stockholder will not, nor
will the Stockholder permit any entity under the Stockholder's control to,
sell, transfer, pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or consent to any Transfer of, any Subject
Shares or any interest therein or enter into any contract, option or other
agreement or arrangement (including any profit sharing or other derivative
arrangement) with respect to the Transfer of, any Subject Shares or any
interest therein to any person, unless prior to any such Transfer the
transferee of such Subject Shares enters into a stockholder agreement with
Lucent on terms substantially identical to the terms of this Agreement;
provided, however, that such restriction shall not be applicable to any of
the Subject Shares that have been pledged by the Stockholder pursuant to a
margin loan account prior to the date of this Agreement.
5. No Voting Trusts. The Stockholder agrees that it will not enter into
any voting trust or other arrangement or agreement with respect to the
voting of the Subject Shares (and if entered into or executed, such voting
trust or other arrangement or agreement shall not be effective), or agree,
in any manner, to vote the Subject Shares for or against any proposal in
connection with or directly affecting the Merger submitted to the
stockholders of the Company except in furtherance of the proposals as set
forth in Section 1 hereof.
6. No Solicitation. Until the Merger is consummated or the Merger
Agreement is terminated, the Stockholder shall not, nor shall he permit any
investment banker, attorney or other advisor or representative of the
Stockholder to, directly or indirectly through another person, solicit,
initiate or encourage, 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 Takeover Proposal.
7. Affiliate Agreement. (a) If, at the time the Merger Agreement is
submitted for approval to the stockholders of the Company, the Stockholder
is an "affiliate" of the Company for purposes of Rule 145 under the
Securities Act or for purposes of qualifying the Merger for pooling of
interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations, the Stockholder
shall deliver to Lucent at least 30 days prior to the Closing a written
agreement substantially in the form attached as Exhibit A to the Merger
Agreement.
(b) The Stockholder shall use reasonable efforts to cause the
transactions contemplated by the Merger Agreement, including the Merger, to
be accounted for as a pooling of interests transaction under Opinion 16 of
the Accounting Principles Board and applicable SEC rules and regulations.
The Stockholder agrees that it shall take no action that would cause such
accounting treatment not to be obtained.
8. Representations and Warranties of the Stockholder. The Stockholder
hereby represents and warrants to Lucent in respect of himself as follows:
(a) Authority. The Stockholder has all requisite power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Stockholder and constitutes a
valid and binding obligation of the Stockholder enforceable against the
Stockholder in accordance with its terms. The execution and delivery of
this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation of, or default (with or
without notice or lapse of time or both) under any provision of, any
trust agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument,
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permit, concession, franchise, license, judgment, order, notice, decree,
statute, law, ordinance, rule or regulation applicable to the
Stockholder or to the Stockholder's property or assets. Except for
informational filings with the SEC, no consent, approval, order or
authorization of, or registration, declaration or filing with any
Governmental Entity is required by or with respect to the Stockholder in
connection with the execution and delivery of this Agreement or the
consummation by the Stockholder of the transactions contemplated hereby.
(b) The Subject Shares. The Stockholder has good and marketable
title to the Subject Shares, free and clear of all Liens, except for the
Subject Shares that have been pledged by the Stockholder pursuant to a
margin loan account prior to the date of this Agreement.
9. Representations and Warranties of Lucent. Lucent hereby represents
and warrants to the Stockholder that Lucent has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Lucent, and the consummation of the transactions contemplated
hereby, has been duly authorized by all necessary corporate action on the
part of Lucent. This Agreement has been duly executed and delivered by
Lucent and constitutes a valid and binding obligation of Lucent enforceable
against Lucent in accordance with its terms. The execution and delivery of
this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of, or default (with or without notice or
lapse of time or both) under any provision of, any trust agreement, loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license, judgment,
order, notice, decree, statute, law, ordinance, rule or regulation
applicable to Lucent or to Lucent's property or assets. Except for the
informational filings with the SEC, no consent, approval, order or
authorization of, or registration, declaration or filing with any
Governmental Entity is required by or with respect to Lucent in connection
with the execution and delivery of this Agreement or the consummation by
Lucent of the transactions contemplated hereby.
10. Enforcement. The parties agree that irreparable damage would occur
and that the parties would not have any adequate remedy at law in the event
that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any Federal
court located in the State of Delaware or in Delaware state court, the
foregoing being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (i) consents
to submit itself to the personal jurisdiction of any Federal court located
in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (ii) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (iii) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated
by this Agreement in any court other than a Federal court sitting in the
State of Delaware or a Delaware state court.
11. Term and Termination. Subject to Section 16(f), the term of this
Agreement shall commence on the date hereof and shall terminate upon the
earlier of (i) the Effective Time
3
<PAGE> 127
and (ii) 10 business days after the termination of the Merger Agreement in
accordance with its terms.
12. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Subject Shares and
shall be binding upon any Person to which legal or beneficial ownership of
such Subject Shares shall pass, whether by operation of law or otherwise,
including the Stockholder's heirs, guardians, administrators or successors.
In the event of any stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of the Company
affecting the Subject Shares, or the acquisition of additional shares of
the Company's capital stock by the Stockholder, the number of Subject
Shares listed on Schedule A beside the name of the Stockholder shall be
adjusted appropriately and this Agreement and the obligations hereunder
shall attach to any additional shares of the Company's capital stock issued
to or acquired by the Stockholder.
13. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director or officer of the Company makes
(or shall be deemed to have made) any agreement or understanding herein in
his or her capacity as such director or officer. Without limiting the
generality of the foregoing, the Stockholder signs solely in his capacity
as the record and/or beneficial owner, as applicable, of the Stockholder's
Subject Shares and nothing herein shall limit or affect any actions taken
by the Stockholder (or a designee of the Stockholder) in his capacity as an
officer or director of the Company in exercising his rights under the
Merger Agreement.
14. Entire Agreement; No Third Party Beneficiaries; Amendment;
Waiver. This Agreement (including the documents and instruments referred
to herein) (i) constitutes the entire agreement and supersedes all prior
agreements and understandings, written or oral, among the parties with
respect to the subject matter hereof and (ii) is not intended to confer
upon any Person other than the parties hereto any rights or remedies
hereunder. This Agreement may not be amended, supplemented or modified, and
no provisions hereof may be modified or waived, except by an instrument in
writing signed by each party to be charged. No waiver of any provisions
hereof by any party shall be deemed a waiver of any other provisions hereof
by any such party, nor shall any such waiver be deemed a continuing waiver
of any provision hereof by such party.
15. Notices. All notices, consents, requests, instructions, approvals
and other communications provided for herein shall be in writing and shall
be deemed to have been duly given if mailed, by first class or registered
mail, three business days after deposit in the United States Mail, or if
telexed or telecopied, sent by telegram, or delivered by hand or reputable
overnight courier, when confirmation is received, in each case as follows:
If to the Stockholder, to the address listed on Schedule A hereto;
If to Lucent, in accordance with Section 8.02 of the Merger Agreement;
or to such other persons or addresses as may be designated in writing by
the party to receive such notice.
16. Miscellaneous. (a) When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include," "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
4
<PAGE> 128
(b) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws.
(c) If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain
in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in an acceptable manner and to
the end that the transactions contemplated hereby are fulfilled to the
extent possible.
(d) This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more of the counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that
each party need not sign the same counterpart.
(e) This Agreement shall not be assigned by the Stockholder, on the one
hand, without the prior written consent of Lucent, or by Lucent, on the
other hand, without the prior written consent of the Stockholder, except
that Lucent may assign, in its sole discretion, any or all of its rights,
interests and obligations hereunder to any direct or indirect wholly owned
subsidiary of Lucent; provided that notwithstanding such assignment, Lucent
shall remain liable for performance of its obligations hereunder. Subject
to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective
successors and assigns.
(f) The obligations of the Stockholder set forth in this Agreement shall
not be effective or binding upon the Stockholder until after such time as
the Merger Agreement is executed and delivered by Lucent, Sub and the
Company.
5
<PAGE> 129
IN WITNESS WHEREOF, Lucent has caused this Agreement to be signed by its
officer thereunto duly authorized and the Stockholder has signed this Agreement,
all as of the date first written above.
LUCENT TECHNOLOGIES INC.,
by /s/ PATRICIA F. RUSSO
------------------------------------
Name: Patricia F. Russo
Title: Executive Vice President,
Strategy and Corporate
Operations
STOCKHOLDERS:
/s/ DONALD K. MCKINNEY
------------------------------------
Donald K. McKinney
THE MCKINNEY FAMILY TRUST,
by /s/ DONALD K. MCKINNEY
------------------------------------
Donald K. McKinney, Trustee
6
<PAGE> 130
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
OUTSTANDING VOTING POWER OF
STOCKHOLDER SHARES OWNED THE COMPANY
- ----------- ------------ ---------------
<S> <C> <C>
Donald K. McKinney.......................................... 1,316,999(1) 2.28%
Donald K. McKinney,......................................... 14,473,465 25.07%
Trustee of the McKinney Family Trust
</TABLE>
- ---------------
(1) Includes 416,999 shares subject to options which are exercisable within 60
days of the date of this Agreement.
<PAGE> 131
ANNEX 4
MORGAN STANLEY DEAN WITTER
2725 SAND HILL ROAD
BUILDING C -- SUITE 200
MENLO PARK, CALIFORNIA
94025
(650)234-5500
August 9, 1999
Board of Directors
International Network Services
1213 Innsbruck Drive
Sunnyvale, CA 94089
Members of the Board:
We understand that International Network Services ("INS" or the "Company"),
Lucent Technologies Inc. ("Lucent") and Intrepid Merger Inc. ("Merger Sub"), a
wholly-owned subsidiary of Lucent, propose to enter into an Agreement and Plan
of Merger, substantially in the form of the draft dated as of August 9, 1999
(the "Merger Agreement") which provides, among other things, for the merger (the
"Merger") of Merger Sub with and into INS. Pursuant to the Merger, INS will
become a wholly-owned subsidiary of Lucent and each outstanding share of common
stock, par value $0.001 per share (the "INS Common Stock"), of INS, other than
shares held in treasury or held by Lucent or INS, will be converted into the
right to receive 0.8473 shares (the "Exchange Ratio") of common stock, par value
$0.01 per share (the "Lucent Common Stock"), of Lucent. The terms and conditions
of the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to the holders of shares
of INS Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of INS and Lucent, respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning INS and Lucent prepared by the
managements of INS and Lucent, respectively;
(iii) discussed the past and current operations and financial condition
and the prospects of INS, including information relating to certain
strategic, financial and operational benefits anticipated from the
Merger, with senior executives of INS;
(iv) discussed the past and current operations and financial condition and
the prospects of Lucent, including information relating to certain
strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Lucent;
(v) reviewed the pro forma impact of the Merger on the earnings per share
of Lucent;
(vi) reviewed the reported prices and trading activity for the INS Common
Stock and the Lucent Common Stock;
<PAGE> 132
Board of Directors
August 9, 1999
Page 2
(vii) compared the financial performance of INS and Lucent and the prices
and trading activity of the INS Common Stock and the Lucent Common
Stock with that of certain other comparable publicly-traded
companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(ix) reviewed and discussed with the senior managements of INS and Lucent
their strategic rationales for the Merger;
(x) participated in discussions and negotiations among representatives of
INS and Lucent and their financial and legal advisors;
(xi) reviewed the draft Merger Agreement and certain related agreements;
and
(xii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the internal financial statements and other financial
and operating data, including information derived from discussions with senior
management of INS and Lucent relating to the strategic, financial and
operational benefits, including synergies, anticipated from the Merger provided
by INS and Lucent, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
prospects of INS and Lucent. With the consent of INS, we have relied upon the
estimates of certain securities research analysts with respect to Lucent. We
have relied upon the assessment by the managements of INS and Lucent of their
ability to retain key employees of INS and Lucent. We have also relied upon,
without independent verification, the assessment by the managements of INS and
Lucent of: (i) the strategic and other benefits expected to result from the
Merger; (ii) the timing and risks associated with the integration of INS and
Lucent; and (iii) the validity of, and risks associated with, INS' and Lucent's
existing and future services, products and technologies. We have not made any
independent valuation or appraisal of the assets or liabilities or technology of
INS and Lucent, nor have we been furnished with any such appraisals.
In addition, we have assumed that the Merger will be accounted for as a
"pooling-of-interests" business combination in accordance with U.S. Generally
Accepted Accounting Principles and the Merger will be treated as a tax-free
reorganization and/or exchange, each pursuant to the Internal Revenue Code of
1986 and will be consummated in accordance with the terms set forth in the
Merger Agreement. Our opinion is necessarily based on financial, economic,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of INS in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financing services for INS and Lucent and financial advisory services for
Lucent, and have received fees for the rendering of these services. In the
ordinary course of our business we may actively trade the securities of INS and
Lucent for our own account and for the
<PAGE> 133
Board of Directors
August 9, 1999
Page 3
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is for the information of the Board of
Directors of INS and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by INS with the Securities and Exchange Commission in respect of the
Merger. In addition, this opinion does not in any manner address the prices at
which the Lucent Common Stock will actually trade at any time and we express no
recommendation or opinion as to how the holders of INS Common Stock should vote
at the shareholders' meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of INS Common Stock.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ CHARLES R. CORY
------------------------------------
Charles R. Cory
Managing Director
<PAGE> 134
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's Certificate of Incorporation provides that a director of
the registrant shall not be personally liable to the registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except, if required by the Delaware General Corporation Law, for liability (1)
for any breach of the director's duty of loyalty to the registrant or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the Delaware General Corporation Law, which concerns unlawful payments of
dividends, stock purchases or redemptions or (4) for any transaction from which
the director derived an improper personal benefit. Neither the amendment nor
repeal of such provision shall eliminate or reduce the effect of such provision
in respect of any matter occurring, or any cause of action, suit or claim that,
but for such provision, would accrue or arise prior to such amendment or repeal.
While the registrant's Certificate of Incorporation provides directors with
protection from awards for monetary damages for breach of their duty of care, it
does not eliminate such duty. Accordingly, the registrant's Certificate of
Incorporation will have no effect on the availability of equitable remedies such
as an injunction or rescission based on a director's breach of his or her duty
of care.
The registrant's Certificate of Incorporation provides that each person who
was or is made a party to or is threatened to be made a party to or is involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), 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 the registrant or is or was serving at the request of the
registrant 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, shall be indemnified and held harmless by the registrant to the fullest
extent authorized by the Delaware General Corporation Law, 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 the registrant to provide broader
indemnification rights than said law permitted the registrant 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 the registrant pay the expenses
incurred in defending any such proceeding in advance of its final disposition,
subject to the provisions of the Delaware General Corporation Law. Such rights
are not exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of the registrant's Certificate of
Incorporation or By-Laws, 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 the registrant thereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.
The registrant's Certificate of Incorporation also specifically authorizes
the registrant to maintain insurance and to grant similar indemnification rights
to employees or agents of the registrant. The directors and officers of the
registrant are covered by insurance policies indemnifying
II-1
<PAGE> 135
them against certain liabilities, including certain liabilities arising under
the Securities Act of 1933, which might be incurred by them in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Exhibit Index.
(b) Not applicable.
(c) Opinion of Morgan Stanley & Co. Incorporated, attached as Annex 4 to
the proxy statement/prospectus which is a part of this registration statement on
Form S-4.
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 value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum 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% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, 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 undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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 that time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned 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
II-2
<PAGE> 136
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 paragraph (c)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 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 of 1933, 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 of 1933 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 of
1933 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 of 1933 and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, 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 the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 137
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MURRAY HILL, STATE OF NEW
JERSEY, ON SEPTEMBER 14, 1999.
LUCENT TECHNOLOGIES INC.
(Registrant)
By: /s/ DONALD K. PETERSON
------------------------------------
Name: Donald K. Peterson
Title: Executive Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
Principal Executive Officer:
Richard A. McGinn Chairman of the Board
and 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
</TABLE>
By:
/s/ DONALD K. PETERSON
---------------------------------
(Donald K. Peterson
attorney-in-fact)*
*by power of attorney
Date: September 14, 1999
II-4
<PAGE> 138
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
2.1** Agreement and Plan of Merger dated as of August 9, 1999, by
and among the registrant, Intrepid Merger Inc. and INS
(included as Annex 1 to the proxy statement/prospectus which
is a part of this registration statement on Form S-4).
4.1* Provisions of the Certificate of Incorporation of the
registrant, as amended effective February 17, 1999, that
define the rights of security holders of the registrant
(incorporated by reference to Exhibit (3)(i) to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999).
4.2* Provisions of the By-Laws of the registrant, as amended
effective February 17, 1999, that define the rights of
security holders of the registrant (incorporated by
reference to Exhibit (3)(ii) to the registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999).
4.3* Rights Agreement between the registrant and The Bank of New
York (successor to First Chicago Trust Company of New York),
as rights agent, dated as of April 4, 1996 (incorporated by
reference to Exhibit 4.2 to Registration Statement (No.
333-00703) on Form S-1).
4.4* Amendment to Rights Agreement between the registrant and The
Bank of New York (successor to First Chicago Trust Company
of New York), dated as of February 18, 1998 (incorporated by
reference to Exhibit (10)(i)5 to the registrant's Annual
Report on Form 10-K for the period ended September 30,
1998).
4.5* Indenture dated as of April 1, 1996 between the registrant
and The Bank of New York, as trustee (incorporated by
reference to Exhibit 4A to Registration Statement (No.
333-01223) on Form S-3).
4.6 Other instruments in addition to Exhibit 4.5 which define
the rights of holders of long term debt of the registrant
and all of its consolidated subsidiaries are not filed
herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this regulation, the registrant hereby agrees to
furnish a copy of any such instrument to the Commission upon
request.
5.1 Opinion of Pamela F. Craven, Vice President -- Law and
Secretary of the registrant, as to the legality of the
securities to be issued.
8.1 Opinion of Wilson Sonsini, Goodrich & Rosati, Professional
Corporation as to certain United States federal income tax
consequences of the merger.
10.1 Stock Option Agreement dated as of August 9, 1999, by and
between INS, as issuer, and the registrant, as grantee
(included as Annex 2 to the proxy statement/ prospectus
which is a part of this registration statement on Form S-4).
10.2 Stockholder Agreement dated as of August 9, 1999, between
the registrant and Donald K. McKinney and The McKinney
Family Trust (included as Annex 3 to the proxy statement,
prospectus which is a part of this registration statement on
Form S-4).
23.1 Consent of Pamela F. Craven, Vice President -- Law and
Secretary of the registrant (included as part of Exhibit 5.1
to this registration statement).
23.2 Consent of PricewaterhouseCoopers LLP.
</TABLE>
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Wilson Sonsini, Goodrich & Rosati, Professional
Corporation (included as part of Exhibit 8.1 to this
registration statement).
23.5 Consent of Morgan Stanley & Co. Incorporated.
24.1 Powers of Attorney.
99.1 Form of Proxy Card to be mailed to holders of INS common
stock.
99.2 Opinion of Morgan Stanley & Co. Incorporated (included as
Annex 4 to the proxy statement/prospectus which is a part of
this registration statement on Form S-4).
</TABLE>
- ---------------
* Incorporated herein by reference.
** The registrant hereby agrees to furnish supplementally a copy of any omitted
schedules to this agreement to the Securities and Exchange Commission upon
its request.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF PAMELA F. CRAVEN]
SEPTEMBER 14, 1999
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Ladies and Gentlemen:
I have acted as counsel for Lucent Technologies Inc., a Delaware
corporation ("Lucent'), in connection with the preparation of a Registration
Statement on Form S-4 (the "Registration Statement") to be filed by Lucent with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933 (the "Act"). The Registration Statement relates to the
proposed issuance by Lucent of up to 64,936,712 shares (the "Shares") of its
common stock, par value $0.01 per share (together with the attached rights to
purchase junior preferred stock, the "Common Stock"), pursuant to the Agreement
and Plan of Merger (the "Merger Agreement") dated as of August 9, 1999, among
Lucent, Intrepid Merger Inc., a Delaware corporation and a wholly owned
subsidiary of Lucent ("MergerSub"), and International Network Services, a
Delaware corporation ("INS"). The Merger Agreement provides for the merger (the
"Merger") of MergerSub with and into INS, with INS surviving as a wholly owned
subsidiary of Lucent.
I have examined such corporate records, certificates and other documents as
I have considered necessary or appropriate for the purposes of this opinion. In
such examination, I have assumed the genuineness of all signatures and the
authenticity of all documents submitted to me as copies. In examining agreements
executed by parties other than Lucent and MergerSub, I have assumed that such
parties had the power, corporate or other, to enter into and perform all
obligations thereunder and also have assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents, and the validity and binding effect thereof. As to any facts
material to the opinion expressed herein which I have not independently verified
or established, I have relied upon statements and representations of officers
and representatives of Lucent and others.
Based on such examination, I am of the opinion that the Shares have been
duly authorized for issuance and, when issued in accordance with the terms and
conditions of the Merger Agreement, will be validly issued, fully paid and
non-assessable.
I hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to me and this opinion in the proxy
statement/prospectus that forms a part of the Registration Statement. In giving
such consent, I do not hereby admit that I am in the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
/s/ PAMELA F. CRAVEN
<PAGE> 1
EXHIBIT 8.1
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
September 15, 1999
International Network Services
1213 Innsbrook Drive
Sunnyvale, CA 94089
RE: MERGER AMONG LUCENT TECHNOLOGIES INC., INTREPID MERGER INC., AND
INTERNATIONAL NETWORK SERVICES
Ladies and Gentlemen:
We have acted as counsel to International Network Services, a Delaware
corporation ("INS") in connection with the proposed merger (the "Merger") among
Lucent Technologies Inc., a Delaware corporation ("Lucent"), Intrepid Merger
Inc., a Delaware corporation ("Merger Sub") and wholly-owned transitory merger
subsidiary of Lucent, and INS pursuant to an Agreement and Plan of Merger dated
as of August 9, 1999, (the "Merger Agreement"). The Merger and certain proposed
transactions incident thereto are described in the Registration Statement on
Form S-4 (the "Registration Statement") of Lucent, which includes the Proxy
Statement/Prospectus of INS and Lucent (the "Proxy Statement/Prospectus"). This
opinion is being rendered pursuant to the requirements of Item 21(a) of Form S-4
under the Securities Act of 1933, as amended. Unless otherwise indicated, any
capitalized terms used herein and not otherwise defined have the meaning
ascribed to them in the Proxy Statement/Prospectus.
In connection with this opinion, we have examined and are familiar with the
Merger Agreement, the Registration Statement, and such other presently existing
documents, records and matters of law as we have deemed necessary or appropriate
for purposes of our opinion. In addition, we have assumed (i) that the Merger
will be consummated in the manner contemplated by the Proxy Statement/Prospectus
and in accordance with the provisions of the Merger Agreement, (ii) the truth
and accuracy of the representations and warranties made by Lucent and INS in the
Merger Agreement, (iii) the truth and accuracy of the certificates of
representations to be provided to us by Lucent, INS and Merger Sub, and (iv) any
representation or statement made "to the best of knowledge," "belief," or
similarly qualified is correct without such qualification.
Based upon and subject to the foregoing, in our opinion, the discussion
contained in the Registration Statement under the caption "Material United
States Federal Income Tax Consequences of the Merger," subject to the
limitations and qualifications described therein, sets forth the material United
States Federal income tax considerations generally applicable to the Merger.
Because this opinion is being delivered prior to the Effective Time of the
Merger, it must be considered prospective and dependent on future events. There
can be no assurance that changes in the law will not take place which could
affect the United States Federal income tax consequences of the Merger or that
contrary positions may not be taken by the Internal Revenue Service.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as
Exhibit 8.1 to the Registration Statement. We also consent to the reference to
our firm name wherever appearing in the Registration Statement with respect to
the discussion of the material federal income tax consequences of the Merger,
including the Proxy Statement/Prospectus constituting a part thereof, and any
amendment thereto.
<PAGE> 2
In giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
----------------------------------------
Wilson Sonsini Goodrich & Rosati
Professional Corporation
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Lucent Technologies Inc. of our report, dated June 24,
1999, except for the seventh and eighth paragraphs of Note 15, as to which the
date is July 15, 1999 and July 19, 1999, respectively, relating to the
consolidated financial statements and financial statement schedule at September
30, 1998 and 1997 and for each of the two years in the period ended September
30, 1998 and for the nine-month period ended September 30, 1996, which appears
in Exhibit 99.1 to Lucent Technologies Inc. Current Report on Form 8-K dated
August 2, 1999. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
- -----------------------------------------------
PricewaterhouseCoopers LLP
New York, New York
September 14, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Lucent Technologies Inc. of our report dated July 23,
1999 (except Note 10 which is dated as of August 9, 1999) relating to the
consolidated financial statements and financial statement schedule appearing in
International Network Services' Annual Report on Form 10-K for the year ended
June 30, 1999. We also consent to the reference to us under the headings
"Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 14, 1999
<PAGE> 1
EXHIBIT 23.5
SEPTEMBER 14, 1999
International Network Services
1213 Innsbruck Drive
Sunnyvale, CA 94089
Dear Sirs:
We hereby consent to the use of our name and to the description of our
opinion letter, dated August 9, 1999, in, and to the inclusion of such opinion
letter as Annex 4 to, the Proxy Statement/ Prospectus of International Network
Services, constituting part of the Registration Statement on Form S-4 of Lucent
Technologics, Inc., filed with the Securities and Exchange Commission. In giving
such consent, we do not thereby admit that we come within the category of
persons whose consent is required under, or that we are experts with respect to
any part of such Registration Statement within the meaning of the term "experts"
as used in, the Securities Act of 1933, as amended, or the rules and regulations
of the Securities and Exchange Commission promulgated thereunder.
Very Truly Yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHARLES R. CORY
------------------------------------
Charles R. Cory
Managing Director
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 24th day of August, 1999.
By /s/ RICHARD A. MCGINN
------------------------------------
Richard A. McGinn
Chairman of the Board and
Chief Executive Officer
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 13th day of September, 1999.
By /s/ DONALD K. PETERSON
------------------------------------
Donald K. Peterson
Executive Vice President
and Chief Financial Officer
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 13th day of September, 1999.
By: /s/ JAMES S. LUSK
------------------------------------
James S. Lusk
Vice President and Controller
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 23rd day of August, 1999.
By /s/ PAUL A. ALLAIRE
------------------------------------
Paul A. Allaire
Director
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of August, 1999.
By /s/ CARLA A. HILLS
------------------------------------
Carla A. Hills
Director
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of August, 1999.
By /s/ DREW LEWIS
------------------------------------
Drew Lewis
Director
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 24th day of August, 1999.
By /s/ PAUL H. O'NEILL
------------------------------------
Paul H. O'Neill
Director
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of August, 1999.
By /s/ DONALD S. PERKINS
------------------------------------
Donald S. Perkins
Director
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 24th day of August, 1999.
By /s/ HENRY B. SCHACHT
------------------------------------
Henry B. Schacht
Director
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of August, 1999.
By /s/ FRANKLIN A. THOMAS
------------------------------------
Franklin A. Thomas
Director
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended, a
registration statement or registration statements (on Form S-3, Form S-4, Form
S-8 or any other appropriate Form) with respect to the issuance of common
shares, par value $.01 per share, of the Company (including the related
Preferred Share Purchase Rights), in connection with the acquisition by the
Company of International Network Services including up to 75,000 shares to be
offered under International Network Services' 401(k) Plan; and
WHEREAS, the undersigned is a director and/or officer of the Company, as
indicated below his or her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints Donald K.
Peterson and James S. Lusk and each of them, as attorneys for and in the name,
place and stead of the undersigned, and in the capacity of the undersigned as a
director and/or officer of the Company, to execute and file any such
registration statement with respect to the above-described common shares and
thereafter to execute and file any amended registration statement or statements
with respect thereto or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 31st day of August, 1999.
By /s/ JOHN A. YOUNG
------------------------------------
John A. Young Director
<PAGE> 1
EXHIBIT 99.1
INTERNATIONAL NETWORK SERVICES
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, OCTOBER 15, 1999
The undersigned stockholder of International Network Services ("INS"),
revoking all prior proxies, hereby appoints John L. Drew and Kevin J. Laughlin,
or any of them acting singly, proxies, with full power of substitution, to vote
all shares of capital stock of INS which the undersigned is entitled to vote at
the special meeting of stockholders to be held at INS' headquarters, 1213
Innsbruck Drive, Sunnyvale, California 94089, on Friday, October 15, 1999
beginning at 9:00 a.m., local time, and at any adjournments thereof, upon
matters set forth in the Notice of Special Meeting dated September 15, 1999, and
the related proxy statement/prospectus, copies of which have been received by
the undersigned, and in their discretion upon any adjournment of the meeting or
upon any other business that may properly be brought before the special meeting
by the INS board of directors. Attendance of the undersigned at the meeting or
any adjourned session thereof will not be deemed to revoke this proxy unless the
undersigned shall affirmatively indicate the intention of the undersigned to
vote the shares represented hereby in person prior to the exercise of this
proxy.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF INS. A
STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD
OF DIRECTORS NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE.
(Continued on reverse side)
(Please fill in the appropriate boxes on the other side)
<PAGE> 2
(Continued from other side)
INTERNATIONAL NETWORK SERVICES
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
1. To adopt the Agreement and Plan of Merger dated as of August 9, 1999,
among Lucent Technologies Inc., International Network Services, and a
wholly owned subsidiary of Lucent Technologies Inc.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
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The shares represented by this proxy will be voted as directed or, if no
direction is given with respect to the proposal set forth above, will be voted
for such proposal. In addition, the shares represented by this proxy will be
voted in the discretion of John L. Drew or Kevin J. Laughlin on any other
business which may properly be brought before the special meeting by the INS
board of directors.
Dated: ____________________ , 1999
Signature(s) of Stockholders
______________________________
______________________________
Please promptly complete, date and sign this proxy and mail it in the
enclosed envelope to assure representation of your shares. No postage need be
affixed if mailed in the United States. PLEASE SIGN EXACTLY AS NAME(S) APPEAR ON
THE STOCK CERTIFICATE.
If stockholder is a corporation, please sign full corporate name by
president or other authorized officer and, if a partnership, please sign in full
partnership name by an authorized partner or other persons.
Mark here if you plan to attend the meeting [ ]