<PAGE> 1
================================================================================
As filed with the Securities and Exchange Commission on March 17, 2000
Registration No. 333-31738
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
LUCENT TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3661 22-3408857
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------------------
600 MOUNTAIN AVENUE
MURRAY HILL, NEW JERSEY 07974
(908) 582-8500
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
JEAN F. RANKIN
VICE PRESIDENT - LAW
LUCENT TECHNOLOGIES INC.
600 MOUNTAIN AVENUE
MURRAY HILL, NEW JERSEY 07974
(908) 582-8500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------
Copies to:
MICHAEL J. HOLLIDAY BRIAN K. BEARD
LUCENT TECHNOLOGIES INC. GUNDERSON DETTMER STOUGH
600 MOUNTAIN AVENUE VILLENEUVE FRANKLIN & HACHIGIAN, LLP
MURRAY HILL, NEW JERSEY 07974 2700 VIA FORTUNA, SUITE 300
(908) 582-8500 AUSTIN, TEXAS 78746
(512) 732-8400
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 to be 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 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 number of the earlier effective registration statement for the
same offering. / /
<PAGE> 2
AGERE, INC.
11801 STONEHOLLOW DRIVE
SUITE 200
AUSTIN, TX 78758
March 17, 2000
Dear Stockholder:
You are cordially invited to attend our special meeting of stockholders
on April 20, 2000, at 11:00 a.m., local time, at 11801 Stonehallow Drive, Suite
200, Austin Texas.
At the special meeting, we will ask you to vote on the merger of Agere
and Lucent Technologies Inc. In the merger, you will receive:
- 0.57953 of a share of Lucent common stock for each share of
Agere common stock that you own,
- 0.60227 of a share of Lucent common stock for each share of
Agere Series A convertible preferred stock that you own, and
- cash for any fractional share of Lucent common stock which you
would otherwise receive in the merger.
Approximately 10% of the Lucent common stock that Ford Tamer, Obtek,
L.P., Eric Rothfus and each holder of Agere Series A convertible preferred stock
would otherwise be entitled to receive will be deposited in an escrow account
and may be used to compensate Lucent in the event that it is entitled to
indemnification under the merger agreement. Lucent common stock is listed on the
New York Stock Exchange under the trading symbol "LU" and on March 16, 2000,
Lucent common stock closed at $67 5/8 per share.
We cannot complete the merger unless the merger agreement is adopted
by:
- holders of a majority of the outstanding shares of Agere
common stock and Series A convertible preferred stock, voting
together as a single class, and
- holders of at least 67% of the outstanding shares of the Agere
Series A convertible preferred stock, voting as a separate
class.
Holders of Agere stock who properly preserve their rights are entitled
to an appraisal under Delaware law if the merger is completed.
On January 19, 2000, each of TL Ventures III L.P., Austin Ventures VI,
L.P., Obtek, L.P., Eric Rothfus and Ford Tamer entered into a voting agreement
with Lucent and Chip Acquisition Inc., pursuant to which they have agreed to
vote the Agere stock they own "for" adoption of the merger agreement. Each of
these persons or entities has also granted an irrevocable proxy and a power of
attorney to Lucent representatives to vote its shares of Agere stock "for"
adoption of the merger agreement. On the record date, these stockholders in the
<PAGE> 3
aggregate owned and were entitled to vote (1) 75.2% of the Agere common stock
and Series A convertible preferred stock, voting together as a single class, and
(2) 77.8% of the Agere Series A convertible preferred stock, voting as a
separate class.
Only stockholders who hold shares of Agere stock at the close of
business on March 20, 2000 will be entitled to vote at the special meeting.
YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS"
COMMENCING ON PAGE 26 OF THE ENCLOSED PROXY STATEMENT/PROSPECTUS BEFORE VOTING.
PLEASE REVIEW CAREFULLY THE ENTIRE PROXY STATEMENT/PROSPECTUS.
AFTER CAREFUL CONSIDERATION, AGERE'S BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE AND IS FAIR TO YOU AND IN YOUR BEST INTERESTS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
Thank you for your cooperation.
Sincerely,
/s/ F.G. Tamer
---------------------------------------------------
President
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 MARCH 17, 2000,
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT MARCH 22, 2000.
<PAGE> 4
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and financial
information about Lucent 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 Lucent at the following address and telephone
number:
Lucent Technologies Inc.
c/o The Bank of New York
Church Street Station
P.O. Box 11009
New York, New York 10286-1009
Telephone: 1-888-LUCENT6
If you would like to request documents, please do so by April 6, 2000
in order to receive them before the Agere special meeting.
See "Where You Can Find More Information" (page 75).
<PAGE> 5
AGERE, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 20, 2000
To the Stockholders of Agere, Inc.:
We will hold a special meeting of the stockholders of Agere, Inc. on
April 20, 2000, at 11:00 a.m., local time, at 11801 Stonehollow Drive, Suite
200, Austin, Texas, to consider and vote upon a proposal to adopt the merger
agreement among Lucent Technologies Inc., Chip Acquisition Inc., a wholly-owned
subsidiary of Lucent, and Agere.
Under the merger agreement, each outstanding share of Agere stock will
be converted into the right to receive (1) in the case of each share of common
stock, 0.57953, and (2) in the case of each share of Series A convertible
preferred stock, 0.60227, of a share of Lucent common stock.
We will transact no other business at the special meeting.
Only holders of record of shares of Agere stock at the close of
business on March 20, 2000, 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 merger agreement is adopted
by:
- holders of a majority of the outstanding shares of Agere
common stock and Series A convertible preferred stock, voting
together as a single class, and
- holders of at least 67% of the outstanding shares of the Agere
Series A convertible preferred stock, voting as a separate
class.
Holders of Agere stock who properly comply with certain statutory
requirements are entitled to an appraisal of their shares under Delaware law.
FOR MORE INFORMATION ABOUT THE MERGER, PLEASE REVIEW THE ACCOMPANYING
PROXY STATEMENT/PROSPECTUS AND THE MERGER AGREEMENT ATTACHED AS ANNEX A.
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. You may vote in person at the special meeting, even if
you have returned a proxy. 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/ F.G. Tamer
----------------------------------
Chairman
Austin, Texas
March 17, 2000
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY.......................................................................................................... 1
General ............................................................................................... 1
The Companies .......................................................................................... 3
The Special Meeting .................................................................................... 5
The Merger.............................................................................................. 6
Selected Historical Financial Data--Lucent.............................................................. 11
Selected Historical Financial Data--Agere............................................................... 14
RISK FACTORS..................................................................................................... 15
Risk Factors Relating to the Merger..................................................................... 15
Risk Factors Relating To Agere.......................................................................... 16
THE COMPANIES.................................................................................................... 19
Agere ............................................................................................... 19
Recent Developments -- Lucent........................................................................... 20
Contracts between Lucent and Agere ..................................................................... 20
THE SPECIAL MEETING
Date, Time and Place.................................................................................... 21
Purpose of Special Meeting.............................................................................. 21
Record Date; Stock Entitled to Vote; Quorum............................................................. 21
Vote Required........................................................................................... 22
Voting Agreements....................................................................................... 22
Voting of Proxies....................................................................................... 22
Revocability of Proxies................................................................................. 23
Solicitation of Proxies................................................................................. 23
Appraisal Rights........................................................................................ 23
THE MERGER....................................................................................................... 24
Background to the Merger................................................................................ 24
Reasons for the Merger and Board of Directors Recommendation............................................ 27
Interests of Agere's Directors, Management and Certain Stockholders in the Merger....................... 29
Stock Options and Restricted Stock Agreements........................................................... 30
Warrants ............................................................................................... 31
Accounting Treatment.................................................................................... 31
Form of the Merger...................................................................................... 31
Merger Consideration.................................................................................... 31
Conversion of Shares and Warrants; Procedures for Exchange of Certificates and
Warrants; Fractional Shares.................................................................... 31
Liquidation Preference.................................................................................. 33
Effective Time of the Merger............................................................................ 33
Stock Exchange Listing of Lucent Common Stock........................................................... 33
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
Certain Material United States Federal Income Tax Consequences of the Merger............................ 33
Rights of Stockholders to Appraisals.................................................................... 37
Appraisal Rights Procedures............................................................................. 38
Resale of Lucent Common Stock........................................................................... 41
THE MERGER AGREEMENT............................................................................................. 41
Conditions to the Completion of the Merger.............................................................. 41
No Solicitation......................................................................................... 44
Termination............................................................................................. 45
Conduct of Business Pending the Merger.................................................................. 45
Amendment; Extension and Waiver ....................................................................... 47
Expenses ............................................................................................... 47
Representations and Warranties ........................................................................ 48
Additional Agreements................................................................................... 49
Indemnification and Insurance........................................................................... 49
Amendments to Agere's Certificate of Incorporation...................................................... 50
Amendments to the Agere By-Laws......................................................................... 50
Working Capital Financing............................................................................... 50
Indemnification and Escrow Agreement.................................................................... 50
Intellectual Property Transfer.......................................................................... 52
Retention Agreement..................................................................................... 52
Non-Competition and Non-Solicitation Agreements......................................................... 52
Approval of the Right of Disqualified Individuals to Receive Any Amounts Payable to the
Individual on an Acceleration of Vesting......................................................................... 53
STOCK PRICES AND DIVIDENDS....................................................................................... 53
DESCRIPTION OF LUCENT CAPITAL STOCK.............................................................................. 54
COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS
OF LUCENT AND STOCKHOLDERS OF AGERE.............................................................................. 55
Capitalization.......................................................................................... 55
Voting Rights........................................................................................... 55
Number, Election, Vacancy and Removal of Directors...................................................... 56
Amendments to Certificate of Incorporation.............................................................. 57
Amendments to By-Laws................................................................................... 57
Stockholder Action...................................................................................... 58
Notice of Certain Stockholder Actions................................................................... 58
Special Stockholder Meetings............................................................................ 59
Limitation of Personal Liability of Directors and Indemnification....................................... 59
Dividends............................................................................................... 61
Liquidation............................................................................................. 62
Conversion.............................................................................................. 63
Redemption Rights....................................................................................... 63
Appraisal Rights........................................................................................ 64
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
Rights Plan............................................................................................. 65
CERTAIN INFORMATION CONCERNING AGERE............................................................................. 67
Management's Discussion and Analysis of Financial Condition and Results of Operations................... 67
LEGAL MATTERS.................................................................................................... 75
EXPERTS.......................................................................................................... 75
OTHER MATTERS.................................................................................................... 75
WHERE YOU CAN FIND MORE INFORMATION.............................................................................. 75
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS................................................................ 78
INDEX TO AGERE, INC. FINANCIAL STATEMENTS......................................................................... F-1
Annexes
Annex A Agreement and Plan of Merger
Annex B Section 262 of the Delaware General Corporation Law
Annex C Form of Voting Agreement
</TABLE>
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Q: WHY IS AGERE MERGING?
A: This is a unique opportunity for Agere to join and become part of
Lucent, one of the world's leading designers, developers and
manufacturers of communications systems, software and products, and for
Agere stockholders to become Lucent stockholders. Agere will be joining
Lucent's Microelectronics Group, one of the world's leading providers
of semiconductors for communications applications.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive:
- 0.57953 of a share of Lucent common stock for each share of
Agere common stock that you own,
- 0.60227 of a share of Lucent common stock for each share of
Agere Series A convertible preferred stock that you own, and
- cash for any fractional share of Lucent common stock you would
otherwise receive in the merger.
Certain Agere stockholders will have a portion of the Lucent stock they
would otherwise be entitled to receive deposited in an escrow account
that may be used to compensate Lucent if Lucent is entitled to
indemnification under the merger agreement.
Q: WHAT IS THE ESCROW FUND AND HOW DOES IT WORK?
A: If the merger is completed, Lucent will deposit into an escrow account
approximately 10% of the Lucent common stock to be issued to Ford
Tamer, Obtek, L.P., Eric Rothfus and each holder of Agere Series A
convertible preferred stock. The escrowed shares will be available to
compensate Lucent if it is entitled to indemnification under the merger
agreement. Any escrowed shares not used to indemnify or potentially
indemnify Lucent will be distributed to Mr. Tamer, Obtek, L.P., Mr.
Rothfus and each holder of Agere Series A convertible preferred stock
following the first anniversary of the consummation of the merger.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR ADOPTION OF
THE MERGER AGREEMENT?
A: After considering the support for the merger from its independent
directors and the other reasons set forth on pages 27 to 28, your board
of directors unanimously believes that the terms of the merger
agreement are advisable and fair to, and in the best interests of,
Agere and its stockholders.
i
<PAGE> 10
Q: WHAT IF THE MERGER IS NOT COMPLETED?
A: It is possible the merger will not be completed. That might happen if,
for example, Agere stockholders do not adopt the merger agreement.
Should that occur, none of Lucent, Agere or any third party is under
any obligation to make or consider any alternative proposal regarding
the purchase of your Agere stock.
Q: WHAT ELSE WILL HAPPEN AT THE MEETING?
A: We know of no other matters which are expected to come before the
special meeting.
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 for adoption of the merger agreement.
IF YOU ABSTAIN FROM VOTING OR DO NOT VOTE ON THE PROPOSAL, YOUR
ABSTENTION OR FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST ADOPTION OF THE MERGER AGREEMENT.
The special meeting will take place on April 20, 2000. You may attend
the special meeting and vote your shares in person, rather than
signing and mailing your proxy.
Q: WHO MAY VOTE AT THE SPECIAL MEETING?
A: All stockholders of record as of the close of business on March 20,
2000 may vote. You are entitled to one vote for each share of Agere
common stock that you own on the record date, and one vote for each
share of Agere Series A convertible preferred stock that you own on
the record date.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. If you hold your shares in your own name, 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 Agere
at the address set forth in the answer to the last question below.
Third, you can attend the special meeting and vote in person.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger has been completed, you will receive written
instructions for exchanging your stock certificates. Please do not send
in your stock certificates with your proxy.
ii
<PAGE> 11
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will be held at 11:00 a.m., local time, on April
20, 2000 at 11801 Stonehollow Drive, Suite 200, Austin, Texas.
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 second calendar quarter of 2000.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: You may seek appraisal of the fair value of your shares by complying
with all the Delaware law procedures explained on pages 37 to 41 and in
Annex B.
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:
Agere, Inc.
Attention: Elaine Hinton
11801 Stonehollow Drive, Suite 200
Austin, Texas 78758
Telephone: (512) 502-2800
iii
<PAGE> 12
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and does not contain all the information that is important
to you. For a more complete understanding of the merger, you should carefully
read this entire proxy statement/prospectus and the other documents to which we
refer you. In particular, you should read the documents attached to this proxy
statement/prospectus, including the merger agreement which is attached as Annex
A and your appraisal rights under Delaware law, which are attached as Annex B.
Also, see "Where You Can Find More Information" on page 75. We have included
page references parenthetically to direct you to a more complete description of
the topics presented in this summary.
GENERAL
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 31)
In the merger, you will receive:
- 0.57953 of a share of Lucent common stock for each share of
Agere common stock that you own,
- 0.60227 of a share of Lucent common stock for each share of
Agere Series A convertible preferred stock that you own, and
- cash for any fractional share of Lucent common stock which you
would otherwise receive in the merger.
Ford Tamer, Obtek, L.P., Eric Rothfus and each Agere Series A
convertible preferred stockholder will have approximately 10% of the Lucent
common stock they would otherwise be entitled to receive deposited in an escrow
account that may be used to compensate Lucent if it is entitled to
indemnification under the merger agreement. Any escrowed shares that are not
used to indemnify or potentially indemnify Lucent will be distributed to Mr.
Tamer, Obtek, L.P., Mr. Rothfus and each holder of Agere Series A convertible
preferred stock following the first anniversary of the consummation of the
merger.
OWNERSHIP OF LUCENT FOLLOWING THE MERGER
Based on the number of currently outstanding shares of Agere stock and
outstanding warrants to purchase Agere Series A convertible preferred stock, we
anticipate that Agere stockholders will receive approximately 7,799,455 shares
of Lucent common stock in the merger. Based on that number and on the number of
currently outstanding shares of Lucent common stock, following the merger
former Agere stockholders will own less than 1% of the outstanding shares of
Lucent common stock.
1
<PAGE> 13
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
(PAGE 33)
The merger is intended to qualify as a reorganization within the
meaning of the Internal Revenue Code of 1986. It is a condition to the
completion of the merger that Agere receive an opinion from its counsel,
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, stating that the
merger will qualify for United States federal income tax purposes as a
reorganization within the meaning of the Internal Revenue Code. If the merger
qualifies, unless you are subject to special tax treatment under the Internal
Revenue Code, you will not recognize gain or loss for United States federal
income tax purposes as a result of the exchange of your Agere stock for Lucent
common stock in the merger, except for any cash received in lieu of a fractional
share 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.
RECOMMENDATION OF THE AGERE BOARD OF DIRECTORS (PAGE 28)
The Agere board of directors believes that the terms of the merger and
the merger agreement are advisable and fair to, and in the best interests of,
Agere and its stockholders and unanimously recommends that stockholders vote
"for" 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 24 to 28 and 15 to 16.
INTERESTS OF AGERE DIRECTORS AND MANAGEMENT IN THE MERGER (PAGE 29)
Agere stockholders should note that a number of directors and officers
of Agere 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, certain indemnification arrangements for current directors and officers
of Agere will be continued and it is anticipated that employees of Agere will be
retained as employees of Lucent. It is a condition of the merger that persons
with shares of Agere common stock acquired or which will be acquired subject to
a stock option agreement or restricted stock agreement with Agere, including
Agere's directors and officers, enter into a letter agreement with Lucent which
provides that the shares previously issued or to be issued under the stock
option agreement or restricted stock agreement will be exchanged for shares of
Lucent stock, subject to the same terms, conditions, restrictions and vesting.
In addition, certain executives and other employees with shares of Agere common
stock acquired or which will be acquired subject to a stock option agreement or
restricted stock agreement with Agere will have accelerated vesting with respect
to certain rights to repurchase the shares by Agere. It is also a condition of
Lucent to the merger that disinterested Agere stockholders owning more than 75%
outstanding shares of Agere common stock and Series A convertible stock vote to
approve the right of these executives and employees to the acceleration of
vesting of their shares of Agere common stock under the Agere stock plan or the
restricted stock agreement without triggering adverse tax consequences to the
executives and employees or Agere.
2
<PAGE> 14
Additionally, based on the fulfillment of certain performance
objectives, employees working for the Network Processors business group of
Lucent's Microelectronics Group will be eligible for additional bonuses totaling
$19 million in the aggregate to be distributed during the two consecutive years
immediately following the merger. Lucent has also agreed to grant to certain
Agere employees stock options to purchase an aggregate of 200,000 shares of
Lucent common stock as of the date of the merger.
APPRAISAL RIGHTS (PAGE 23)
If you do not wish to accept Lucent common stock in the merger, you
have the right under Delaware law to have the fair value of your shares
determined by the Delaware chancery court. This right to appraisal is subject to
a number of restrictions and technical requirements.
Generally, in order to exercise your appraisal rights:
- you must send a written demand to Agere for appraisal in
compliance with Delaware law before the vote on the merger
- you must not vote in favor of the merger
- you must continuously hold your Agere stock, from the date you
make the demand for appraisal through the closing of the
merger
Merely voting against the merger will not protect your rights to an appraisal.
Annex B to this proxy statement/prospectus contains a copy of the Delaware
statute governing appraisal rights. Failure to follow all the steps required by
Delaware law will result in the loss of your rights to appraisal. The Delaware
law requirements for exercising appraisal rights are described in further detail
on pages 37 to 41.
THE COMPANIES (PAGE 19)
AGERE, INC.
11801 Stonehollow Drive, Suite 200
Austin, Texas 78758
(512) 502-2800
Agere is a development stage company which designs and plans to
manufacture programmable network processors. When incorporated into routers,
switches and network management equipment, Agere's patented Payload Plus
technology is expected to allow network system providers the ability to rapidly
develop new communication capabilities and services via software
programmability, while providing high-speed, OC-12, OC-48 and higher data
throughput. It is hoped that Agere's technology will provide network equipment
vendors the ability to process multiple protocols at OC-12, OC-48 and higher
data speeds. Agere's patented processor is intended to solve the wire speed
challenge, because its architecture is built upon a pattern matching algorithm
that is expected to allow high throughput processing with low clock rates. In
addition, Agere's Functional Programming Language is intended to allow layer
2/3/3+
3
<PAGE> 15
protocol processing instructions to be written in a high-level, intuitive
manner, thus significantly reducing the number of lines of protocol
classification/analysis and product modification source code relative to
traditional procedural language implications.
As of February 15, 2000, Agere had 78 full-time employees and 12
dedicated consultants, most of whom are located at Agere headquarters in Austin,
Texas. Agere also employs field employees in Boston, San Jose and Chicago. Agere
was incorporated in Delaware on May 29, 1998 as Austin Networks, Inc. Since its
inception, Agere has devoted its efforts principally to research and
development, raising capital and developing markets for its product.
LUCENT TECHNOLOGIES INC.
600 Mountain Avenue
Murray Hill, New Jersey 07974
(908) 582-8500
Lucent is one of the world's leading designers, developers and
manufacturers of communications systems, software and products. Lucent is a
global leader in the sale of public and private communications systems,
supplying systems and software to most of the world's largest network operators
and service providers. 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's research and development activities are conducted through
Bell Laboratories, one of the world's foremost industrial research and
development organizations.
RECENT DEVELOPMENTS -- LUCENT
On March 1, 2000, Lucent announced a plan to spin off its PBX,
SYSTIMAX(R) structured cabling and LAN-based data businesses to its
stockholders, forming a separate company that will focus directly and
independently on the enterprise networking market. The spin-off is expected to
be accomplished through a tax-free distribution of shares to Lucent's
stockholders to be completed by the close of Lucent's fourth fiscal quarter of
2000, which ends on September 30. The spin-off is subject to several conditions,
including receipt of a favorable tax ruling and the absence of events or
developments that would have a material adverse impact on Lucent or its
stockholders. The new enterprise business will have approximately 34,000
employees worldwide and will operate independently from Lucent with its own
brand, board of directors, management and research and development
organizations. For additional information, please see Lucent's current report on
Form 8-K filed March 1, 2000.
MARKET PRICE AND DIVIDEND INFORMATION (PAGE 53)
Shares of Lucent common stock are listed on the New York Stock
Exchange. On January 19, 2000, the last full trading day prior to the
public announcement of the proposed merger, the last reported sale price of one
share of Lucent common stock, as reported on the New York Stock Exchange
Composite Transactions Tape was $51-1/16. On March 16, 2000, the last day for
which information was available prior to the date of this proxy
statement/prospectus, the last reported sale price of one share of Lucent
common stock, as reported on the New York Stock Exchange Composite Transactions
Tape was $67 5/8. We are unable to provide information with
4
<PAGE> 16
respect to the market prices of the Agere stock and the equivalent per share
market prices of Lucent common stock have been omitted because there is no
established trading market for shares of Agere stock.
Lucent has historically paid to its stockholders a regular quarterly
dividend, currently $0.02 per share. The payment of dividends by Lucent in the
future will depend on business conditions, its financial position, earnings and
other factors. Agere has never paid dividends to its stockholders and its
certificate of incorporation provides that no dividend may be paid on Agere
common stock so long as any shares of Agere Series A convertible preferred stock
are outstanding.
THE SPECIAL MEETING (PAGE 21)
The special meeting of Agere stockholders will be held at 11 a.m.,
local time, on April 20, 2000. At the special meeting, all stockholders will
be asked to adopt the merger agreement among Lucent Technologies Inc., Chip
Acquisition Inc., a wholly-owned subsidiary of Lucent, and Agere.
RECORD DATE; VOTING POWER
Agere stockholders are entitled to vote at the special meeting if they
owned shares as of the close of business on March 20, 2000, the record date.
On the record date, there were outstanding 6,388,250 shares of Agere
common stock, and shares of Agere Series A convertible preferred stock.
Stockholders will have one vote at the special meeting for each share of Agere
common stock that they owned on the record date, and will have one vote for
each share of Agere Series A convertible preferred stock that they owned on the
record date, whether voting together with the common stock or as a separate
vote of each series entitled to vote.
On the record date, 85% of the outstanding shares of Agere common stock
and Series A convertible preferred stock, and 88% of the outstanding shares of
Agere Series A convertible preferred stock, were held by directors and executive
officers of Agere and their affiliates.
VOTE REQUIRED
The affirmative vote of the following is required to adopt the merger
agreement:
(1) holders of a majority of the outstanding shares of
Agere common stock and Series A convertible preferred
stock, voting together as a single class, and
(2) holders of at least 67% of the outstanding shares of
the Agere Series A convertible preferred stock,
voting as a separate class.
5
<PAGE> 17
WE CANNOT COMPLETE THE MERGER UNLESS THE MERGER PROPOSAL IS ADOPTED BY
THE REQUISITE VOTE.
VOTING AGREEMENTS
On January 19, 2000, TL Ventures III L.P., Austin Ventures VI, L.P.,
Obtek, L.P., Eric Rothfus and Ford Tamer entered into a voting agreement with
Lucent and Chip Acquisition Inc., pursuant to which they have agreed to vote the
Agere stock they own "for" approval of the merger agreement. Each of these
persons or entities has also granted an irrevocable proxy and a power of
attorney to Lucent representatives to vote that person or entity's shares of
Agere stock "for" adoption of the merger agreement. The form of the voting
agreement is attached as Annex C.
On the record date, these stockholders in the aggregate owned and were
entitled to vote (1) 75.2% of the Agere common stock and Series A convertible
preferred stock, voting together as a single class, and (2) 77.8% of the Series
A convertible preferred stock.
THE MERGER (PAGE 24)
The merger agreement is attached as Annex A to this proxy
statement/prospectus. We encourage you to read the entire merger agreement. It
is the principal document governing the merger.
CONDITIONS TO THE MERGER (PAGE 41)
Lucent and Agere will complete the merger only if they satisfy or, in
some cases, waive several conditions, including the following:
- each of the following must vote to adopt the merger agreement:
(1) holders of a majority of the outstanding shares of Agere
common stock and Series A convertible preferred stock voting
together as a single class, and (2) holders of at least 67% of
the outstanding shares of Series A convertible preferred
stock, voting as a separate class
- in the case of Lucent only, disinterested Agere holders of
more than 75% of the outstanding shares of Agere common stock
and Series A convertible preferred stock, voting together as a
single class, must vote to approve the right of certain
executives and other employees of Agere to an acceleration of
vesting of their shares of Agere common stock on or after the
merger under the Agere stock plan or any restricted stock
agreement with Agere
- no legal restraints or prohibitions are in effect with respect
to the transactions contemplated by the merger agreement
6
<PAGE> 18
- the registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, must have become effective
under the Securities Act and must not be the subject of any
stop order or proceedings seeking a stop order
- Lucent common stock to be issued in accordance with the merger
must be authorized for listing on the New York Stock Exchange,
subject to official notice of issuance
- no material adverse change in the assets, business, financial
condition or operations of either party may occur and no event
or events may occur that could reasonably be expected to have
a material adverse effect on the other party other than as a
result of (1) general economic conditions, (2) business and
economic conditions affecting the network processor
microelectronics industry, (3) liabilities incurred in
connection with the merger agreement or the transactions
contemplated by it, or (4) resulting from the announcement of
the transactions contemplated by the merger agreement
- in the case of Lucent only, Agere must purchase all the
intellectual property that is subject to certain agreements
between Obtek, L.P. and Agere
- in the case of Lucent only, each of Lucent, Obtek, L.P. and
Victor Bennett must enter into a retention agreement, and
Victor Bennett must extend the term of his consulting
arrangement with Agere so that it does not terminate until at
least two years after completion of the merger
- in the case of Lucent only, each holder of Agere stock options
or party to a restricted stock agreement must enter into a
letter agreement with Lucent which provides that Lucent will
have the right to assume Agere's rights and obligations under
the stock option or restricted stock agreement and that the
shares previously issued under the restricted stock agreement
will be substituted and exchanged for shares of Lucent stock,
subject to the same terms, conditions, restrictions and
vesting as set forth in the stock option agreement
- in the case of Agere only, Lucent must enter into a letter
agreement with Agere and Ford Tamer regarding certain payments
to employees of Agere following the merger
NO SOLICITATION (PAGE 44)
The merger agreement provides that Agere will not, and will not
authorize or permit any of its officers, directors, employees, investment
bankers, attorneys or other advisors or representatives, nor will it encourage
any of its affiliates to solicit, initiate or encourage any acquisition
proposal, enter into any agreement or understanding with respect to any
acquisition proposal, participate in any discussion or negotiation regarding any
acquisition proposal or furnish information to any person to facilitate an
acquisition proposal. Without limiting this restriction,
7
<PAGE> 19
any violation of the restriction of which Agere or any of its affiliates had
knowledge at the time of the violation, by any officer, director, employee,
investment banker, attorney, employee or other advisor or representative of
Agere or any of its affiliates, whether or not such person is purporting to act
on behalf of Agere or any of its affiliates or otherwise, will be deemed to be a
breach of the merger agreement by Agere. Agere has agreed to promptly advise
Lucent of any acquisition proposal and inquiries with respect to any acquisition
proposal.
WORKING CAPITAL FINANCING (PAGE 50)
Lucent has provided Agere with working capital loans of $7 million and
has agreed to provide up to an additional $3 million. The loans mature in
January 2005 but will become immediately due if Lucent terminates the merger
agreement after a breach by Agere.
INDEMNIFICATION AND ESCROW AGREEMENT (PAGE 50)
The merger agreement provides that 10% of the shares of Lucent common
stock to be issued to Ford Tamer, Obtek, L.P., Eric Rothfus and each holder of
Series A convertible preferred stock in the merger will be placed in escrow
after the merger is completed. The escrow account will be the only source
available to compensate Lucent for the indemnification obligations of Agere
stockholders under the merger agreement, other than for any claim of fraud. The
escrow will terminate one year after the date of the merger at which time all
shares of Lucent stock that are in the escrow account and are not the subject of
any claim by Lucent will be released from escrow. Any shares of Lucent stock
that are the subject of a claim will continue to be held in escrow until all
claims have been resolved.
INTELLECTUAL PROPERTY TRANSFER (PAGE 52)
On January 24, 2000, Obtek, L.P. transferred ownership of all the
intellectual property that had been subject to two option agreements between
Agere and Obtek, L.P. to Agere. On January 26, 2000, the full amount of the
purchase price for the intellectual property was paid by Agere.
RETENTION AGREEMENT (PAGE 52)
The merger agreement provides that Obtek, L.P. and Victor Bennett (a
limited partner of Obtek, L.P.) must enter into a retention agreement with
Lucent and an escrow agent prior to closing the merger. The retention agreement
will provide that a specified number of shares of the Lucent common stock to be
issued to Obtek, L.P. in the merger will be placed in escrow which subject to
certain events described in the retention agreement or a forfeiture of the stock
will be distributed within two years after the merger.
NON-COMPETITION AND NON-SOLICITATION AGREEMENTS (PAGE 52)
As a condition to the merger, each of Obtek, L.P., Ford Tamer, Eric
Rothfus, Victor Bennett and certain other senior executive and other employees
employed by Agere must enter
8
<PAGE> 20
into non-competition and non-solicitation agreements with Agere. Each of these
persons has agreed with Lucent and Agere that, for a specified period, the
stockholder will not, without the express written consent of Lucent, compete
with the activities currently conducted by Agere.
TERMINATION OF THE MERGER AGREEMENT (PAGE 45)
TERMINATION. The merger agreement may be terminated at any time prior
to the merger, whether before or after approval of the merger agreement by the
stockholders of Agere:
- by mutual agreement of Lucent and Agere
- by Lucent or Agere, if the merger has not been completed by
June 30, 2000
- by Lucent, Chip Acquisition or Agere, if any court of
competent jurisdiction in the United States or other United
States governmental authority issues an order, decree, ruling
or takes any other action restraining, enjoining or otherwise
prohibiting the merger and that order, decree, ruling or other
action has become final and nonappealable
- by Lucent or Agere, if the other party has materially breached
its obligations under the merger agreement, unless the breach
is cured within 15 calendar days after notice to the other
party
ACCOUNTING TREATMENT (PAGE 31)
The merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Lucent
expects a significant portion of the purchase price to be allocated to goodwill,
which will be amortized over 7 years. The merger is expected to result in a
charge against earnings for in-process research and development.
EXPENSES (PAGE 48)
Lucent and Agere will each pay its own expenses incidental to the
preparation of the merger agreement, the carrying out of the provisions of the
merger agreement and the consummation of the merger whether or not the merger is
consummated.
9
<PAGE> 21
COMPARATIVE PER SHARE INFORMATION
We have summarized below the per common share information for each of
Lucent and Agere on a historical basis and for Lucent on a pro forma basis and
Agere on a pro forma equivalent basis. On February 11, 2000, Lucent's historical
results were restated to include the results of International Network Services
and Excel Switching Corporation, which merged with Lucent in transactions that
were each accounted for as a pooling of interests. All per share data has been
restated to account for Lucent's two-for-one stock split effective on April 1,
1999. Lucent's fiscal year ends on September 30 and Agere's
fiscal year ends on December 31.
The unaudited "pro forma Lucent" and the unaudited "pro forma
equivalent--Agere" information assumes that the merger of Agere and Lucent will
be accounted for as a purchase. The unaudited "pro forma Lucent" information is
derived from the Lucent historical financial information for the periods
indicated and the historical financial information of Agere at or for the three
months ended December 31, 1999 and at or for the year ended December 31, 1999,
respectively, and assumes the merger of Lucent and Agere occurred at the
beginning of the earliest period presented.
"Pro forma Lucent" basic earnings per common share was calculated by
dividing pro forma Lucent net income, which is Lucent historical net income
combined with Agere historical net loss and includes pro forma adjustments for
the amortization of goodwill and additional compensation expense, by the
weighted average number of pro forma Lucent common shares outstanding during the
period. Pro forma Lucent common shares outstanding are the Lucent historical
weighted average number of common shares outstanding plus the Agere weighted
average number of common shares outstanding, assuming all Agere shares of common
stock, Series A redeemable convertible preferred stock and warrants outstanding
as of the date of the merger agreement were converted to Lucent common shares at
the appropriate exchange ratio.
"Pro forma Lucent" diluted earnings per common share was calculated by
dividing pro forma Lucent net income by the sum of the pro forma weighted
average number of Lucent common shares outstanding plus all additional pro forma
Lucent common shares that would have been outstanding if potentially dilutive
securities or common stock equivalents, including converted Agere stock options,
had been issued.
"Pro forma Lucent" book value per share was calculated by dividing the
sum of Lucent historical book value and the purchase price of Agere (fair value
of the net assets acquired plus goodwill) by the pro forma Lucent common shares
outstanding during the period. Lucent's results for the three-month period ended
December 31, 1999 may not be indicative of results for the full year.
The unaudited "pro forma equivalent--Agere" information was calculated
by multiplying the corresponding pro forma Lucent data by the common stock
exchange ratio of 0.57953. This information shows how each share of Agere common
stock would have participated in the net earnings, cash dividends and book value
of Lucent if the merger had been completed at the
10
<PAGE> 22
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.
STOCKHOLDERS SHOULD READ THE INFORMATION IN THIS SECTION ALONG WITH
LUCENT'S AND AGERE'S HISTORICAL FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
INCLUDED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
DESCRIBED UNDER "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 75, "CERTAIN
INFORMATION CONCERNING AGERE --MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" ON PAGE 67, AND
"AGERE'S FINANCIAL STATEMENTS" ON PAGES F-1 TO F-18.
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR THE TWELVE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 1999
------------------- -------------------
<S> <C> <C>
LUCENT -- HISTORICAL
Basic earnings per common share $0.40 $1.54
Diluted earnings per common share 0.38 1.49
Cash dividends declared per common share 0.04 0.08
Book value per common share 5.06 4.43
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE TWELVE
MONTHS ENDED
DECEMBER 31, 1999
--------------------
<S> <C>
AGERE -- HISTORICAL
Basic and diluted loss per common share $(1.84)
Cash dividends declared per common share --
Book value per common share (1.51)
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR THE TWELVE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 1999
------------------- -------------------
<S> <C> <C>
PRO FORMA LUCENT
Basic earnings per common share $0.39 $1.52
Diluted earnings per common share 0.38 1.46
Cash dividends declared per common share 0.04 0.08
Book value per common share 5.17 4.54
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR THE TWELVE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 1999
------------------- --------------------
<S> <C> <C>
PRO FORMA EQUIVALENT -- AGERE
Basic earnings per common share $0.23 $0.88
Diluted earnings per common share 0.22 0.85
Cash dividends declared per common share 0.02 0.05
Book value per common share 2.99 2.63
</TABLE>
SELECTED 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
11
<PAGE> 23
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 April 1,
1998. Lucent's results were restated to include the results of International
Network Services and Excel Switching Corporation, which merged with Lucent in
transactions that were each accounted for as a pooling of interests.
Effective October 1, 1998, Lucent changed its method of accounting for
calculating the market-related value of plan assets used in determining the
expected return-on-asset component of annual net pension and post-retirement
benefit costs. 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 $0.41 per diluted common share, for the first fiscal quarter of
1999. This accounting change also resulted in a reduction in benefit costs in
the year ended September 30, 1999 that increased income by $427 million ($260
million after-tax, or $0.08 per basic and diluted share) as compared with the
previous accounting method.
The following selected historical financial data of Lucent at September
30, 1999 and 1998, and for each of the three years in the period ended September
30, 1999 is derived from audited historical financial statements incorporated by
reference in this proxy statement/prospectus. The selected historical financial
data of Lucent at September 30, 1997 and 1996 and December 31, 1995 and for each
of the years ended September 30, 1996 and December 31, 1995, and for the
nine-month period ended September 30, 1996 is derived from unaudited 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 that data in conformity with generally accepted
accounting principles.
The selected historical financial data of Lucent at and for the three
months ended December 31, 1999 and December 31, 1998 is derived from unaudited
condensed 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 that data in conformity with
generally accepted accounting principles. Results for the three-month period
ended December 31, 1999 may not be indicative of the results for the full year.
12
<PAGE> 24
THE INFORMATION IN THIS SECTION SHOULD BE READ ALONG WITH LUCENT'S
HISTORICAL FINANCIAL STATEMENTS AND ACCOMPANYING NOTES. SEE "WHERE YOU CAN FIND
MORE INFORMATION" ON PAGE 75.
SELECTED HISTORICAL FINANCIAL DATA--LUCENT
(CONTINUED)
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE AT OR FOR THE AT OR FOR THE
THREE MONTHS TWELVE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------------ -------------------------------------------- ------------------ ------------------
INCOME STATEMENT
DATA: 1999 1998 1999 1998 1997 1996 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $9,905 $9,842 $38,774 $32,108 $27,802 $24,321 $16,726 $21,770
Operating income
(loss) 1,699 1,966 5,444 2,680 1,632 (641) 747 (911)
Income (loss)
before cumulative
effect of
accounting change 1,250 1,236 3,481 1,065 470 (596) 388 (808)
Net income
(loss) 1,250 2,544 4,789 1,065 470 (596) 388 (808)
Basic earnings
(loss) per common
share 0.40 0.83 1.54 0.35 0.16 (0.22) 0.14 (0.33)
Diluted earnings
(loss) per common
share 0.38 0.80 1.49 0.34 0.16 (0.22) 0.14 (0.33)
Dividends declared
per common share
0.04 0.04 0.08 0.078 0.056 0.038 0.038 --
BALANCE SHEET
DATA:
Total assets $38,634 $34,636 $39,250 $29,711 $25,256 $23,632 $23,632 $20,250
Total debt 6,504 6,176 7,038 4,649 4,208 4,003 4,003 4,023
Shareowners'
equity 16,079 10,878 13,936 7,960 4,570 3,479 3,479 1,925
</TABLE>
Dollars in millions, except for per share amounts
13
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA--AGERE
The following selected historical consolidated financial information of
Agere has been derived from Agere's historical consolidated financial statements
and accompanying notes, and should be read in conjunction with these
consolidated financial statements and the notes. The historical financial
statements of Agere for the period from May 29, 1998 (inception) through
December 31, 1998 and the year ended December 31, 1999 can be found in this
proxy statement/prospectus in the section entitled "Agere, Inc. Financial
Statements" on pages F-1 to F-18, and with the sections of this proxy
statement/prospectus entitled "Certain Information Concerning
Agere--Management's Discussion and Analysis of Financial Condition and Results
of Operations." These financial statements should be read in conjunction with
those financial statements and the related notes.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION MAY 29,
AT OR FOR THE YEAR 1998 THROUGH
ENDED DECEMBER 31, DECEMBER 31,
------------------ --------------------
INCOME STATEMENT
DATA: 1999 1998
---- ----
<S> <C> <C>
Revenues $ 143 $ --
Operating loss (8,615) (1,149)
Net loss (8,516) (1,108)
Net loss per common
share-basic and diluted (1.84) (0.40)
Dividends declared per
common share N/A N/A
BALANCE SHEET DATA:
Total assets $ 3,298 $7,540
Total long-term
obligations and
redeemable convertible
preferred stock 9,839 7,933
Stockholder's deficit (9,145) (791)
N/A--Not applicable
</TABLE>
Dollars in thousands, except per share amounts
14
<PAGE> 26
RISK FACTORS
In addition to the other information included and incorporated by
reference in this proxy statement/prospectus, Agere stockholders should consider
carefully the matters described below in determining whether to adopt the merger
agreement.
RISK FACTORS RELATING TO THE MERGER
- - THE EXCHANGE RATIOS FOR LUCENT COMMON STOCK TO BE RECEIVED IN THE
MERGER ARE FIXED AND WILL NOT BE ADJUSTED IN THE EVENT OF ANY CHANGE IN
STOCK PRICE. Under the merger agreement, each share of Agere stock will
be converted into the right to receive (1) in the case of common stock,
0.57953, and (2) in the case of Series A convertible preferred stock,
0.60227 of a share of Lucent common stock. These exchange ratios are
fixed numbers and will not be adjusted in the event of any increase or
decrease in the price of Lucent common stock. The price of Lucent
common stock at the closing of the merger may vary from its price on
the date of this proxy statement/prospectus and on the date of the
special meeting. The price may vary because of changes in the business,
operations or prospects of Lucent, the timing of the completion of the
merger, the prospects of post-merger operations, 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
price of Lucent common stock on the date of the special meeting may not
be indicative of its price on the date the merger is completed. We urge
Agere stockholders to obtain current market quotations for Lucent
common stock.
- - THE PRICE OF LUCENT COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT
FROM THOSE AFFECTING THE VALUE OF AGERE STOCK. Upon completion of the
merger, holders of Agere stock will become holders of Lucent common
stock. Lucent's business differs from that of Agere, and Lucent's
results of operations, as well as the price of Lucent common stock, may
be affected by factors different from those affecting Agere's results
of operations and the value of Agere stock. For a discussion of
Lucent's business and certain factors to consider in connection with
this business, see Lucent's Annual Report on Form 10-K for the fiscal
year ended September 30, 1999, as amended; Lucent's Form 8-K; dated
January 7, 2000, filed to report on estimates of lower than expected
revenue and earnings for the first fiscal quarter of 2000; and Lucent's
Form 8-K, filed on February 11, 2000, filed to restate financial
results for the merger of Lucent and International Network Services and
the merger of Lucent and Excel, which are incorporated by reference in
this proxy statement/prospectus.
- - A PORTION OF THE LUCENT COMMON STOCK TO BE RECEIVED BY CERTAIN AGERE
STOCKHOLDERS WILL BE PLACED IN ESCROW TO SATISFY INDEMNITY CLAIMS MADE
BY LUCENT UNDER THE MERGER AGREEMENT. The merger agreement provides
that Ford Tamer, Obtek, L.P., Eric Rothfus and each holder of Agere
Series A convertible preferred stock will remain liable and will
indemnify Lucent and certain other persons after the merger for any
inaccuracy in a representation or warranty and for any breach or
default by Agere of any covenants or agreements made by Agere in the
merger agreement. After the date of the merger, Lucent will cause 10%
of the shares of Lucent common stock issued to Mr. Tamer, Mr. Rothfus,
Obtek, L.P. and each holder of Series A convertible preferred stock in
connection with the
15
<PAGE> 27
merger to be deposited into an escrow account, which will be available
to it to satisfy their indemnification obligations. There can be no
assurance that Mr. Tamer, Mr. Rothfus, Obtek, L.P. or the holders of
the Agere Series A convertible preferred stock will receive any of the
shares in the escrow account should they be required to indemnify
Lucent under the terms of the merger agreement. See "The Merger
Agreement--Indemnification and Escrow Arrangement" on page 50 and "The
Merger--Merger Consideration" on page 31.
RISK FACTORS RELATING TO AGERE
As a stand-alone company, Agere's business is subject to numerous risks
and uncertainties, including those described below. Agere stockholders should
understand that these and other risks will continue to apply to Agere's business
if the merger is not consummated.
- - AGERE HAS A LIMITED OPERATING HISTORY AND HAS NOT HAD PROFITABLE
OPERATIONS. Agere was incorporated in 1998. It has a limited operating
history upon which investors may evaluate the company and its
prospects. Although Agere started shipping development systems in the
last half of 1999, it has not begun shipping its intended principal
product, integrated circuits, and it has not yet had a profitable
quarter. Agere intends to increase its operating expenses significantly
in 2000, particularly in research and development and sales and
marketing, and expects that its operating results will be adversely
affected if its revenues do not increase significantly over the same
period. Agere cannot assure you that it will be able to achieve
profitability on a quarterly or an annual basis.
- - AGERE WILL NEED ADDITIONAL FINANCING. If the merger with Lucent is not
consummated and Agere continues as a stand-alone company, Agere would
not have sufficient capital to continue its business operations as they
are now being conducted. If the merger is not consummated, Agere will
be required to obtain significant additional debt and/or equity funds
for research and development and to otherwise provide working capital
for Agere's continuing operations as a stand-alone company. While Agere
believes that it will be able to raise the funds required to finance
its operations as a stand-alone company, it cannot assure you that the
required funds will be available when needed or that they can be
obtained on terms favorable to Agere. If the required funds cannot be
obtained, Agere could be forced to revise its business plans, including
possible curtailment of its future business operations, reduction of
its planned future growth or a combination with another company on
terms less favorable than the terms governing the merger with Lucent.
- - AGERE HAS A COSTLY AND LENGTHY SALES CYCLE. Agere incurs significant
research and development and selling, general and administrative
expenses as part of its lengthy sales cycle before generating the
related revenues from a customer. If Agere's design is not selected by
a customer, Agere does not derive any revenue from this process.
Agere's lengthy sales cycle creates risks related to customer decisions
to cancel or change product plans, which could result in the loss of
anticipated sales. Achieving a "design win" with a communications
systems vendor provides no assurance that the communications systems
vendor will ultimately ship products incorporating Agere's
communications processors. It is possible that in some circumstances a
customer may cancel orders even after Agere has achieved a design win.
Agere's business, operating results and financial condition could be
materially and
16
<PAGE> 28
adversely affected if customers curtail, reduce or delay orders during
Agere's sales cycle, choose not to use Agere's products or choose not
to release products employing Agere's programmable network processor.
- - AGERE EXPECTS FLUCTUATIONS IN ITS OPERATING RESULTS. Fluctuations in
operating results are expected to occur in the future due to a variety
of factors specific to Agere. These factors include:
- ability to complete development and manufacture the initial
integrated circuits product
- changes in demand by the end user for its customers' products
- timing and amount of orders from its customers, including
cancellations and reschedulings
- the gain or loss of significant customers
- changes in the mix of products it sells
- timing of design wins with related software application and
development tool revenue
- market acceptance of its current and new products
- variability of its customers' product life cycles
- erosion of average selling prices due to a number of factors,
including Agere's customers reaching volume production, rapid
technological change, price and performance enhancements and
product obsolescence
As a result of these factors, Agere's lengthy sales cycle and its
dependence on relatively few customers whose order cycles vary
significantly, Agere expects its revenue and gross margins to fluctuate
significantly from period to period. These and other factors could
materially and adversely affect Agere's business, financial condition
and results of operations.
- - AGERE'S MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE. The network
processors industry market is characterized by rapid technological
change, frequent new product introductions, changes in customer
requirements and evolving industry standards. To remain competitive,
Agere must regularly enhance the functionality of its existing products
and introduce new products while simultaneously reducing its production
costs. Even if Agere is successful at introducing new product
functionality and reducing costs, alternative technologies may develop
which, if they achieve widespread market acceptance, could supplant
Agere's technology and make Agere's products obsolete. Agere's failure
to respond to any of these market pressures would adversely affect its
business, results of operations and financial condition.
- - AGERE RELIES ON A SMALL NUMBER OF SIGNIFICANT CUSTOMERS. Agere
anticipates that sales of its products to relatively few customers will
account for a significant portion of its total revenues. Agere has no
long-term volume purchase commitments from any of its significant
customers. Agere's dependence on a few customers increases its exposure
to potential adverse consequences resulting from business combinations
or consolidations of Agere's customers. Agere cannot assure you that
such consolidation will not result in the cancellation of current or
future sales of its products. In addition, the programmable network
processor industry may experience further consolidation in the future
and Agere cannot assure you that
17
<PAGE> 29
such consolidation would not result in product duplication and a
resulting cancellation of current projects or that such consolidation
will not materially and adversely affect Agere's business, financial
condition and results of operations.
- - AGERE OPERATES IN A COMPETITIVE INDUSTRY. A number of Agere's
competitors are more established, benefit from greater market
recognition and have substantially greater financial, development,
manufacturing and marketing resources than Agere has. Moreover, several
of the largest electronics and semiconductor suppliers have recently
entered or indicated an intent to enter the programmable network
processors market. Agere's ability to compete successfully in the
rapidly evolving area of programmable network processors depends on
factors both within and outside Agere's control, including:
- performance and price
- features and functionality
- adaptability of products to specific applications
- support of product differentiation by Agere's customers
- length of development cycle
- design wins with major communications systems vendors
- support for new communications standards and protocols
- technical service and support
Agere's failure to compete successfully as to any of these or other
factors could materially and adversely affect Agere's business,
financial condition and results of operations. To the extent that
Agere's competitors offer distributors or sales representatives more
favorable terms or a higher volume of business, such distributors or
sales representatives may decline to carry, or discontinue carrying,
Agere's products. Agere's business, financial condition and results of
operations could be materially and adversely affected by any failure to
maintain and expand its distribution network.
- - AGERE DEPENDS ON KEY PERSONNEL AND THE HIRING OF ADDITIONAL PERSONNEL .
Agere's success depends to a significant degree upon the continued
contributions of its key management, engineering, sales and marketing
and manufacturing personnel, many of whom would be difficult to
replace. In particular, Agere believes that its future success is
highly dependent on retention of a select group of managers, engineers
and sales, marketing, finance and manufacturing personnel. Agere
believes that its future success will also depend in large part upon
its ability to attract and retain these highly skilled personnel.
Competition for highly skilled personnel is intense and there can be no
assurance that Agere will be successful in retaining its existing or
attracting additional key personnel. The loss of the services of any of
Agere's key personnel, the inability to attract or retain qualified
personnel in the future or delays in hiring required personnel,
particularly engineers and sales personnel, could materially and
adversely affect Agere's business, operating results and financial
condition.
- - AGERE MAY BE UNABLE TO PROTECT ITS PROPRIETARY TECHNOLOGY. Agere relies
on a combination of copyright, trademark, patent and trade secret laws
and restrictions on disclosure to protect its intellectual property
rights. Although Agere attempts to protect its intellectual property
rights, it may be unable to prevent the misappropriation of its
intellectual property,
18
<PAGE> 30
particularly in foreign countries where the laws may not protect
Agere's proprietary rights as fully as in the United States.
In addition, other persons or companies may allege that Agere's
products infringe upon their proprietary rights. Any asserting that
Agere's products infringe upon their proprietary rights would force
Agere to defend itself or its customers, manufacturers or suppliers
against alleged infringement of intellectual property rights. Agere
could incur substantial costs to prosecute or defend this litigation.
If Agere were found to have infringed upon another person's proprietary
rights and was unable to develop non-infringing technology or license
the infringed technology on acceptable terms and on a timely basis,
Agere could be forced to stop using the infringed technology and its
business, results of operations and financial condition would be
materially adversely affected.
- - AGERE WILL NEED TO MANAGE ITS GROWTH OVER TIME. Agere has experienced a
period of rapid growth and expansion which has placed, and continues to
place, a significant strain on its resources. This growth, as well as
Agere's product development activities, has required it to increase its
number of employees, which has resulted in increased responsibilities
for Agere's management. As Agere continues to expand it may
significantly strain its management, manufacturing, financial, systems
and other resources. Agere cannot be certain that its systems,
procedures, controls and existing space will be adequate to support its
operations.
- - AGERE'S SUCCESS DEPENDS UPON ITS CUSTOMERS' ACCEPTANCE OF ITS
PROCESSORS AS AN ALTERNATIVE TO TRADITIONAL SOLUTIONS. Agere's future
prospects depend on the acceptance of programmable network processors
as an alternative to fixed-function devices and general purpose
processors traditionally used by vendors. Agere would be materially and
adversely affected if vendors do not accept programmable communications
processors or develop or acquire the technology to develop such
components internally rather than purchase Agere's products. Agere
would also be materially and adversely affected if it is otherwise
unable to develop strong vendors. Agere's future prospects also depend
upon acceptance by its customers of third party sourcing for
programmable network processors as an alternative to in-house
development.
THE COMPANIES
AGERE
Agere is a development stage company which designs and plans to
manufacture programmable network processors. When incorporated into routers,
switches and network management equipment, Agere's patented Payload Plus
technology is expected to allow network system providers the ability to rapidly
develop new communication capabilities and services via software
programmability, while providing high-speed, OC-12, OC-48 and higher data
throughput. It is hoped that Agere's technology will provide network equipment
vendors the ability to process multiple protocols at OC-12, OC-48 and higher
data speeds. Agere's patented processor is intended to solve the wire speed
challenge, because its architecture is built upon a pattern matching algorithm
that is expected to allow high throughput processing with low clock rates. In
addition, Agere's Functional Programming Language is intended to allow layer
2/3/3+ protocol processing instructions
19
<PAGE> 31
to be written in a high-level, intuitive manner, thus significantly reducing the
number of lines of protocol classification/analysis and product modification
source code relative to traditional procedural language implications.
As of February 15, 2000, Agere had 78 full-time employees and 12
dedicated consultants, most of whom are located at Agere headquarters in Austin,
Texas. Agere also employs field employees in Boston, San Jose and Chicago. Agere
was incorporated in Delaware on May 29, 1998 as Austin Networks, Inc. Since its
inception, Agere has devoted its efforts principally to research and
development, raising capital and developing markets for its product.
LUCENT
Lucent is one of the world's leading designers, developers and
manufacturers of communications systems, software and products. Lucent is a
global leader in the sale of public and private communications systems,
supplying systems and software to most of the world's largest network operators
and service providers. 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's research and development activities are conducted 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 on April 10, 1996, and became completely separate from AT&T when the
remaining shares of Lucent common stock held by AT&T were distributed to AT&T's
stockholders on September 30, 1996. 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 75.
RECENT DEVELOPMENTS -- LUCENT
On March 1, 2000, Lucent announced a plan to spin off its PBX,
SYSTIMAX(R) structured cabling and LAN-based data businesses to its
stockholders, forming a separate company that will focus directly and
independently on the enterprise networking market. The spin-off is expected to
be accomplished through a tax-free distribution of shares to Lucent's
stockholders to be completed by the close of Lucent's fourth fiscal quarter of
2000, which ends on September 30. The spin-off is subject to several conditions,
including receipt of a favorable tax ruling and the absence of events or
developments that would have a material adverse impact on Lucent or its
stockholders. The new enterprise business will have approximately 34,000
employees worldwide and will operate independently from Lucent with its own
brand, board of directors, management and research and development
organizations. For additional information, please see Lucent's current report on
Form 8-K filed March 1, 2000.
MATERIAL CONTRACTS BETWEEN LUCENT AND AGERE
Lucent has provided Agere with working capital loans of $7 million and
has agreed to provide up to an additional $3 million. The loans mature in
January 2005 but will become immediately due if Lucent terminates the merger
agreement after a breach by Agere.
20
<PAGE> 32
THE SPECIAL MEETING
We are furnishing this proxy statement/prospectus to stockholders of
Agere as part of the solicitation of proxies by the Agere board of directors for
use at the special meeting.
DATE, TIME AND PLACE
We will hold the special meeting at 11801 Stonehollow Drive, Suite
200, Austin, Texas, at 11:00 a.m., local time, on April 20, 2000.
PURPOSE OF SPECIAL MEETING
At the special meeting, we are asking holders of Agere stock to adopt
the merger agreement among Lucent Technologies Inc., Chip Acquisition Inc., a
wholly-owned subsidiary of Lucent, and Agere.
The Agere board of directors has determined that the merger is
advisable and fair to, and in the best interests of, Agere stockholders, has
unanimously approved the merger agreement and the merger, and unanimously
recommends that Agere stockholders vote "for" adoption of the merger agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Agere stock at the close of business on
March 20, 2000, the record date, are entitled to notice of and to vote at the
special meeting. On the record date, (1) 6,388,250 shares of Agere common stock
were issued and outstanding and held by 67 holders of record, and (2) 6,800,000
shares of Agere Series A convertible preferred stock were issued and
outstanding and held by 5 holders of record.
A quorum is present at the special meeting for purposes of the combined
vote of the holders of Agere common stock and Series A convertible preferred
stock (1) if a majority of the shares of Agere common stock, and (2) at least
one-third of the Series A convertible preferred stock, in each case which are
issued and outstanding and entitled to vote on the record date are represented
in person or by proxy. A quorum is present with respect to the separate class
vote of the Series A convertible preferred stockholders if the holders of a
majority of the shares of Series A convertible preferred stock are issued and
outstanding and entitled to vote on the record date are represented in person or
by proxy. In the event that either 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 Agere common stock on the record date are entitled
to one vote for each share of common stock at the special meeting. Holders of
record of Agere Series A convertible preferred stock on the record date are
entitled to one vote for each share of Agere Series A convertible preferred
stock at the special meeting whether voting together with the common stock or in
a separate vote of each class or series entitled to vote.
21
<PAGE> 33
On the record date, 85% of the outstanding shares of Agere common stock
and Series A convertible preferred stock, and 88% of the outstanding shares of
Agere Series A convertible preferred stock, were held by directors and executive
officers of Agere and their affiliates.
VOTE REQUIRED
The affirmative vote of the following is required to adopt the merger
agreement:
(1) holders of a majority of the outstanding
shares of Agere common stock and Series A
convertible preferred stock, voting together
as a single class, and
(2) holders of at least 67% of the outstanding
shares of the Agere Series A convertible
preferred stock, voting as a separate class.
IF YOU ABSTAIN FROM VOTING OR DO NOT VOTE ON THE PROPOSAL, EITHER IN
PERSON OR BY PROXY, IT WILL HAVE THE EFFECT OF A VOTE AGAINST ADOPTION OF THE
MERGER AGREEMENT. WE CANNOT COMPLETE THE MERGER UNLESS THE PROPOSAL TO ADOPT THE
MERGER AGREEMENT IS APPROVED BY THE REQUISITE VOTE.
VOTING AGREEMENTS
On January 19, 2000, each of TL Ventures III L.P., Austin Ventures VI,
L.P., Obtek, L.P., Eric Rothfus and Ford Tamer entered into a voting agreement
with Lucent and Chip Acquisition Inc. pursuant to which they have agreed to vote
the Agere stock they own "for" approval of the merger agreement. The form of the
voting agreement is attached as Exhibit C.
On the record date, these stockholders owned and were entitled to vote
(1) 75.2% of the outstanding shares of Agere common stock and Series A
convertible preferred stock, voting together as a single class, and (2) 77.8% of
the Agere Series A convertible preferred stock.
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 WITH RESPECT TO THE PROPOSAL WILL BE VOTED "FOR" ADOPTION OF THE
MERGER AGREEMENT.
Shares of Agere stock represented at the special meeting but not
voting, including abstentions, 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 voted for the proposal, including properly executed proxies
that do not contain voting instructions, will be counted as favorable votes for
adoption of the merger agreement. If an Agere stockholder abstains from voting
or does not vote, either in person or by proxy, it will have the effect of a
vote against adoption of the merger agreement.
22
<PAGE> 34
The persons named as proxies may propose and vote for one or more
adjournments or postponements of the special meeting, including adjournments or
postponements to permit further solicitation of proxies. No proxy voted against
the proposal to adopt the merger agreement will be voted in favor of any
adjournment or postponement.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude
you from voting in person at the special meeting. You may revoke a proxy at any
time prior to its exercise by filing with the secretary of Agere a duly executed
revocation of proxy, by submitting a duly executed proxy to the secretary of
Agere bearing a later date or by voting in person at the special meeting.
Attendance at the special meeting will not itself constitute revocation of a
proxy.
SOLICITATION OF PROXIES
Agere will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of Agere and its subsidiaries may solicit proxies from stockholders by
telephone or other electronic means or in person.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY. A transmittal
form with instructions for the surrender of Agere stock certificates will be
mailed to you as soon as practicable after completion of the merger.
APPRAISAL RIGHTS
If you do not wish to accept Lucent common stock in the merger, you
have the right under Delaware law to have the fair value of your shares
determined by the Delaware chancery court. This right to appraisal is subject to
a number of restrictions and technical requirements. Generally, in order to
exercise your appraisal rights:
- you must send a written demand to Agere for appraisal in
compliance with Delaware law before the vote on the merger
- you must not vote in favor of the merger
- you must continuously hold your Agere stock, from the date you
make the demand for appraisal through the closing of the
merger
Merely voting against the merger will not protect your rights to an appraisal.
Annex B to this proxy statement/prospectus contains a copy of the Delaware
statute governing appraisal rights. If you do not follow all the steps required
by Delaware law, you will lose your rights to appraisal. The Delaware law
requirements for exercising appraisal rights are described in further detail on
pages 37 to 41.
See "The Merger--Right of Stockholders to Appraisals" and "The
Merger--Appraisal Rights Procedures" on pages 37 and 38, respectively, and
"Comparison of Rights of Common Stockholders of Lucent and Stockholders of Agere
- --Appraisal Rights" on page 64.
23
<PAGE> 35
THE MERGER
The following discussion summarizes the material terms of the merger
and the merger agreement. We urge stockholders to read carefully the merger
agreement which is attached as Annex A to this proxy statement/prospectus, and
which is incorporated herein by reference.
BACKGROUND TO THE MERGER
Over the past year, representatives of Agere and Lucent's
Microelectronics Group held multiple discussions. These discussions focused on
Lucent making an equity investment in Agere or, alternatively, Lucent and Agere
pursuing certain partnering possibilities with respect to the development of
products.
On September 27, 1999, Agere retained Chase H&Q primarily to pursue a
private placement of Agere's securities and secondarily to explore the
possibility that Agere would be acquired by a third party. During the autumn of
1999, Agere focused on raising additional financing through a private placement
of its securities while also considering the possibility of being acquired.
On October 21, 1999, representatives of Agere including Ford Tamer,
President and Chief Executive Officer, Eric Rothfus, Chief Technology Officer,
Sajol Ghoshal, Vice President of Engineering, David Desjardins, Business
Development Director, and Mike Burns, a consultant to Agere, met in Allentown,
Pennsylvania with representatives of Lucent's Microelectronics Group, including
Greg Waters, Vice President, Integrated Circuits, Ed Roberts, Vice President,
Integrated Circuits, and Harold Hoeschen, Director, Strategy and Business
Development, to discuss potential joint business opportunities.
During November and the first half of December, after contacting a
limited number of financial and strategic investors regarding raising additional
capital, Agere received inquiries from and held meetings with a number of
potential strategic and financial investors to explore the possibility of
investing in or entering a strategic combination with a third party. In November
and December, Agere received term sheets from three financial investors to lead
additional equity financing, and Chase H&Q negotiated the final terms of a
non-binding term sheet with one of these potential lead investors. In November,
Agere and Chase H&Q also held discussions with a third party ("Company X")
regarding a potential strategic transaction.
On November 22, 1999, representatives of Chase H&Q spoke by telephone
with Terence Bentley, Director, Corporate Strategy and Development of Lucent to
discuss a potential strategic transaction with Lucent and set forth a framework
for initial due diligence. Prior to this conversation, Agere and Lucent entered
into a confidentiality agreement with respect to any discussions regarding a
strategic transaction. On December 10, 1999, Mr. Bentley and representatives of
Chase H&Q discussed an acquisition of Agere by Lucent and a potential price
range for such a transaction. On
24
<PAGE> 36
December 14, 1999, the Agere board of directors authorized management to pursue
the financing as set forth in the non-binding term sheet negotiated by Chase
H&Q. On December 16, 1999, Agere finalized the term sheet negotiated by Chase
H&Q for additional equity financing with a syndicate led by two financial
investors. The syndicate was to include other financial and strategic investors
and the financing was subject to negotiation of definitive documentation.
On December 15, 1999, the Lucent board of directors considered the
acquisition of Agere and after deliberation approved the transaction.
On December 15, 1999, Lucent offered to acquire all the issued and
outstanding securities of Agere. Mr. Bentley and representatives of Chase H&Q
held numerous discussions over the next week regarding the price, structure and
terms of the proposed acquisition and on December 22, 1999, Lucent offered to
acquire Agere for aggregate consideration of approximately $430 million in cash
and Lucent stock options.
On December 20, 1999, Agere received an offer from Company X to acquire
all the issued and outstanding securities of Agere. Chase H&Q and
representatives from Company X held discussions over the next several days
regarding the price, structure and terms of the proposed acquisition and on
December 22, 1999, Company X offered to acquire Agere for approximately $400
million in cash.
On December 22, 1999, Agere convened a special telephonic meeting of
its board of directors, which also was attended by representatives of Chase H&Q
and Agere's counsel Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP. The board reviewed the Lucent offer and the Company X offer. The factors
discussed by the board included the fact that the Lucent offer exceeded the
Company X offer by approximately $30 million in the aggregate, the fact that the
Company X offer was for cash while the Lucent offer included Lucent stock
options which could appreciate based on the performance of the underlying Lucent
common stock, and the significant appreciation in market price of Lucent common
stock since 1996. The board also considered the potential synergies with Agere
offered by each of Lucent and Company X. The Agere board authorized management
to postpone completion of any additional financing for Agere and to pursue the
Lucent offer.
On December 22, 1999, Agere and Lucent agreed on the principal terms of
an acquisition by Lucent of all of Agere's outstanding securities for cash and
Lucent stock options. In consideration for the considerable resources and time
expended in evaluating the transaction, Lucent and Agere entered into an
exclusivity agreement pursuant to which Agere agreed that it would not solicit
or encourage any offers or otherwise engage in any discussions with any parties
other than Lucent regarding a possible acquisition of Agere through the close of
business on January 17, 2000.
On December 28 and 29, 1999, representatives from Lucent conducted due
diligence at Agere's offices in Austin, Texas. Lucent conducted additional due
diligence in Austin, Texas on January 5, January 11, and from January 16 through
January 20, 2000. During this period, the attorneys for Lucent and Agere were
engaged in negotiating the terms of a draft merger agreement.
25
<PAGE> 37
On January 5, 2000, Mr. Bentley and representatives of Chase H&Q
discussed Lucent acquiring all the outstanding capital stock of Agere for Lucent
common stock (rather than cash and Lucent stock options as previously proposed
by Lucent) at an exchange ratio to be determined by the parties at the time of
signing but with an overall transaction value consistent with Lucent's existing
offer.
On January 14, 2000, the Lucent board of directors, by unanimous
written consent, approved the revised terms of the proposed acquisition.
On January 14, 2000, Agere received an unsolicited letter from Company
X to acquire all the capital stock of Agere for approximately $500 million in
cash and stock of Company X (based on the closing stock price of Company X on
such date).
On the evening of January 14, 2000, the Agere board of directors met to
review the unsolicited proposal from Company X and to review the status of the
Lucent discussions. The board received presentations on the two offers from
representatives of Chase H&Q and Gunderson Dettmer. The board and its financial
advisors discussed the likelihood that the transaction with Lucent would be
completed and the obligations of Agere under the exclusivity letter signed with
Lucent on December 22, 1999. The board discussed that a stock for stock exchange
would permit a tax-free reorganization, and would permit the Agere stockholders
to participate in the long-term growth of Lucent. The board noted that Company X
was still relatively new to the market place and discussed that Lucent had
considerable experience in integrating new businesses and employees into its
organization. The board discussed the relative volatility of the price for
Company X stock and the potential benefits of a merger with Lucent, including
Agere's ability to utilize hardware and software technologies developed for
other products in the Lucent Microelectronics Group's portfolio, and the Lucent
Microelectronics Group's expertise in products complementary to the products
offered or under development by Agere, including the Lucent Microelectronic
Group's optoelectronics products. After full discussion by the Agere board of
the status of the Lucent negotiations, including consideration of the continuing
progress of the due diligence process and the projected timing of the
transaction with Lucent, the Agere board directed management to continue
negotiations with Lucent.
On January 17, 2000, Agere and Lucent agreed to modify the Lucent offer
to add certain additional employee retention provisions including
additional employee cash and Lucent stock option incentives, bringing the total
aggregate value of the Lucent offer to approximately $443 million (consisting
of approximately $418 million in Lucent common stock and stock options for all
the issued and outstanding securities of Agere, approximately $2 million to be
paid to Obtek, L.P. in consideration for certain intellectual property (as
described in "Intellectual Property Transfer" on page 52), $19 million in
potential bonuses to Agere employees following the merger (as described in
"Employee Arrangements" on page 52) and approximately $4 million in Lucent
stock options to be issued to employees of Agere following the merger (as
described in "Employee Arrangements" on page 52)). On such date, the Agere
board further discussed the consideration to be paid by Lucent and reviewed the
status of the negotiations. The parties agreed to amend the exclusivity
agreement and extend the exclusivity period until 8:00 p.m. eastern time on
January 21, 2000. The board also decided to accelerate the vesting of options
held by certain executives and other employees of Agere.
26
<PAGE> 38
On January 19, 2000, Agere's board of directors met with
representatives of Chase H&Q and Gunderson Dettmer. After full discussion by the
Agere board of the status of the Lucent negotiations, the continuing progress of
the due diligence process and the reasons set forth under "Reasons for the
Merger" beginning on page 27, the Agere board authorized management to execute
the definitive merger agreement and related agreements. On January 19, 2000, the
parties signed the merger agreement.
Prior to the commencement of trading on the New York Stock Exchange on
January 20, 2000, Lucent issued a 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
Agere stockholders, the Agere board of directors consulted with management, its
financial and legal 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 Agere board of directors
in making its decision is not intended to be exhaustive but includes all
material factors considered by the Agere board of directors.
The Agere board of directors considered the following factors as
reasons that the merger will be beneficial to Agere and its stockholders:
- The access afforded to Agere's products through the Lucent
Microelectronics Group's established relationships with large
business organizations and enterprises and with major
customers, sales and marketing resources and distribution
channels.
- The belief that the merger would permit Agere to leverage
hardware and software technologies developed for other
products in the Lucent's Microelectronics Group portfolio,
including the access to the Lucent Microelectronics Group's
expertise in network processors.
- The belief that an exchange of the Agere capital stock for
shares of Lucent common stock would provide Agere stockholders
with greater future liquidity in a company that could
potentially capitalize on the business prospects of Agere and
provide a better return on stockholder investment.
- The strategic fit and complementary nature of Lucent's
Microelectronics Group SONET/SDH and ATM processors with
Agere's OC-48c programmable multiprotocol network processors
could result in significant synergy, allowing Agere and
Lucent's Microelectronics Group to offer a group of processors
that is currently not available from any other semiconductor
supplier.
27
<PAGE> 39
In the course of its deliberations, the Agere board of directors
reviewed with Agere management a number of other factors relevant to the merger.
In particular, the Agere board of directors considered, among other things:
- Information relating to the business, assets, management,
competitive position and operating performance of Agere,
including the prospects of Agere if it were to continue as an
independent company.
- The strategic importance of securing a larger partner for
Agere in order to better exploit the potential market for
programmable network processors and take advantage of Agere's
leadership position in access routing and internet VPNs.
- The market price and anticipated stability of Lucent stock.
- The likelihood that the merger would be completed.
- The expected qualification of the merger as a reorganization
under Section 368(a) of the Internal Revenue Code.
The Agere board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including:
- The risk that the operations of Lucent's Microelectronics
Group and Agere might not be successfully integrated.
- The risk that, despite the efforts of Agere and Lucent's
Microelectronics Group after the merger, key personnel might
leave Agere.
- The risk that the potential benefits of the merger might not
be fully realized.
- The risk that the market price for Lucent stock might decline.
The Agere board of directors believed that certain of these risks were
unlikely to occur, that Agere could avoid or mitigate others, and that, overall,
these risks were outweighed by the potential benefits of the merger.
In view of the variety of factors considered in connection with its
evaluation of the merger agreement and the merger, the Agere board of directors
did not find it practicable to and did not quantify or otherwise assign relative
weight to the specific factors considered in reaching its determination. In
addition, individual members of the Agere board of directors may have given
different weight to different factors.
RECOMMENDATION OF THE AGERE BOARD OF DIRECTORS. After careful
consideration, the Agere board of directors unanimously determined that the
terms of the merger agreement and the merger are advisable and fair to, and in
the best interests of, Agere and its stockholders and has unanimously approved
the merger agreement and the merger. The Agere board of directors unanimously
recommends that the stockholders of Agere vote "for" adoption of the merger
agreement.
28
<PAGE> 40
INTERESTS OF AGERE'S DIRECTORS, MANAGEMENT AND CERTAIN STOCKHOLDERS IN THE
MERGER
In considering the recommendation of the Agere board of directors in
favor of the merger, you should be aware that certain directors, executive
officers and stockholders of Agere have interests in the merger as specified in
the merger agreement that are different from, or in addition to, the interests
of stockholders of Agere generally. These interests relate to or arise from,
among other things:
- the continued indemnification of current directors and
officers of Agere
- the retention of certain current officers of Agere as
employees of Lucent
- accelerated vesting of certain rights relating to shares of
Agere common stock (or Lucent restricted stock substituted for
the Agere stock) acquired or to be acquired by certain
executives and other employees of Agere subject to stock
option agreements or restricted stock purchase agreements with
Agere
- the potential payment of additional bonuses to Agere employees
following the merger
- the granting of stock options to Agere employees to purchase
an aggregate of 200,000 shares of Lucent common stock as of
the date of the merger
Except as described below those persons have, to the knowledge of
Lucent and Agere, no material interest in the merger apart from those of
stockholders generally. The Agere board of directors was aware of, and
considered the interests of, their directors, executive officers and certain
stockholders in approving the merger agreement and the merger.
INDEMNIFICATION AND INSURANCE. The merger agreement provides that
Lucent will, or will cause the surviving corporation to, fulfill and honor the
obligations of Agere to indemnify each person who is or was a director or
officer of Agere pursuant to any indemnification provision of the Agere
certificate of incorporation or by-laws as each was in effect on the date of the
merger agreement. Lucent will maintain for six years after the merger directors'
and officers' liability insurance for acts or omissions of each person who is or
was a director or officer of Agere which occur prior to the merger under
customary terms and conditions.
AGERE EXECUTIVE EMPLOYEES. It is anticipated that Agere's executive
employees will become employees of Lucent after the merger. Lucent and Agere are
in discussions regarding the details of these executives' employment with
Lucent.
WORKING CAPITAL FINANCING. Lucent has provided Agere with working
capital loans of $7 million and has agreed to provide up to an additional $3
million. The loans mature in January 2005 but will become immediately due if
Lucent terminates the merger agreement after a breach by Agere.
EMPLOYEE BENEFITS. Lucent has agreed to provide employee benefit plans,
programs and arrangements to those individuals who will continue to be employees
of Agere after the merger that are the same as those made generally available to
similarly situated employees of Lucent's
29
<PAGE> 41
Microelectronics Group hired by Lucent after December 31, 1999. These benefits
will be made available as soon as practicable after the merger. Until these
benefits are made available, Lucent has agreed that it will provide the same
benefits that were provided to employees of Agere on January 19, 2000.
With respect to each Lucent benefit which Agere employees subsequently
participate, for purposes of eligibility to participate, vesting and vacation
entitlement (but not for accrual of pension or post retirement health benefits),
service with Agere will be treated as service with Lucent. This service will
also apply for purposes of satisfying any waiting periods, evidence of
insurability requirements, or the application of any pre-existing condition
limitations. Agere's employees will receive credit under each Lucent benefit
plan for amounts paid under a corresponding Agere benefit plan during the same
benefit period for purposes of applying deductibles, co-payments and
out-of-pocket maximums.
EMPLOYEE ARRANGEMENTS. Upon satisfaction of certain performance
objectives, employees working for the Network Processors business group of
Lucent's Microelectronics Group will be eligible for additional bonuses totaling
$19 million in the aggregate to be distributed during the two consecutive years
immediately following the merger. Lucent has also agreed to grant to certain
Agere employees stock options to purchase an aggregate of 200,000 shares of
Lucent common stock as of the date of the merger.
STOCK OPTIONS AND RESTRICTED STOCK AGREEMENTS
Under the merger agreement, at the effective time of the merger, Lucent
will assume the stock option plan of Agere and all stock options granted under
the plan. Each stock option outstanding under the plan at the effective time
will be converted into a stock option to acquire Lucent common stock on the same
terms and conditions as applied to the Agere stock option. The number of shares
of Lucent common stock to be subject to any option will be equal to the number
of shares of Agere common stock subject to that Agere option multiplied by the
0.57953 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 Agere common stock subject to that Agere option
divided by the 0.57953 exchange ratio, rounded to the nearest one hundredth of a
cent. As of January 19, 2000, the number of shares of Agere common stock
reserved for issuance pursuant to outstanding Agere stock options under the plan
was 279,000.
Additionally, following the merger, each restricted stock agreement
between an Agere stockholder and Agere will be assumed by Lucent, subject to the
same restrictions and vesting contained in the related Agere stock option plan
or restricted stock agreement.
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 Agere stock options. The registration
statement will be kept effective (and the current status of the prospectus
required by the Securities and Exchange Commission shall be maintained in
accordance with the requirements of the Securities Act of 1933 and the
Securities Exchange Act of 1934) for so long as any assumed Agere options remain
outstanding.
30
<PAGE> 42
WARRANTS
Under the merger agreement, Agere will take all actions to receive from
each holder of an outstanding warrant to purchase shares of Agere Series A
convertible preferred stock an agreement that, as of the effective time of the
merger, the warrant will be converted into a right to receive the consideration
set forth in the next sentence. Each holder of a warrant will be entitled to
receive the number of shares of Lucent common stock (rounded down to the nearest
whole share) equal to the number of shares of Agere Series A convertible
preferred stock subject to the warrant immediately prior to the effective time
of the merger multiplied by 0.14685. Lucent will pay cash (without interest) to
holders of warrants in lieu of issuing fractional shares of Lucent common stock.
ACCOUNTING TREATMENT
The merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Lucent
expects a significant portion of the purchase price to be allocated to goodwill,
which will be amortized over 7 years. The merger is expected to result in a
charge against earnings for in-process research and development.
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, Chip
Acquisition Inc., a wholly owned subsidiary of Lucent, will merge with and into
Agere. Agere will be the surviving corporation of the merger and a wholly owned
subsidiary of Lucent, and will continue under the name "AGERE, INC."
MERGER CONSIDERATION
At the effective time of the merger, each outstanding share of Agere
stock (other than shares as to which appraisal rights have been properly
exercised) will be converted into the right to receive (1) in the case of each
share of Agere common stock, 0.57953, (2) in the case of each share of Agere
Series A convertible preferred stock, 0.60227 of a share of Lucent common stock,
except that treasury stock and stock held by Chip Acquisition or Lucent its
subsidiaries will be canceled. Stockholders will receive cash for any fractional
share that they would otherwise receive in the merger. As of the effective time
of the merger, all shares of Agere stock will no longer be outstanding, will
automatically be canceled and will cease to exist. At that time, each holder of
a certificate representing shares of Agere stock (other than shares as to which
appraisal rights have been properly exercised) will cease to have any rights as
a stockholder except the right to receive Lucent common stock, the right to any
dividends or other distributions in accordance with the merger agreement and the
right to receive cash for any fractional share of Lucent common stock. The
exchange ratios were determined through arm's-length negotiations between Lucent
and Agere.
CONVERSION OF SHARES AND WARRANTS; PROCEDURES FOR EXCHANGE OF CERTIFICATES AND
WARRANTS; FRACTIONAL SHARES
The conversion of Agere stock and warrants into the right to receive
Lucent common stock will occur automatically at the effective time of the
merger. As of the effective time of the merger,
31
<PAGE> 43
Lucent will deposit with the Bank of New York (or another institution selected
by Lucent), the exchange agent, for the benefit of the holders of Agere stock
and warrants, certificates representing the shares of the Lucent common stock to
be issued pursuant to the merger agreement, less the number of shares of Lucent
common stock to be deposited in escrow accounts. As soon as practicable after
the merger, the exchange agent will send a transmittal letter to each former
Agere stockholder and warrantholder. The transmittal letter will contain
instructions for obtaining shares of Lucent common stock in exchange for shares
of Agere stock and warrants. PLEASE DO NOT SEND STOCK CERTIFICATES OR WARRANTS
WITH THE ENCLOSED PROXY.
After the merger, each certificate that previously represented shares
of Agere stock and each warrant for the purchase of Agere Series A convertible
preferred stock will represent only the right to receive the Lucent common stock
into which those shares and warrants were converted in the merger and the right
to receive cash for any fractional share of Lucent common stock as described
below.
Until holders of certificates previously representing Agere stock or
warrants for the purchase of such stock have surrendered those certificates or
warrants to the exchange agent for exchange, holders will not receive dividends
or distributions on the Lucent common stock into which those shares have been
converted with a record date after the merger, and will not receive cash for any
fractional shares of Lucent common stock. When holders surrender those
certificates or warrants, as applicable, they will receive any unpaid dividends
and any cash for any fractional share of Lucent common stock without interest.
Upon surrender of certificates previously representing Agere stock or
warrants for the purchase of Agere stock, together with the letter of
transmittal described above duly executed and such other documents as the
exchange agent may reasonably require, the holder will be entitled to receive
(1) a certificate representing the number of whole shares of Lucent common stock
into which the Agere stock or warrant, represented by the surrendered
certificates or warrants, will have been converted at the effective time of the
merger, less the number of shares of Lucent common stock to be deposited in the
escrow account, if any, on behalf of the holder, (2) cash in lieu of any
fractional share of Lucent common stock in accordance with the merger agreement,
and (3) certain dividends and distributions in accordance with the merger
agreement.
In the event of a transfer of ownership of Agere stock or warrants
which is not registered in the records of Agere's 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 or warrant so
surrendered is registered if:
- that certificate or warrant is properly endorsed and otherwise
is in proper form for transfer
- the person requesting the issuance (1) pays to the exchange
agent any transfer or other taxes resulting from the issuance
of shares of Lucent common stock in a name other than that on
the surrendered certificate or warrant, or (2) establishes to
the satisfaction of the exchange agent that tax has been paid
or is not applicable.
32
<PAGE> 44
All shares of Lucent common stock issued upon conversion of shares of
Agere stock, including any cash paid for any fractional share of Lucent common
stock, will be issued in full satisfaction of all rights relating to those
shares of Agere stock.
No fractional share of Lucent common stock will be issued to any Agere
stockholder or warrantholder upon surrender for exchange of certificates
previously representing Agere stock or warrants. In lieu of any fractional
share, the stockholder will receive cash equal to the product obtained by
multiplying (1) the closing price for a share of Lucent common stock on the New
York Stock Exchange Composite Transactions Tape on the date immediately
preceding the date on which the merger is completed by (2) the fractional share
to which the stockholder or warrantholder would otherwise be entitled.
LIQUIDATION PREFERENCE
Agere's certificate of incorporation provides that if Agere merges with
another corporation, each holder of Agere Series A convertible preferred stock
is entitled to receive from Agere $1.1764 per share of Series A convertible
preferred stock that he owns as a liquidation preference. The merger
consideration to be paid for each share of Series A convertible preferred stock
includes the payment of this liquidation preference.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of
merger with the Secretary of State of the State of Delaware, or at such later
time as stated in the certificate of merger or agreed upon by Lucent and Agere.
The filing of a certificate of merger will occur at the time of the closing of
the merger.
STOCK EXCHANGE LISTING OF LUCENT COMMON STOCK
It is a condition to the completion of the merger that Lucent common
stock issued to Agere stockholders and warrantholders in the merger be
authorized for listing on the New York Stock Exchange, subject to official
notice of issuance.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion addresses the material federal income tax
considerations relevant to the merger that may be applicable to you. The
following discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended ("IRS code"), existing treasury regulations and
current administrative rulings and court decisions, all of which are subject to
change. Any such change, which may or may not be retroactive, could alter the
tax consequences to Lucent, Agere or you and the other Agere stockholders.
You should be aware that this discussion does not deal with all federal
income tax considerations that may be relevant to particular Agere stockholders
that are subject to special rules or that may be important in light of such
stockholders' individual circumstances, such as stockholders who:
33
<PAGE> 45
- Are dealers in securities;
- Are subject to the alternative minimum tax provisions of the
IRS code;
- Are foreign persons or entities;
- Are financial institutions or insurance companies;
- Do not hold their Agere shares as capital assets;
- Acquired their shares in connection with the stock option or
stock purchase plans or in other compensatory transactions;
- Hold Agere stock as part of an integrated investment
(including a "straddle" or "conversion" transaction) comprised
of shares of Agere stock and one or more other positions; or
- May hold Agere stock subject to the constructive sale
provisions of Section 1259 of the IRS code.
In addition, the following discussion does not address:
- Tax consequences of the merger under foreign, state or local
tax laws;
- Tax consequences of transactions effectuated before, after or
concurrently with the merger (whether or not any such
transactions are undertaken in connection with the merger)
including any transaction in which Agere shares are acquired
or Lucent shares are disposed of; or
- Tax consequences to holders of options, warrants or similar
rights to acquire Agere stock, including the assumption by
Lucent of outstanding options and subscriptions to acquire
Agere stock.
ACCORDINGLY, YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO YOU.
Agere has received a tax opinion (the "Exhibit Tax Opinion") from its
counsel, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, to the
effect that the merger will be a "reorganization" within the meaning of the IRS
code. This opinion has been filed as an exhibit to the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part. As explained more fully
below, this opinion is subject to certain assumptions, limitations and
qualifications. In addition, completion of the merger is conditioned on receipt
by Agere of a tax opinion (the "Final Tax Opinion") substantially similar to the
Exhibit Tax Opinion but based on representations of Lucent, Agere and the Lucent
acquisition subsidiary, Chip Acquisition Inc. ("Acquisition") as of the date of
the closing of the merger.
34
<PAGE> 46
The following material federal income tax consequences will result from
the merger constituting a reorganization within the meaning of the IRS code:
- You should not recognize any gain or loss solely upon your
receipt in the merger of Lucent common stock in exchange for
your Agere stock.
- The aggregate tax basis of the Lucent common stock you receive
in the merger, including any fractional shares of Lucent
common stock not actually received, should be the same as the
aggregate tax basis of the Agere stock you surrendered in
exchange therefor.
- The holding period of the Lucent common stock you receive in
the merger should include the period for which the surrendered
Agere stock was considered to be held, provided that the Agere
stock so surrendered is held as a capital asset at the time of
the merger.
- Cash payments you receive in lieu of fractional shares of
Lucent common stock should be treated as if fractional shares
of Lucent common stock had been issued in the merger and then
redeemed by Lucent. If you receive cash for fractional shares,
you should recognize gain or loss with respect to such payment
measured by the difference (if any) between the amount of cash
received and the basis in the fractional share.
- If you chose to exercise dissenters' rights with respect to
your shares of Agere stock and you receive payment for such
shares in cash, you should generally recognize gain or loss
measured by the difference between the amount of cash received
and your basis in the surrendered shares, provided that the
payment is neither essentially equivalent to a dividend within
the meaning of Section 302 of the IRS Code nor has the effect
of a distribution of a dividend within the meaning of Section
356(a)(2) of the IRS Code (collectively, a "Dividend
Equivalent Transaction"). A sale of Agere stock pursuant to
the exercise of dissenters' rights will generally not be a
Dividend Equivalent Transaction if, as a result of such
exercise, you own no shares of Agere stock (either actually or
constructively within the meaning of Section 318 of the IRS
Code) immediately after the merger. If, however, your sale for
cash of Agere stock pursuant to the exercise of dissenters'
rights is a Dividend Equivalent Transaction, then you may
recognize ordinary income for federal income tax purposes in
an amount equal to the entire amount of cash so received.
- Neither Lucent, Acquisition nor Agere should recognize gain or
loss solely as a result of the merger.
Although Agere has received the Exhibit Tax Opinion and will receive
the Final Tax Opinion that the merger will be a reorganization, a recipient of
shares of Lucent common stock could recognize gain to the extent that those
shares were considered to be received in exchange for services or property other
than solely Agere stock. All or a portion of such a gain may be taxable as
ordinary income. You could also have to recognize gain to the extent you were
treated as receiving
35
<PAGE> 47
(directly or indirectly) consideration other than Lucent common stock in
exchange for your Agere stock.
Lucent and Agere will not request a ruling from the IRS in connection with the
merger. You should be aware that neither the Exhibit Tax Opinion nor the Final
Tax Opinion bind the IRS. The IRS is therefore not precluded from successfully
asserting a contrary opinion. In addition, the Exhibit Tax Opinion and Final Tax
Opinion are subject to certain assumptions, limitations and qualifications,
including the assumptions that:
- Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original
documents, and there has been (or will be by the effective
time of the merger) due execution and delivery of all
documents where due execution and delivery are prerequisites
to effectiveness thereof;
- All statements, covenants, representations and warranties in
the merger agreement, in the representations received from
Lucent, Acquisition and Agere to support the opinions, and in
other documents related to Lucent, Acquisition and Agere and
relied upon by counsel to support the opinions are, in each
case, true and accurate. Any such representation or statement
made "to the knowledge of" or otherwise similarly qualified is
correct without such qualification and all such statements and
representations, whether or not qualified, will remain true
through the effective time of the merger. In addition, as to
all matters in which a person or entity making such a
representation has represented that such person or entity
either is not a party to, does not have, or is not aware of
any plan, intention, understanding or agreement to take an
action, there is in fact no plan, intention, understanding or
agreement and such action will not be taken. All covenants
contained in the merger agreement (including exhibits thereto
and the representation letters) will be performed without
waiver or breach of any material provision thereof;
- The merger will be consummated pursuant to the merger
agreement, will be effective under the laws of the state of
Delaware, and will be reported by Lucent and Agere on their
respective federal income tax returns in a manner consistent
with the opinion set forth above;
- No Agere stockholder has guaranteed or will guarantee any
Agere indebtedness outstanding during the period immediately
prior to the merger, and at all relevant times, including as
of the effective time of the merger, (i) no outstanding
indebtedness of Agere, or Acquisition has or will represent
equity for tax purposes, (ii) no outstanding equity of Agere
or Acquisition has or will represent indebtedness for tax
purposes, and (iii) no outstanding security, instrument,
agreement or arrangement that provides for, contains, or
represents either a right to acquire Agere stock or to share
in the appreciation thereof constitutes or will constitute
"stock" for purposes of Section 368(c) of the IRS code; and
- After the merger, Agere will hold "substantially all" of its
and Acquisition's properties within the meaning of Section
368(a)(2)(E) of the IRS code and the regulations
36
<PAGE> 48
promulgated thereunder and will continue Agere's historic
business or use a significant portion of Agere's historic
assets in a business.
- A successful IRS challenge to the reorganization status of the
merger as a result of a failure to meet any of the
requirements of a reorganization would result in you
recognizing taxable gain or loss with respect to each share of
Agere stock surrendered equal to the difference between your
basis in such share and the fair market value, as of the date
the merger is completed, of the Lucent common stock received
in exchange therefor. In such event, a stockholder's aggregate
basis in the Lucent common stock so received would equal its
fair market value as of the date the merger is completed and
the stockholder's holding period for such stock would begin
the day after the merger.
Backup withholding at the rate of 31% may apply with respect to certain
cash payments received by an Agere stockholder in connection with the merger
unless either:
- the recipient is a corporation or comes with within certain
other exempt categories and, when required, demonstrates this
fact; or
- the recipient provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable
requirements of the backup withholding rules.
An Agere stockholder who does not provide Lucent with his correct taxpayer
identification number may be subject to penalties imposed by the IRS. Any
amounts withheld under the backup withholding rules may be allowed as a refund
or a credit against the holder's federal income tax liability, provided that the
required information is furnished to the IRS.
RIGHTS OF STOCKHOLDERS TO APPRAISALS
Under the Delaware General Corporation Law, any holder of Agere stock
who does not wish to accept the merger consideration in respect of his shares of
common stock has the right to dissent from the merger and to seek an appraisal
of and to be paid the fair cash value (exclusive of any element of value arising
from the accomplishment or expectation of the merger) for his or her shares of
stock, judicially determined, and paid to the stockholder in cash, together with
a fair rate of interest, if any, provided that the stockholder fully complies
with the provisions of Section 262 of the Delaware General Corporation Law. We
have attached a copy of Section 262 as Annex B to the proxy
statement/prospectus.
Making sure that you actually perfect your appraisal rights can be
complicated. The procedural rules are specific and must be followed precisely.
Failure to comply with the procedure may cause a termination of your appraisal
rights. The following information is intended as a brief summary of the material
provisions of the statutory procedures you must follow in order to perfect your
appraisal right. Please review Section 262 for the complete procedure. Agere
will not give you any notice other than as described in this proxy
statement/prospectus and as required by the Delaware General Corporation Law.
37
<PAGE> 49
APPRAISAL RIGHTS PROCEDURES
If you are an Agere stockholder and you wish to exercise your appraisal
rights, you must satisfy the provisions of Section 262 of the Delaware General
Corporation Law. Section 262 requires the following:
YOU MUST MAKE A WRITTEN DEMAND FOR APPRAISAL: You must deliver
a written demand for appraisal to Agere before the vote on the
merger agreement is taken at the special meeting. This written
demand for appraisal must be separate from your proxy. A vote
against the merger agreement will not alone constitute demand
for appraisal.
YOU MUST REFRAIN FROM VOTING FOR APPROVAL OF THE MERGER: You
must not vote for approval of the merger agreement. If you
vote, by proxy or in person, in favor of the merger agreement,
this will terminate your right to appraisal. You can also
terminate your right to appraisal if you return a signed proxy
and (1) fail to vote against approval of the merger or (2)
fail to note that you are abstaining from voting. Your
appraisal rights will be terminated even if you previously
filed a written demand for appraisal.
YOU MUST CONTINUOUSLY HOLD YOUR AGERE SHARES: You must
continuously hold your shares of Agere stock, from the date
you make the demand for appraisal through the closing of the
merger. If you are the record holder of Agere stock on the
date the written demand for appraisal is made but thereafter
transfer the shares prior to the merger, you will lose any
right to appraisal in respect of those shares. You should read
the paragraphs below for more details on making a demand for
appraisal.
A written demand for appraisal of Agere stock is only effective if it
is signed by, or for, the stockholder of record who owns such shares at the time
the demand is made. The demand must be signed as the stockholder's name appears
on their shares of Agere common stock certificate(s). If you are the beneficial
owner of Agere stock, but not the stockholder of record, you must have the
stockholder of record sign a demand for appraisal.
If you own Agere stock in a fiduciary capacity, such as a trustee,
guardian or custodian, you must disclose the fact that you are signing the
demand for appraisal in that capacity.
If you own Agere stock with more than one person, such as in a joint
tenancy or tenancy in common, all of the owners must sign, or have signed for
them, the demand for appraisal. An authorized agent, which could include one or
more of the joint owners, may sign the demand for appraisal for a stockholder of
record; however, the agent must expressly disclose who the stockholder of record
is and that the agent is signing the demand as that stockholder's agent.
If you are a record owner, such as a broker, who holds Agere stock as a
nominee for others, you may exercise a right of appraisal with respect to the
shares held for one or more beneficial owners, while not exercising such right
for other beneficial owners. In such a case, you should specify in the written
demand the number of shares as to which you wish to demand appraisal. If you
38
<PAGE> 50
do not expressly specify the number of shares, we will assume that your written
demand covers all the shares of Agere stock that are in your name.
If you are a Agere stockholder who elects to exercise approval rights,
you should mail or deliver a written demand to:
Agere, Inc.
11801 Stonehollow Drive, Suite 200
Austin, TX 78758
Attention: President
It is important that Agere receive all written demands before the vote
concerning the merger agreement is taken at the special meeting. As explained
above, this written demand should be signed by, or on behalf of, the stockholder
of record. The written demand for appraisal should specify the stockholder's
name and mailing address, the number of shares of stock owned, and that the
stockholder is thereby demanding appraisal of that stockholder's shares.
If you fail to comply with any of these conditions and the merger
becomes effective, you will only be entitled to receive the merger consideration
provided in the merger agreement.
WRITTEN NOTICE: Within ten days after the closing of the merger, Agere
must give written notice that the merger has become effective to each
stockholder who has fully complied with the conditions of Section 262.
PETITION WITH THE CHANCERY COURT: Within 120 days after the merger,
either the surviving corporation or any stockholder who has complied with the
conditions of Section 262, may file a petition in the Delaware Court of
Chancery. This petition should request that the chancery court determine the
value of the shares of stock held by all of the stockholders who are entitled to
appraisal rights. If you intend to exercise your rights of appraisal, you should
file such a petition in the chancery court. Agere has no intention at this time
to file such a petition. Because Agere has no obligation to file such a
petition, if you do not file such a petition within 120 days after the closing,
you will lose your rights of appraisal.
WITHDRAWAL OF DEMAND: If you change your mind and decide you no longer
want appraisal rights, you may withdraw your demand for appraisal rights at any
time within 60 days after the closing of the merger. You may also withdraw your
demand for appraisal rights after 60 days after the closing of your merger, but
only with the written consent of Agere. If you effectively withdraw your demand
for appraisal rights, you will receive the merger consideration provided in your
merger agreement.
REQUEST FOR APPRAISAL RIGHTS STATEMENT: If you have complied with the
conditions of Section 262, you are entitled to receive a statement from Agere.
This statement will set forth the number of shares that have demanded appraisal
rights, and the number of stockholders who own those shares. In order to receive
this statement, you must send a written request to Agere within 120 days after
the merger. After the merger, Agere has ten days after receiving a request to
mail you the statement.
39
<PAGE> 51
CHANCERY COURT PROCEDURES: If you properly file a petition for
appraisal in the chancery court and deliver a copy to Agere, Agere will then
have 20 days to provide the chancery court with a list of the names and
addresses of all stockholders who have demanded appraisal rights and have not
reached an agreement with Agere as to the value of their shares. The chancery
court will then send notice to all of the stockholders who have demanded
appraisal rights. If the chancery court thinks it is appropriate, it has the
power to conduct a hearing to determine whether the stockholders have fully
complied with Section 262 of the Delaware General Corporation Law and whether
they are entitled to appraisal rights under that section. The chancery court may
also require you to submit your stock certificates to the Registry in Chancery
so that it can note on the certificates that an appraisal proceeding is pending.
If you do not follow the chancery court's directions, you may be dismissed from
the proceeding.
APPRAISAL OF SHARES: After the chancery court determines which
stockholders are entitled to appraisal rights, the chancery court will appraise
the shares of stock. To determine the fair value of the shares, the chancery
court will consider all relevant factors except for any appreciation or
depreciation due to the anticipation or accomplishment of the merger. After the
chancery court determines the fair value of the shares, it will direct Agere to
pay that value to the stockholders who are entitled to appraisal rights. The
chancery court can also direct Agere to pay interest, simple or compound, on
that value if the chancery court determines that interest is appropriate. In
order to receive payment for your shares, you must then surrender your stock
certificates to Agere.
The chancery court could determine that the fair value of shares of
stock is more than, the same as, or less than the merger consideration. In other
words, if you demand appraisal rights, you could receive less consideration than
you would under the merger agreement. You should also be aware that an opinion
of an investment banking firm that the merger is fair is not an opinion that the
merger consideration is the same as the fair value under Section 262.
COSTS AND EXPENSES OF APPRAISAL PROCEEDING: The costs of the appraisal
proceeding may be assessed against Agere and the stockholders participating in
the appraisal proceeding, as the chancery court deems equitable under the
circumstances. You can request that the chancery court determine the amount of
interest, if any, Agere should pay on the value of stock owned by stockholders
entitled to the payment of interest. You may also request that the chancery
court allocate the expenses of the appraisal action incurred by any stockholder
pro rata against the value of all of the shares entitled to appraisal.
LOSS OF STOCKHOLDER'S RIGHTS: If you demand appraisal rights, after the
closing of the merger you will not be entitled to:
- for any purpose, vote the shares of stock for which you have
demanded appraisal rights;
- receive payment of dividends or any other distribution with
respect to such shares, except for dividends or distributions,
if any, that are payable to holders of record as of a record
date prior to the effective time of the merger; or
40
<PAGE> 52
- receive the payment of the consideration provided for in the
merger agreement (unless you properly withdraw your demand for
appraisal).
If no petition for an appraisal is filed within 120 days after the
closing of the merger, your right to an appraisal will cease. You may withdraw
your demand for appraisal and accept the merger consideration by delivering to
Agere a written withdrawal of your demand, except that (1) any attempt to
withdraw made more than 60 days after the closing of the merger will require the
written approval of Agere, and (2) an appraisal proceeding in the chancery court
cannot be dismissed unless the chancery court approves.
If you fail to comply strictly with the procedures described above you
will lose your appraisal rights. Consequently, if you wish to exercise your
appraisal rights, we strongly urge you to consult a legal advisor before
attempting to exercise your appraisal rights.
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 subject to a restricted stock agreement and shares issued to any Agere
stockholder who may be deemed to be an "affiliate" of Agere for purposes of
paragraphs (c) and (d) of Rule 145 under the Securities Act. An affiliate of
Agere is any individual or entity that directly or indirectly through one or
more intermediaries controls, is controlled by or is under common control with,
Agere or Lucent. It is expected that each affiliate will agree not to transfer
any Lucent common stock received in the merger except in compliance with the
resale provisions of Rule 145 under the Securities Act and will make no
disposition of any Lucent common stock received in connection with the merger
unless such disposition has been registered under the Securities Act, or in the
opinion of counsel reasonably acceptable to Lucent, the disposition is otherwise
exempt from registration under the Securities Act. The merger agreement requires
Agere to use its reasonable best efforts to cause its affiliates to enter into
these agreements. 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 resale.
THE MERGER AGREEMENT
The following description summarizes the material provisions of the
merger agreement. We urge stockholders to read carefully the merger agreement,
which is attached as Annex A of this proxy statement/prospectus.
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:
- each of the following must vote to adopt the merger agreement:
(1) holders of a majority of the outstanding shares of Agere
common stock and Series A convertible
41
<PAGE> 53
preferred stock voting together as a single class, and (2)
holders of at least 67% of the outstanding shares of Agere
Series A convertible preferred stock, voting as a separate
class
- in the case of Lucent only, disinterested Agere holders of
more than 75% of the outstanding shares of Agere common stock
and Series A convertible preferred stock, voting together as a
single class, must vote to approve the right of certain
executives and other employees of Agere to an acceleration of
vesting of their shares of Agere common stock on or after the
merger under the Agere stock plan or any restricted stock
agreement with Agere
- no legal restraints or prohibitions are in effect with respect
to the transactions contemplated by the merger agreement
- the registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, must have become effective
under the Securities Act and must not be the subject of any
stop order or proceedings seeking a stop order
- Lucent common stock to be issued in accordance with the merger
must be authorized for listing on the New York Stock Exchange,
subject to official notice of issuance
- no material adverse change in the assets, business, financial
condition or operations of either party may occur and no event
or events may occur that could reasonably be expected to have
a material adverse effect on the other party other than as a
result of (1) general economic conditions, (2) business and
economic conditions affecting the network processor
microelectronics industry, (3) liabilities incurred in
connection with the merger agreement or the transactions
contemplated by it, or (4) resulting from the announcement of
the transactions contemplated by the merger agreement
- in the case of Lucent only, Agere must purchase all the
intellectual property that is subject to certain agreements
between Obtek, L.P. and Agere
- in the case of Lucent only, each of Lucent, Obtek, L.P. and
Victor Bennett must enter into a retention agreement, and
Victor Bennett must extend the term of his consulting
arrangement with Agere so that it does not terminate until at
least two years after completion of the merger
- in the case of Lucent only, each holder of Agere stock options
or party to a restricted stock agreement must enter into a
letter agreement with Lucent which provides that Lucent will
have the right to assume Agere's rights and obligations under
the stock option or restricted stock agreement and that the
shares previously issued under the stock purchase agreement
will be substituted and exchanged for shares of Lucent stock,
subject to the same terms, conditions, restrictions and
vesting as set forth in the stock purchase agreement
42
<PAGE> 54
- in the case of Agere only, Lucent must enter into a letter
agreement with Agere and Ford Tamer regarding certain payments
to employees of Agere following the merger
In addition, the parties' obligation to effect the merger is further
subject to the satisfaction or waiver of various additional conditions including
the following:
- in the case of Lucent only, Agere must receive all necessary
consents to the merger
- Lucent and Chip Acquisition must receive the favorable written
opinions dated the closing date of special counsel to Agere,
in form satisfactory to Lucent and Chip Acquisition
- the escrow agreement must be entered into and each of Ford
Tamer, Eric Rothfus and Obtek, L.P. must provide their
certificates representing shares of Agere stock to Lucent to
exchange into shares of Lucent common stock and deposit a
portion of the exchanged Lucent shares into the escrow fund
- Agere and Lucent must comply with their respective agreements
and conditions in all material respects
- the respective representations and warranties of Agere and
Lucent contained in the merger agreement must be true and
correct, or true and correct in all material respects, in
accordance with the applicable standards set forth in the
merger agreement
- in the case of Agere only, Agere must receive the favorable
written opinions dated the closing date of special counsel to
Lucent and Chip Acquisition, and internal counsel to Lucent
and Chip Acquisition, each in form satisfactory to Agere, and
Agere must receive a written opinion dated the closing date of
special counsel to Agere addressing certain tax matters
- no suit, action or proceeding by any governmental entity
preventing the merger or which otherwise is reasonably likely
to have a material adverse effect on Lucent or Agere may be
pending
- all authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations
of waiting periods imposed by, any governmental or regulatory
authority must be obtained, made or occur unless the failure
to obtain, make or occur (1) would not have the effect of
making the merger or any of the transactions contemplated in
the merger agreement illegal, assuming the merger had
occurred, or (2) would not have a material adverse effect on
Lucent or Agere, assuming the merger had occurred
- Lucent and Agere each must sign and deliver letters relating
to certain tax matters
43
<PAGE> 55
- - Lucent, as the sole stockholder of Chip Acquisition, must approve the
merger agreement
- - Lucent must receive a certificate at the closing from Agere certifying
that Agere has never been and is not a United States real property
holding corporation within the meaning of Section 897(c)(2) of the
Internal Revenue Code
- - in the case of Lucent only, Agere must deliver to Lucent and Chip
Acquisition the written resignation of each director and officer of
Agere as requested in writing by Lucent
- - in the case of Lucent only, Obtek, L.P. and certain individuals of
Agere must enter into non-competition and non-solicitation agreements
with Agere, and those agreements must be in full force and effect
- - in the case of Lucent only, each of the stockholder agreements and
voting agreements entered into by the Agere stockholders prior to
January 19, 2000, and registration rights agreements entered into by
Agere and other parties thereto prior to January 19, 2000, and other
similar agreements, have been terminated either in accordance with
their terms or by Agere and each of the other parties to the agreements
The merger agreement defines a "material adverse effect" when used in
connection with Lucent or Agere as any condition or event that may:
- - have a material adverse effect on the assets, business, financial
condition or operations of Lucent or Agere, as applicable
- - materially impair the ability of Lucent or Agere to perform its
obligations under the merger agreement
- - prevent or delay the consummation of the transactions contemplated
under the merger agreement
NO SOLICITATION
The merger agreement provides that Agere will not, and will not authorize
or permit any of its officers, directors, employees, investment bankers,
attorneys or other advisors or representatives, nor will it encourage any of its
affiliates to solicit, initiate or encourage any acquisition proposal, enter
into any agreement or understanding with respect to any acquisition proposal, or
participate in any discussion or negotiation regarding any acquisition proposal
or furnish information to any person to facilitate an acquisition proposal.
Without limiting this restriction, any violation of the restriction of which
Agere or any of its affiliates had knowledge at the time of the violation, by
any officer, director, employee, investment banker, attorney, employee or other
advisor or representative of Agere or any of its affiliates, whether or not such
person is purporting to act on behalf of Agere or any of its affiliates or
otherwise, will be deemed to be a breach of the merger agreement by Agere.
44
<PAGE> 56
The merger agreement also provides that Agere will promptly advise Lucent
of any acquisition proposal and inquiries with respect to any acquisition
proposal. An acquisition proposal is any proposal for a merger or other business
combination involving Agere or any of its affiliates or any proposal or offer to
acquire in any manner, directly or indirectly, an equity interest in Agere or
any of its affiliates, any voting securities of Agere or any of its affiliates
or a substantial portion of Agere's assets (other than sales of Agere's products
in the ordinary course of business consistent with past practice).
TERMINATION
The merger agreement may be terminated at any time prior to the merger,
whether before or after approval of the merger agreement by the stockholders of
Agere:
- - by mutual agreement of Lucent and Agere
- - by Lucent or Agere, if the merger has not been completed by June 30,
2000
- - by Lucent or Agere, if any court of competent jurisdiction in the
United States or other United States governmental authority issues an
order, decree, ruling or takes any other action restraining, enjoining
or otherwise prohibiting the merger and that order, decree, ruling or
other action has become final and nonappealable
- - by Lucent or Agere, if the other party has materially breached its
obligations under the merger agreement, unless the breach is cured
within 15 calendar days after notice to the other party
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the merger agreement, Agere has agreed that, prior to the
merger, it will:
- - maintain its existence in good standing
- - maintain the general character of its business and properties and
conduct its business in the ordinary and usual manner consistent with
past practices, except as expressly permitted by the merger agreement
- - maintain business and accounting records consistent with past practices
- - use its reasonable best efforts to preserve its business intact, to
keep available the services of its present officers and employees, and
to preserve the goodwill of its suppliers, customers and others having
business relations with Agere
In addition, Agere has agreed that, subject to certain exceptions provided
in the merger agreement or approved by Lucent in writing, it will not:
- - amend or otherwise change its certificate of incorporation or by-laws
45
<PAGE> 57
- - issue, sell or authorize for issuance or sale, or grant any options or
make any other agreements with respect to, any shares of its capital
stock or other securities except for (1) the grant of stock options
under Agere's 1998 equity incentive plan to purchase up to 247,750
shares of Agere common stock at an exercise price based on the fair
market value of the shares on the date of grant with 100% of the
options becoming exercisable under restricted stock agreements on the
date of grant and subject to a right of repurchase by Agere, which
right shall lapse with respect to 25% of such shares when the optionee
completes 12 months of service from the date of grant and with respect
to 6.25% of such shares when the optionee completes each 3 months of
service thereafter, (2) in connection with the exercise of outstanding
Agere stock options or warrants, and (3) agreements with the exchange
agent which are in furtherance of the merger agreement
- - declare, set aside, make or pay any dividend or other distribution
payable in cash, stock, property or otherwise with respect to any of
its capital stock
- - reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock
- - acquire any corporation, partnership, other business organization or
any division thereof, or acquire assets with an aggregate purchase
price of more than $100,000 (or enter into or amend any contract,
agreement, commitment or arrangement with respect to the same)
- - incur any indebtedness for borrowed money (other than up to $10 million
in working capital financing from Lucent or as disclosed on schedules
to the merger agreement or for indebtedness in aggregate principal
amount of $100,000 or less) or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or
advances, except for certain interest and fees on indebtedness set
forth in the merger agreement incurred in the ordinary course of
business and consistent with past practice
- - enter into or amend any contract or agreement in excess of $100,000
other than in the ordinary course of business and consistent with past
practice
- - authorize any capital commitment which is in excess of $200,000 or
capital expenditures which are, in the aggregate, in excess of $500,000
- - mortgage, pledge or subject to lien, any of its assets or properties or
agree to do so except for certain permitted liens
- - assume, guarantee or otherwise become responsible for the obligations
of any other person or agree to so do
- - enter into or agree to enter into or terminate prior to the expiration
date any employment agreement
46
<PAGE> 58
- - (1) increase the compensation or benefits payable or to become payable
to its officers or employees, except for increases in accordance with
past practices in salaries or wages of employees of Agere who are not
officers of Agere, (2) grant any severance or termination pay to, or
enter into any severance agreement with any director, officer or other
employee of Agere, or (3) establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
such director, officer or employee
- - take any action, other than in the ordinary course of business and
consistent with past practice, with respect to accounting policies or
procedures
- - make any material tax election or settle or compromise any material
federal, state, local or foreign income tax liability
- - settle or compromise any pending or threatened suit, action or claim
which is material or which relates to any of the transactions
contemplated by the merger agreement
- - pay, discharge or satisfy any claim, liability or obligation, other
than (1) the payment, discharge or satisfaction, in the ordinary course
of business and consistent with past practice, of liabilities reflected
or reserved against in the audited balance sheets of Agere as of
December 31, 1998 or subsequently incurred in the ordinary course of
business and consistent with past practice and (2) other claims,
liabilities or obligations that do not exceed $50,000
- - except in connection with the sale or licensing of Agere's products in
the ordinary course of business and consistent with past practice,
sell, assign, transfer, license, sublicense, pledge or otherwise
encumber any of Agere's intellectual property rights
- - announce an intention to do any of the foregoing
AMENDMENT; EXTENSION AND WAIVER
Subject to applicable law:
- - except as provided in Section 251(d) of the Delaware General
Corporation Law, the merger agreement may be amended, modified or
supplemented by the parties in writing at any time prior to the
effective time of the merger notwithstanding approval of such
amendment, modification or supplementation by the stockholders of Agere
or Chip Acquisition as applicable
- - waiver of a compliance or consent with respect to the merger agreement
must be in a writing signed by Lucent, Chip Acquisition and Agere.
47
<PAGE> 59
EXPENSES
Lucent and Agere will each pay its own expenses incidental to the merger
and the preparation of the merger agreement, whether or not the merger is
consummated.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to, among other things:
- - corporate organization and similar corporate matters of Lucent and
Agere
- - subsidiaries of Agere
- - the capital structure of Lucent and Agere
- - 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 Lucent, Chip Acquisition and Agere
- - documents filed by Lucent with the Securities and Exchange Commission,
the accuracy of information contained in those documents and the
absence of undisclosed liabilities of Lucent expected to have material
adverse effect on Lucent and its subsidiaries taken as a whole
- - financial statements provided by Agere to Lucent, the fairness of those
financial statements and the absence of undisclosed liabilities of
Agere
- - the accuracy of information supplied by each of Lucent and Agere in
connection with this proxy statement/prospectus and the registration
statement of which it is a part
- - absence of material changes or events concerning Lucent and Agere
- - compliance with applicable laws by Agere
- - matters relating to the benefit plans of Agere
- - matters relating to the Employee Retirement Income Security Act for
Agere
- - filing of tax returns and payment of taxes by Agere
- - required stockholder vote of Agere
- - matters relating to the Agere 1998 stock plan and restricted stock
agreements
- - absence of actions by Lucent or Agere that would prevent the merger
from qualifying as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code
48
<PAGE> 60
- - engagement and payment of fees of brokers, investment bankers and
financial advisors by each of Lucent and Agere
- - intellectual property and year 2000 matters of Agere
- - outstanding and pending material litigation of each of Lucent and Agere
- - good and valid title to property of Agere
- - certain leases and contracts entered into by Agere and absence of
default by Agere under those leases and contracts
- - bank accounts, letters of credit and power of attorneys of Agere
- - affiliate transactions of Agere
- - insurance matters
- - certain employment matters regarding Agere
- - the assets and properties of Agere and their condition
- - liability of Agere under environmental laws
ADDITIONAL AGREEMENTS
The merger agreement contains certain other agreements, relating to, among
other things:
- - actions to be taken by Agere and Lucent relating to the assumption of
Agere's 1998 equity incentive plan and restricted stock agreements by
Lucent
- - employee benefits plans, programs and arrangements to be provided by
Lucent
- - indemnification by Lucent of directors and officers of Agere and
maintenance by Lucent of directors' and officers' liability insurance
as described below under the caption "--Indemnification and Insurance."
- - indemnification of Lucent pursuant to an escrow agreement described
below under the caption "--Indemnification and Escrow Agreement."
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Lucent will, or will cause the
surviving corporation to, fulfill and honor in all respects the obligations of
Agere to indemnify each person who is or was a director or officer of Agere or
any of its subsidiaries pursuant to any indemnification provision of the
certificate of incorporation or by-laws or equivalent constituent documents of
Agere as each was in
49
<PAGE> 61
effect on the date of the merger agreement. Lucent will maintain for six years
after the merger directors' and officers' liability insurance for acts or
omissions of each person who is or was a director or officer of Agere which
occur prior to the merger under customary terms and conditions.
AMENDMENTS TO AGERE'S CERTIFICATE OF INCORPORATION
As of the effective time of the merger, the certificate of incorporation of
Chip Acquisition, as in effect immediately prior to the merger, will be the
certificate of incorporation of the surviving corporation except that it will be
amended to provide that the name of the surviving corporation is AGERE, INC. For
a summary of certain provisions of the current Agere certificate of
incorporation and the associated rights of Agere stockholders, see "Comparison
of Rights of Common Stockholders of Lucent and Stockholders of Agere" on page
55.
AMENDMENTS TO THE AGERE BY-LAWS
The merger agreement provides that the by-laws of Chip Acquisition, as in
effect immediately prior to the merger, will be the by-laws of the surviving
corporation following the merger. For a summary of certain provisions of the
current Agere by-laws and the associated rights of Agere stockholders, see
"Comparison of Rights of Common Stockholders of Lucent and Stockholders of
Agere" on page 55.
WORKING CAPITAL FINANCING
Lucent has agreed to provide to Agere up to $10 million for working
capital financing so long as providing the financing does not cause Agere to
have total assets (as defined in the regulations to the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended) of $10 million or more. Lucent
provided $5 million of this financing on January 24, 2000 and $2 million of this
financing on February 25, 2000. Agere used a portion of this financing to
purchase certain intellectual property from Obtek, L.P.
All working capital loans will bear interest at a rate of 6.12% per annum
and will mature in January 2005. If the merger agreement is terminated by Lucent
because Agere materially breaches its obligations under the merger agreement,
Lucent may declare the loans immediately due and payable.
INDEMNIFICATION AND ESCROW AGREEMENT
The merger agreement provides that 10% of the shares of Lucent common
stock to be issued to Ford Tamer, Obtek, L.P., Eric Rothfus and each holder of
Agere Series A convertible preferred stock in the merger will be placed in
escrow with an escrow agent after the merger is completed. The number of shares
of Lucent common stock to be received by Mr. Tamer, Obtek, L.P., Mr. Rothfus and
the Agere Series A convertible preferred stockholders will be reduced by
approximately 10% of the shares of Lucent common stock such stockholders would
otherwise be entitled to receive. The escrow account will be the only source
available to compensate Lucent for the indemnification obligations of each
holder of Agere stock under the merger agreement, other than for any claim of
fraud.
50
<PAGE> 62
Mr. Tamer, Obtek, L.P., Mr. Rothfus and each holder of Agere Series A
convertible preferred stock have agreed to indemnify Lucent, its affiliates and
their respective officers, directors, employees, agents and advisors, from and
against any and all damages (including reasonable legal fees) arising out of (1)
any inaccuracy in any representation or warranty made by Agere in the merger
agreement, and (2) any breach or default by Agere of any of the covenants or
agreements given or made by it in the merger agreement. Other than claims for
any inaccuracy in Agere representations with respect to intellectual property
and that its products are Y2K compliant, Lucent may not seek indemnification
until the aggregate amount of all damages for which Lucent is seeking
indemnification is at least $500,000, in which case Lucent may seek
indemnification under clause (1) for damages in excess of that amount.
The escrow fund will terminate on the first anniversary of the closing
date of the merger. At that time, the remaining Lucent common stock in the
escrow fund will be distributed to the stockholders whose stock was deposited in
the escrow fund in accordance with each stockholder's percentage of the escrow
fund, except that escrowed shares as to which Lucent has made a claim before the
first anniversary and which claim is unresolved will not be released until the
claim is resolved. No shares may be released from the escrow fund to any
stockholder until that stockholder has delivered his certificate formerly
representing Agere stock to the exchange agent in accordance with the merger
agreement.
The merger agreement provides that Mr. Tamer has been appointed as
representative for the Agere stockholders which have stock deposited in the
escrow fund to take all actions necessary or appropriate in his judgment for the
accomplishment of the terms of the merger agreement. The holders of a majority
in interest of the shares of Lucent common stock held in the escrow fund may
replace the stockholders' representative upon not less than 10 days' prior
written notice to Lucent. The stockholders' representative will not be required
to provide a bond and will not receive any compensation for his services.
Notices of communications to or from the stockholders' representative will
constitute notice to or from each of the Agere stockholders which have stock
deposited in the escrow fund. If Mr. Tamer is no longer willing or able to
perform the duties of stockholders' representative, a new stockholders'
representative shall be chosen by holders of a majority in interest of the
shares of Lucent common stock held in the escrow fund.
The stockholders' representative will not be liable for any act done or
omitted in that capacity while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted pursuant to the advice of
counsel will be conclusive evidence of such good faith. Agere stockholders which
have stock deposited in the escrow fund will severally indemnify the
stockholders' representative and hold him harmless against any loss, liability
or expense (including any expenses of legal counsel) incurred without gross
negligence or bad faith on his part and arising out of or in connection with the
acceptance or administration of his duties.
Any decision, act, consent or instruction of the stockholders'
representative will constitute a decision of all Agere stockholders which have
stock deposited in the escrow fund and will be final, binding and conclusive
upon each of these stockholders, and the escrow agent and Lucent may rely upon
any decision, act, consent or instruction of the Agere stockholder's
representative. The escrow agent and Lucent are relieved from any liability to
any person for acts done by them in accordance with such decision, act, consent
or instruction of the stockholders' representative.
51
<PAGE> 63
INTELLECTUAL PROPERTY TRANSFER
On January 24, 2000, Obtek, L.P. transferred ownership of all the
intellectual property that had been subject to two option agreements between
Agere and Obtek, L.P to Agere. On January 26, 2000, the full amount of the
purchase price for the intellectual property was paid by Agere.
RETENTION AGREEMENT
The merger agreement provides that Obtek, L.P. and Victor Bennett (a
limited partner of Obtek, L.P.) must enter into a retention agreement with
Lucent and an escrow agent prior to the time of the merger. The retention
agreement will provide that a specified number of shares of the Lucent common
stock to be issued to Obtek, L.P. in the merger will be placed in escrow with
the escrow agent on the date of the merger. Subject to certain events set forth
in the retention agreement or a forfeiture of the shares to Lucent under the
terms of the retention agreement, the escrow agent will distribute 50% of the
stock in escrow to Obtek, L.P. one year after the merger, and the remainder to
Obtek, L.P. two years after the merger. Events which would cause a forfeiture of
the stock in escrow to Lucent will include, but are not limited to, the
termination by Mr. Bennett of his consulting relationship with Agere without
good reason and Agere's termination of Mr. Bennett's consulting relationship
with it for cause.
EMPLOYEE ARRANGEMENTS
Upon satisfaction of certain performance objectives, employees working for
the Network Processors business group of Lucent's Microelectronics Group will be
eligible for additional bonuses totaling $19 million in the aggregate to be
distributed during the two consecutive years immediately following the merger.
Lucent has also agreed to grant to certain Agere employees stock options to
purchase an aggregate of 200,000 shares of Lucent common stock as of the date of
the merger.
NON-COMPETITION AND NON-SOLICITATION AGREEMENTS
As a condition to the merger, each of Obtek, L.P., Messrs. Tamer, Rothfus
and Bennett and certain other senior executive and other employees employed by
Agere must enter into non-competition and non-solicitation agreements with
Agere. Each of these persons has agreed with Lucent and Agere that, for a
specified period, the stockholder will not, directly or indirectly, do any of
the following activities without the express written consent of Lucent:
- - engage in any business or activity or render any services or provide
any advice to any business, activity, service, person or entity which
competes in any material aspect with the business of Agere relating
principally to the design, development, production, marketing,
distribution, maintenance and support of network processors, or
- - meaningfully assist, help or otherwise support any person, business,
corporation, partnership or other entity or activity to create,
commence or otherwise initiate, develop, enhance or further any
business or activity if the stockholder knows or reasonably should know
that the business or activity in any manner competes in any
52
<PAGE> 64
material respect with Agere's business relating principally to the
design, development, production, marketing, distribution, maintenance
and support of network processors.
The non-competition period for Mr. Bennett and Obtek, L.P. will end two years
from the date of the merger. The non-competition period for each other
stockholder who has executed a non-competition agreement will end on the second
anniversary of the date of the merger, or the date the stockholder's final
vesting is to occur with respect to any substitute restricted stock held by the
stockholder.
APPROVAL OF THE RIGHT OF DISQUALIFIED INDIVIDUALS TO RECEIVE ANY AMOUNTS PAYABLE
TO THE INDIVIDUAL ON AN ACCELERATION OF VESTING
If the merger is completed, certain executives and other employees of
Agere will receive accelerated vesting of shares of stock that are subject to
stock option or restricted stock agreements with Agere. This accelerated vesting
had the potential to trigger an "excess parachute payment" under Internal
Revenue Code Section 280G, resulting in adverse tax consequences to executives,
employees and to Agere. These adverse tax consequences will be avoided because
the vesting acceleration has been approved by disinterested Agere stockholders
holding more than 75% of the total voting power of Agere's voting shares, in
accordance with the Internal Revenue Code.
STOCK PRICES AND DIVIDENDS
Lucent common stock is listed for trading on the New York Stock Exchange
under the trading symbol "LU". 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 Transactions Tape.
Lucent's per share data has been restated to account for Lucent's two-for-one
stock splits effective on April 1, 1999 and April 1, 1998. For current price
information, stockholders are urged to consult publicly available sources.
Because there is no established trading market for shares of Agere stock,
information with respect to the market prices of Agere stock has been omitted.
<TABLE>
<CAPTION>
LUCENT
COMMON STOCK
CALENDAR PERIOD DIVIDENDS
HIGH LOW DECLARED
<S> <C> <C> <C> <C>
1997
First Quarter $15 5/32 $11 3/16 $0.000
Second Quarter 18 35/64 12 15/32 0.019
Third Quarter 22 11/16 18 3/64 0.019
Fourth Quarter 22 35/64 18 3/32 0.038
1998
First Quarter $32 1/16 $18 23/64 $0.000
Second Quarter 41 27/32 32 0.020
Third Quarter 54 1/4 34 3/16 0.020
Fourth Quarter 56 15/16 26 23/32 0.040
1999
First Quarter $60 $47 $0.000
Second Quarter 68 11/16 51 7/8 0.020
</TABLE>
53
<PAGE> 65
<TABLE>
<CAPTION>
LUCENT
COMMON STOCK
CALENDAR PERIOD DIVIDENDS
HIGH LOW DECLARED
<S> <C> <C> <C> <C>
Third Quarter 79 3/4 60 0.020
Fourth Quarter 84 3/16 55 1/16 0.040
2000
First Quarter
(through March 16, 2000) 77 1/8 50 1/16 0.000
</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 Transactions Tape
on January 19, 2000, the last trading day before the public announcement of the
merger agreement, and on March 16, 2000, the last trading day before the date
of this proxy statement/prospectus. Because there is no established trading
market for shares of Agere stock, information with respect to the market prices
of Agere stock has been omitted.
<TABLE>
<CAPTION>
LUCENT
COMMON STOCK
HIGH LOW
<S> <C> <C> <C>
January 19, 2000 $52 3/8 $49 13/16
---------------- ------- ---------
March 16, 2000 69 66 1/2
</TABLE>
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 Stockholders of Agere" on page 55.
The total authorized shares of capital stock of Lucent consist of (1) 10
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 January 31, 2000 approximately 3.2 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 each 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 each series and the redemption price or prices and the other terms
of redemption, if any, applicable to each 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 Stockholders of Agere --Rights Plan" on page
55.
54
<PAGE> 66
COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS
OF LUCENT AND STOCKHOLDERS OF AGERE
The rights of Lucent and Agere stockholders are currently governed by the
Delaware General Corporation Law, and the respective certificates of
incorporation and by-laws of Lucent and Agere. Upon completion of the merger,
the rights of Agere 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 that may
affect the rights of stockholders of Lucent and stockholders of Agere but does
not purport to be a complete statement of all those 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 and by-laws and Agere's certificate of
incorporation and by-laws.
CAPITALIZATION
LUCENT. Lucent's authorized capital stock is described above under
"Description of Lucent Capital Stock."
AGERE. The total authorized shares of capital stock of Agere consist of
(1) 14,475,000 shares of common stock, $.001 par value per share, and (2)
6,812,510 shares of preferred stock, $.001 par value per share of which
6,812,510 shares have been designated the Agere Series A convertible preferred
stock. At the close of business on January 19, 2000, there were 6,345,250 shares
of Agere common stock outstanding and 6,800,000 shares had been reserved for the
conversion of the Agere Series A convertible preferred stock. As of the same
date, 6,800,000 shares of Agere Series A convertible preferred stock were issued
and outstanding and 12,510 shares had been reserved for issuance upon exercise
of warrants. As of March 20, 2000, there were approximately 67 holders of Agere
common stock and 5 holders of Agere Series A convertible preferred stock.
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.
AGERE. Each holder of Agere common stock is entitled to one vote for each
share held at all meetings of stockholders and written actions in lieu of
meetings and may not cumulate votes. Each holder of Agere Series A convertible
preferred stock is entitled to the number of votes equal to the number of whole
shares of common stock into which the shares of preferred stock held are
55
<PAGE> 67
convertible on the record date. Fractional votes are not permitted and any
fractional voting rights available on an as-converted basis, after aggregating
all shares into which shares of Agere Series A convertible preferred stock held
by each holder could be converted, are rounded to the nearest whole number with
0.5 being rounded upward. Except as provided by law, in a stockholders agreement
and in certain situations described in Agere's certificate of incorporation,
holders of Agere Series A convertible preferred stock vote together with the
holders of common stock as a single class.
NUMBER, ELECTION, VACANCY AND REMOVAL OF DIRECTORS
LUCENT. Lucent's board of directors has seven 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. As
permitted under the Delaware General Corporation Law, Lucent's certificate of
incorporation also provides that the Lucent board of directors consists of three
classes of directors. One of the classes of directors consists of a single
director. The directors in each class serve on the Lucent board of directors for
approximately three years each.
Lucent's certificate of incorporation and by-laws provide that if there is
a vacancy on the Lucent board of directors or if the number of directors is
increased, those 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 until the next succeeding annual meeting of stockholders
following his election by the directors, and if elected by the stockholders at
such meeting, 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 that 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.
AGERE. Agere's board of directors has 5 members. Agere's certificate of
incorporation provides that the number of directors shall be fixed by, or in the
manner provided in, the Agere by-laws. Agere's by-laws provide that the number
of directors be determined by resolution of the board of directors or the
stockholders at the annual meeting of stockholders, except in certain cases
relating to vacancies and newly created directorships resulting from an increase
in the authorized number of directors. Each director holds office until his
successor is elected and qualified.
Vacancies and newly created directorships resulting from an increase in
the authorized number of directors may be filled by a majority of the directors
then in office, though less than a quorum, or by a sole remaining director, and
the directors so chosen hold office until the next annual election and until
their successors are duly elected and qualify unless sooner displaced. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute. If, at the time of filling any vacancy or any newly
created directorship, the directors then in office
56
<PAGE> 68
constitute less than a majority of the whole board of directors, the directors
as constituted immediately prior to any such increase, the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Agere's by-laws provide that except as otherwise provided by its
certificate of incorporation or by-laws, any one or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors.
AMENDMENTS TO CERTIFICATE 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.
AGERE. Agere's certificate of incorporation provides that Agere reserves
the right to amend, alter, change or repeal any provision contained in the
certificate of incorporation in the manner prescribed by statute, except as
provided otherwise in the certificate of incorporation, and that all rights
conferred upon Agere stockholders by the certificate of incorporation are
granted subject to this reservation. The certificate of incorporation further
provides that Agere may not amend the certificate of incorporation in a manner
that would adversely affect the holders of the Series A convertible preferred
stock without first obtaining the affirmative vote of at least 67% of the shares
of Series A convertible preferred stock, voting separately as a single class,
prior to a qualified public offering as defined in the certificate of
incorporation.
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 that 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
57
<PAGE> 69
- by a majority of the total number of directors Lucent would have if
there were no vacancies.
AGERE. Agere's certificate of incorporation authorizes the board of
directors to make, repeal, alter, amend and rescind any or all of Agere's
by-laws except as otherwise provided in the certificate of incorporation or
Agere's by-laws. It further provides that Agere may not amend its by-laws in a
manner that would adversely affect the holders of the Series A convertible
preferred stock without first obtaining the affirmative vote of the holders of
at least 67% of the Series A convertible preferred stock, voting as a separate
class, prior to a qualified public offering as defined in the certificate of
incorporation. Agere's by-laws provide that they may be altered, amended or
repealed or new by-laws adopted by the stockholders or by the board of
directors, when such power is conferred upon the board of directors by the
certificate of incorporation at any regular meeting of the stockholders or of
the board of directors or at any special meeting of the stockholders or of the
board of directors if notice of the alteration, amendment, repeal or adoption of
new by-laws is contained in the notice of the special meeting. The by-laws
further provide that if the power to adopt, amend or repeal by-laws is conferred
upon the board of directors by the certificate or incorporation, it does not
divest or limit the power of the stockholders to adopt, amend or repeal by-laws.
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.
AGERE. Agere's by-laws provide that unless otherwise provided in the
certificate of incorporation, any action which may be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
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 the special meeting and not
later than (1) 90 days prior to that 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 that meeting.
58
<PAGE> 70
AGERE. Agere does not have any comparable notice unique to stockholder
actions.
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.
AGERE. Agere's by-laws provide that special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president of Agere and shall
be called by Agere's president or secretary at the request in writing of a
majority of the board of directors, or at the request in writing of stockholders
owning at least fifty percent in amount of the entire capital stock of Agere
issued and outstanding and entitled to vote. The request is required to state
the purpose or purposes of the proposed meeting.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND INDEMNIFICATION
LUCENT. Lucent's certificate of incorporation provides that a director
will not 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 regarding
unlawful payment of dividends or unlawful stock purchases or
redemptions
- for any transaction from which the director derived an improper
personal benefit
Lucent's certificate of incorporation provides a right to indemnification
to directors and officers of Lucent subject to the limitations under Delaware
General Corporation Law.
In addition, Lucent must indemnify any present or former director or
officer of a corporation who has been successful on the merits or otherwise in
the defense of any claim or proceeding for expenses (including attorneys' fees)
actually and reasonably incurred.
AGERE. Agere's certificate of incorporation provides that a director will
not be personally liable to it 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 Agere or its
stockholders
59
<PAGE> 71
- 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 regarding
unlawful payment of dividends or unlawful stock purchases or
redemptions
- for any transaction from which the director derived an improper
personal benefit
Agere's certificate of incorporation also provides that if the Delaware
General Corporation Law is amended after approval by the stockholders of the
indemnification provision in the certificate of incorporation, to authorize
Agere to further eliminate or limit the personal liability or directors, then
the liability of a director will be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law as amended.
The certificate of incorporation further provides that to the fullest
extent permitted by applicable law, Agere is authorized to provide
indemnification of and advancement of expenses to its agents (and any other
persons to which Delaware General Corporation Law permits Agere to provide
indemnification) through by-law provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, in excess
of the indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law. Any amendment, repeal or modification of this
indemnification provision of the certificate of incorporation may not adversely
affect any right or protection of a director, officer, agent or other person
existing at the time of, or increase the liability of any director of Agere with
respect to any acts or omissions of that director, officer or agent occurring
prior to, the amendment, repeal or modification.
Agere's by-laws provide that Agere will, to the fullest extent authorized
under the laws of Delaware, as those laws may be amended and supplemented from
time to time, indemnify any director made, or threatened to be made, a party to
an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of Agere or a predecessor
corporation or, at Agere's request, a director or officer of another
corporation; provided, however, that Agere will indemnify any such agent in
connection with a proceeding initiated by the agent only if the proceeding was
authorized by Agere's board of directors. The indemnification provided for in
the by-laws will: (1) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (2)
continue as to a person who has ceased to be a director, and (3) inure to the
benefit of the heirs, executors and administrators of such a person. Agere's
by-laws provide that its obligation to provide indemnification under the by-laws
will be offset to the extent of any other source of indemnification or any
otherwise applicable insurance coverage under a policy maintained by Agere or
any other person.
Agere's by-laws provide that expenses incurred by a director of Agere in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he is or was a director of Agere (or was serving at Agere's request as a
director or officer of another corporation) will be paid by Agere in advance of
the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or
60
<PAGE> 72
on behalf of the director to repay such amount if it is ultimately determined
that he is not entitled to be indemnified by Agere as authorized by relevant
sections of the Delaware General Corporation Law. However, Agere will not be
required to advance such expenses to a director who is a party to an action,
suit or proceeding brought by Agere and approved by a majority of the board of
directors that alleges willful misappropriation of corporate assets by the
agent, disclosure of confidential information in violation of the agent's
fiduciary or contractual obligations to Agere or any other willful and
deliberate breach in bad faith of the agent's duty to Agere or its stockholders.
The by-laws further provide that their indemnification provision is a
contract between Agere and each director who serves in such capacity at any time
while the indemnification provision is in effect, and any repeal or modification
of the indemnification provision will not affect any rights or obligations then
existing with respect to any state of facts then or later existing or any
action, suit or proceeding based in whole or in part upon any such state of
facts.
The by-laws provide that the board of directors in its discretion has
power on behalf of Agere to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of Agere.
The by-laws provide that to assure indemnification under the by-laws of
all directors, officers and employees who are determined by Agere or otherwise
to be or to have been "fiduciaries" of any employee benefit plan of the
corporation that may exist from time to time, Section 145 of the Delaware
General Corporation Law will, for the purposes of the indemnification provision,
be interpreted as follows: an "other enterprise" shall be deemed to include such
an employee benefit plan, including without limitation, any plan of the
corporation that is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; Agere
shall be deemed to have requested a person to serve an employee benefit plan
where the performance by such person of his duties to the corporation also
imposes duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan; excise taxes assessed on a person
with respect to an employee benefit plan pursuant to such Act of Congress shall
be deemed "fines."
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.
AGERE. Agere's certificate of incorporation provides that
- Prior to January 1, 2003, the holders of Agere Series A convertible
preferred stock are entitled to receive dividends, out of any assets
legally available for dividends, when, as and if declared by the
board of directors.
- Beginning January 1, 2003 and continuing thereafter, the holders of
Agere Series A convertible preferred stock are entitled to receive
dividends, out of any assets legally available for dividends, at the
rate of $0.0823 (as adjusted to reflect stock dividends,
61
<PAGE> 73
stock splits, combinations, recapitalizations or the like after the
date upon which shares of Series A convertible preferred stock were
first issued) per share of Series A convertible preferred stock per
annum, payable when, as and if declared by the board of directors,
and such dividends will be cumulative and will accrue on each share
from January 1, 2003, from day to day, whether or not earned or
declared. Any accumulation of dividends on the Agere Series A
convertible preferred stock will not bear interest. Cumulative
dividends with respect to a share of Agere Series A convertible
preferred stock which are accrued, payable and/or in arrears will,
upon conversion of such share to Agere common stock, at the option
of Agere either: (1) be paid in cash to the extent assets are
legally available therefor or (2) be convertible into additional
shares of Agere common stock determined by dividing the amount of
the dividends by the fair market value (as defined in the
certificate of incorporation) of the Agere common stock on the date
of such conversion (with any fractional share rounded to the nearest
whole share, with 0.5 being rounded upward). By written consent, the
holders of at least 67% of the Agere Series A convertible preferred
stock then outstanding can waive any dividend preference that
holders of Series A convertible preferred stock will be entitled to
receive under this paragraph.
- No dividend may be paid on the Agere common stock, so long as any
shares of Series A convertible preferred stock remain outstanding.
LIQUIDATION
LUCENT. Holders of Lucent common stock have no preferential rights with
respect to liquidation.
AGERE. Agere's certificate of incorporation provides that in the event of
any liquidation, dissolution or winding up of Agere, either voluntary or
involuntary, the holders of the Series A convertible preferred stock are
entitled to receive, prior and in preference to any payment or distribution and
setting apart for payment or distribution of any of the assets or surplus funds
of Agere to the holders of the Agere common stock, an amount for each share of
Agere Series A convertible preferred stock then held by them equal to $1.1764
(as adjusted to reflect stock dividends, stock splits, combinations,
recapitalizations or the like after the date on which shares of Agere Series A
convertible preferred stock were first issued) plus any accrued and unpaid
dividends on the Agere Series A convertible preferred stock, whether or not
earned or declared, up to and including the date of full payment of such amount.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders Agere Series A convertible preferred stock is insufficient to
permit the payment to the holders of the full preferential amounts due with
respect to the shares held by them, then the entire assets and funds of Agere
legally available for distribution will be distributed ratably among the holders
of the Agere Series A convertible preferred stock.
If the assets of Agere available for distribution to Agere's stockholders
exceed the aggregate amount payable to the holders of the Agere Series A
convertible preferred stock under the preceding paragraph, then after the
payments required by the preceding paragraph have been made or irrevocably set
apart for payment, the remaining assets will be distributed ratably among the
holders
62
<PAGE> 74
of the Agere Series A convertible preferred stock (as if fully converted into
Agere common stock) and the holders of Agere common stock.
For the purposes of liquidation preference, a liquidation, dissolution or
winding up is defined to occur (unless the holders of at least 67% of the Series
A convertible preferred stock then outstanding shall determine otherwise) upon
(1) a consolidation, merger or share exchange of Agere in which the holders of
Agere's voting stock outstanding immediately prior to such consolidation, merger
or share exchange do not hold a majority of the voting stock of the surviving or
resulting entity outstanding immediately following such consolidation, merger or
share exchange or (2) a sale, lease or transfer of all or substantially all of
the assets of Agere.
Agere will give written notice of any liquidation, dissolution or winding
up to each record holder of Agere Series A convertible preferred stock not less
than 60 days prior to the date stated for the distribution and payment of the
amounts relating to liquidation in the certificate of incorporation. Each holder
of Agere Series A convertible preferred stock may convert all or any portion of
such stock into common stock pursuant to any conversion rights at any time on or
prior to the date fixed in such notice for distribution and payment or the date
of a merger, consolidation, share exchange or sale, lease or transfer of assets
defined to be a liquidation, dissolution or winding up of Agere.
CONVERSION
LUCENT. Holders of Lucent common stock have no rights to convert their
shares into any other securities.
AGERE. Holders of Agere common stock have no rights to convert their
shares into any other securities. Subject to certain terms, conditions,
limitations and adjustments described in the certificate of incorporation,
holders of Agere Series A convertible preferred stock have the right at their
option to convert those shares, without the payment of additional consideration,
into the number of fully paid and nonassessable shares of Agere common stock as
is determined by the formula set forth in the certificate of incorporation.
Based on the formula, each share of Agere Series A convertible preferred stock
is currently convertible into one share of Agere common stock.
All of the outstanding shares of Agere Series A convertible preferred
stock will be automatically converted into Agere common stock without any
further action on the part of Agere or any holder at the earlier to occur of (1)
the closing and funding of a qualified public offering as defined in the
certificate of incorporation or (2) the date on which, through the redemption or
conversion of Agere Series A convertible preferred stock, fewer than 33% of the
shares of Agere Series A convertible preferred stock issued pursuant to the
purchase agreement as defined in the certificate of incorporation remain
outstanding.
REDEMPTION RIGHTS
Agere's certificate of incorporation provides that at any time after
October 13, 2003, each holder of shares of Agere Series A convertible preferred
stock will have the option to require Agere to redeem, to the extent it may
lawfully do so, all, but not less than all, of the Series A convertible
preferred stock held by the holder at a price per share equal to the greater of
(1) the liquidation
63
<PAGE> 75
amount or (2) the fair market value per share, such value to be determined by an
independent appraisal, exclusive of liquidity or minority ownership discounts,
performed by an independent third party mutually agreeable to such holder and
Agere. The expense of the appraisal will be borne equally by the Agere and the
redeeming holder. A holder of shares of Series A convertible preferred stock may
require Agere to make a mandatory redemption by giving written notice to Agere
of the election. Upon the later of (1) 45 days after receipt of the redemption
notice, or (2) 10 days after the appraisal is complete (the "mandatory
redemption date"), Agere (and such holder) will be obligated to redeem, to the
extent it may lawfully do so, all of the holder's Series A convertible preferred
stock.
To the extent legally permissible, amounts to be paid pursuant to any
mandatory redemption will be paid in cash to the extent of 75% of cash provided
by operating activities (as determined in accordance with generally accepted
accounting principles) for the four fiscal quarters immediately preceding the
fiscal quarter in which the applicable redemption notice is received by Agere
and the balance will be paid in the form of a one year promissory note payable
in equal quarterly installments and bearing simple interest of 8% per annum.
Agere's certificate of incorporation further provides that if the funds of
Agere legally available for redemption of Series A convertible preferred stock
on any mandatory redemption date are insufficient to redeem the total number of
shares of Series A convertible preferred stock to be redeemed on the mandatory
redemption date, the funds that are legally available will be used to redeem the
maximum possible number of shares of Series A convertible preferred stock
ratably among the holders of such shares to be redeemed on the basis of the
redemption amounts due with respect to the shares held by each such holder. At
any time and from time to time thereafter when additional funds of Agere are
legally available for redemption of shares of Series A convertible preferred
stock, such funds will be used to immediately redeem, in accordance with
preceding paragraph, the balance of the shares which Agere has become obligated
to redeem on any mandatory redemption date but which it has not redeemed. Such
funds will not be used for any other purpose, including to redeem any shares of
Series A convertible preferred stock which Agere is obligated to redeem on any
subsequent date.
Agere's certificate of incorporation further provides that any shares of
Series A convertible preferred stock which are redeemed or otherwise acquired by
Agere will be canceled and will not be reissued, sold or transferred.
APPRAISAL RIGHTS
LUCENT. Lucent is a Delaware corporation. Under the Delaware General
Corporation Law, dissenters' rights of appraisal are available to a stockholder
of a corporation only in connection with certain mergers or consolidations
involving that corporation. Appraisal rights are not available under the
Delaware General Corporation Law if the corporation's stock is either:
- listed on a national securities exchange, as the Lucent common stock
is, or designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc. (the "NASD") or
- held of record by more than 2,000 stockholders;
64
<PAGE> 76
provided that appraisal rights will be available if the merger or consolidation
requires stockholders to exchange their shares of Lucent common stock for
anything other than:
- shares of the surviving corporation,
- shares of another corporation that will be listed on a national
securities exchange, designated as a national market system security
on an interdealer quotation system by the NASD or held of record by
more than 2,000 stockholders or
- cash in lieu of fractional shares.
Additionally, no appraisal rights are available if the corporation is the
surviving corporation, and no vote of its stockholders is required for the
merger.
AGERE. Agere is also a Delaware corporation and dissenters' rights of
appraisal are available for shares of Agere common and Series A convertible
preferred stock in connection with certain mergers or consolidations involving
Agere.
RIGHTS PLAN
LUCENT. Lucent has a rights agreement with The Bank of New York as rights
agent. The following description of the 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 75.
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 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 or
- 10 business days, or that 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 that date is extended or unless
the rights are earlier redeemed or exchanged by Lucent, in each case as
summarized below.
65
<PAGE> 77
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 that 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 that 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 that 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 that 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
may amend the terms of the rights, in each case, without the consent of the
holders of the rights, at the time, on the basis and upon the conditions that
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.
AGERE. Agere does not have a rights plan.
66
<PAGE> 78
CERTAIN INFORMATION CONCERNING AGERE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Agere is a development stage company which designs and plans to
manufacture programmable network processors. When incorporated into routers,
switches and network management equipment, Agere's patented Payload Plus
technology is expected to allow network system providers the ability to rapidly
develop new communication capabilities and services via software
programmability, while providing high-speed, OC-12, OC-48 and higher data
throughput. It is hoped that Agere's technology will provide network equipment
vendors the ability to process multiple protocols at OC-12, OC-48 and higher
data speeds. Agere's patented processor is intended to solve the wire speed
challenge, because its architecture is built upon a pattern matching algorithm
that is expected to allow high throughput processing with low clock rates. In
addition, Agere's Functional Programming Language is intended to allow layer
2/3/3+ protocol processing instructions to be written in a high-level, intuitive
manner, thus significantly reducing the number of lines of protocol
classification/analysis and product modification source code relative to
traditional procedural language implications.
As of February 15, 2000, Agere had 78 full-time employees and 12 dedicated
consultants, most of whom are located at Agere headquarters in Austin, Texas.
Agere also employs field employees in Boston, San Jose and Chicago. Agere was
incorporated in Delaware on May 29, 1998 as Austin Networks, Inc. Since its
inception, Agere has devoted its efforts principally to research and
development, raising capital and developing markets for its product.
Results of Operations
Annual operating results are for the period from inception May 29, 1998
through December 31, 1998 compared to the year ended December 31, 1999.
Total Revenues
- --------------
Revenues were $0 and $143 thousand for the period from inception May 29,
1998 through December 31, 1998 and the year ended December 31, 1999,
respectively. Revenues in 1999 were primarily from the sale of development
systems. The first development system was shipped in July 1999. At December 31,
1999, Agere had a limited backlog of development systems that were to be
shipped in early 2000. Although Agere's primary product in 2000 and beyond will
be integrated circuits, there were no sales of integrated circuits in 1999. The
sale of development systems has three purposes:
- It allows potential customers to incorporate the Agere integrated
circuits into their board designs prior to the release of the
integrated circuits.
- It allows Agere to fine-tune its integrated circuits to meet
customer requirements prior to the release of the integrated
circuits.
67
<PAGE> 79
- It allows Agere and customers to test software and hardware
combinations for future product releases.
Agere anticipates shipping integrated circuits in 2000. Agere anticipates
that the sale of integrated circuits will be its primary revenue source and that
development systems will be a secondary revenue source.
Cost of Revenues
- ----------------
Cost of revenues includes the cost of purchasing subassembly and component
materials from Agere's independent suppliers and production related expenses.
Costs of revenues were $0 and $109 thousand, for the period from inception
through December 31, 1998 and the year ended December 31, 1999, respectively.
The gross margin in 1999 was 23.5%. Gross margins are anticipated to increase in
2000 when Agere begins shipping computer chips, which have a lower production
cost than development systems.
Research and Development
- ------------------------
Research and development expenses consist primarily of salaries and
related costs of employees engaged in research, design and development
activities and depreciation of investments in hardware and software tools.
Research and development expenses increased from $818 thousand for the period
from inception through December 31, 1998 to $4.8 million for the year ended
December 31, 1999. This increase is primarily related to an increase in staffing
and twelve months of research and development efforts in 1999 compared to seven
months of research and development efforts in 1998.
Research and development costs are 71.1% of operating expenses for the
period from inception through December 31, 1998 and 55.0% of operating expenses
for the year ended December 31, 1999. The decrease in research and development
costs as a percentage of operating expenses is primarily related to the
establishment of a sales force and the initiation of marketing efforts in 1999.
Selling and Marketing Expenses
- ------------------------------
Selling and marketing expenses consist primarily of employee-related
expenses, commissions paid to sales employees, product marketing and promotional
expenses. Selling and marketing expenses increased from $114 thousand for the
period from inception through December 31, 1998 to $2.6 million for the year
ended December 31, 1999. Selling and marketing expenses increased as a
percentage of operating expenses from 9.9% for the period from inception through
December 31, 1998 to 30.6% for the year ended December 31, 1999. This increase
is primarily related to hiring of sales personnel in 1999 including field
application engineers and system engineers, developing programs to incorporate
customer feedback into product design and developing a presence in the market as
product design moves closer to production.
68
<PAGE> 80
General and Administrative Expenses
- -----------------------------------
General and administrative expenses consist principally of expenses to
support the business, including corporate, accounting, legal, information
technology systems and human resource expenses. General and administrative
expenses increased from $218 thousand for the period from inception through
December 31, 1998 to $1.2 million for the year ended December 31, 1999. This
increase is primarily attributable to costs incurred in building the management
systems associated with an increase in Agere's headcount. As a percent of
operating expenses, general and administrative expenses declined from 18.9% for
the period from inception through December 31, 1998 to 14.4% for the year ended
December 31, 1999. This decrease is primarily due to research and development
and sales and marketing expenses increasing in both absolute dollars and on a
percentage of basis at a higher rate than general and administrative expenses.
Interest Income
- ---------------
Interest income increased from $50 thousand for the period from inception
through December 31, 1998 to $224 thousand for the year ended December 31, 1999.
Shares of Series A convertible preferred stock were issued in October and
November 1998 which provided funds used for operations in 1999, and excess
proceeds from the sale of these shares were invested in interest bearing
investments in late 1998 and 1999.
Other Expense
- -------------
Other expense consists primarily of interest expense. Other expense
increased from $8 thousand for the period from inception through December 31,
1998 to $125 thousand for the year ended December 31, 1999. In 1999 Agere
secured lines of credit, an equipment loan and subordinated debt from financial
lending institutions to finance operations and equipment purchases. Interest
expense in 1998 is related to bridge financing used to explore the feasibility
of business operations.
Income Taxes
Since inception, Agere has not had taxable income available to offset net
operating losses and accordingly has generated taxable losses from operations.
Agere accounts for income taxes under SFAS No. 109, Accounting for Income Taxes,
by providing for income taxes under the liability method. Deferred taxes are
determined based on the difference between the financial statement and tax bases
of assets and liabilities, as measured by the enacted tax rates. Agere has
established a valuation allowance equal to the net deferred tax assets due to
uncertainties regarding the realization of deferred tax assets based on the
company's lack of earnings history.
69
<PAGE> 81
Liquidity and Capital Resources
From inception through January 31, 2000, Agere has financed its
operations and capital requirements through the sale of equity and borrowings
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------
Description Amount
-------------------------------------------------------
<S> <C>
Net sale of Series A convertible $8.1 million
preferred stock and common stock
Equipment loan $1 million
Line of credit - non-formula $750 thousand
Subordinated debt (drawn) $2 million
Subordinated debt (unused) $1 million
Equipment lease $306 thousand
Line of credit - formula $250 thousand
Loan from Lucent* $5 million
-------------------------------------------------------
</TABLE>
As of January 31, 2000, approximately $694 thousand of the equipment lease
was available for future borrowing.
The equipment loan bears interest at a rate equivalent to the sum of U.S.
Treasury note yield to maturity for a term equal to 36 months plus 250 basis
points. The loan is payable in 36 monthly payments beginning August 1999. The
non-formula line of credit bears interest at prime and interest is due the last
day of each month. Principal is due on May 31, 2000. The equipment loan and
non-formula line of credit are with the same financial institution and are
secured by all of Agere's tangible assets.
The subordinated debt bears interest at a rate of 12% annually and is
payable in 36 monthly payments beginning, in the case of the $2 million which
has been drawn, December 1, 1999, and in the case of the $1 million which has
not been used, within a month of borrowing the funds. The subordinated debt is
secured by all of Agere's tangible assets and is subordinated to the security
interest of the lenders under the equipment loan and lines of credit.
The equipment lease is payable with 36 monthly payments beginning January
2000.
As of January 31, 2000, Agere had not used funds under the formula line of
credit. That line of credit is available based upon a borrowing base of Agere's
accounts receivable, bears interest at the prime rate, is payable on the last
day of each month and matures on May 31, 2000.
Net cash used in operating activities was $571 thousand for the period
from inception through December 31, 1998 and $8.1 million for the year ended
December 31, 1999. This increase is primarily a result of significant hiring
efforts leading to an increase in staffing, the establishment of marketing
efforts in 1999 incorporating customer feedback into the product design and to
develop a
* An additional $2 million loan from Lucent to Agere was provided on
February 25, 2000.
70
<PAGE> 82
presence in the market as product design moved closer to production, and capital
expenditures for software and hardware tools and the outfitting of a lab.
Net cash used in investing activities was $281 thousand for the period
from inception through December 31, 1998 and $1.3 million for the year ended
December 31, 1999. The increase is primarily attributable to investments in
computer equipment and furnishings to support growth in personnel and use of
contractors to further development efforts in 1999. Agere expects to incur
significant cash outlays in 2000 for investments in software and lab equipment
related to research and development costs.
Net cash provided by financing activities was $7.9 million for the period
from inception through December 31, 1998 and $3.8 million for the year ended
December 31, 1999. Financing in 1998 was primarily the result of the issuance of
Series A convertible preferred stock. Financing in 1999 was primarily the result
of funding through debt instruments.
If the merger with Lucent is not consummated and Agere continues as a
stand-alone company, Agere would not have sufficient capital to continue its
business operations as they are now being conducted. The merger agreement
provides that Lucent will loan Agere, at its request, up to $10 million for
working capital during the period prior to closing on commercially reasonable
terms and conditions. Lucent has already provided $7 million of this financing
to Agere. If the merger is not consummated, Agere will be obligated to repay
Lucent accrued interest monthly starting immediately. The principal on the
Lucent loan is due in January 2005. In addition, if the merger is not
consummated Agere will be required to obtain significant additional debt and/or
equity to provide working capital for Agere's continuing operations as a
stand-alone company and monthly interest payments. While Agere believes that it
will be able to raise the funds required to fund its operations as a stand-alone
company, it cannot assure that the required funds will be available when needed
or that they can be obtained on terms favorable to Agere. If the required funds
cannot be obtained, Agere could be forced to revise its business plans,
including possible curtailment of its future business operations, reductions of
its planned future growth or a combination with another company on terms less
favorable than the terms governing the merger with Lucent.
Market Risks
Agere does not use derivative financial instruments. Agere generally
places its marketable security investments in high credit quality instruments,
primarily corporate obligations with contractual maturities of one year or less.
Agere does not expect any material loss from its marketable security investments
and, therefore, believes that its potential interest rate exposure is not
material. Agere to date has not made any strategic equity investments and,
therefore, has no exposure to the market risks that can be created by such
investments.
Agere invoices customers only in U.S. dollars. Agere does not enter into
foreign currency hedge transactions.
71
<PAGE> 83
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
OF AGERE
The following table sets forth, as of February 29, 2000, the security
ownership of Agere's directors, executive officers and holders of more than 5%
of any class of series of Agere stock. Unless otherwise indicated, each person's
address is in care of Agere, Inc., 11801 Stonehollow Drive, Suite 200, Austin,
Texas 78758. To the knowledge of Agere, the persons named in the table have sole
voting and investment power with respect to all shares of Agere capital stock
shown as beneficially owned by them, subject to the information contained in the
footnotes to the table. Beneficial ownership is determined according to the
rules of the Securities and Exchange Commission.
72
<PAGE> 84
<TABLE>
<CAPTION>
PRINCIPAL STOCKHOLDERS, NAMED OFFICERS, DIRECTORS, SHARES BENEFICIALLY OWNED PERCENT
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP BENEFICIALLY
OWNED
- ---------------------------------------------------------------------------------------------------
NUMBER CLASS PERCENT
-------------------------------------------
<S> <C> <C> <C>
ROBERT FABBIO 3,400,000 SERIES A 24.9
ENTITIES AFFILIATED WITH TL VENTURES(1) CONVERTIBLE
C/O TL VENTURES PREFERRED
221 WEST 6TH STREET, SUITE 1550 STOCK
AUSTIN, TX 78701
EDWARD OLKKOLA 2,550,000 SERIES A 18.6
ENTITIES AFFILIATED WITH AUSTIN VENTURES(2) CONVERTIBLE
C/O AUSTIN VENTURES PREFERRED
114 WEST 7TH ST., SUITE 1300 STOCK
AUSTIN, TX 78701
HIG INFORMATION MANAGEMENT SERVICES, INC. 850,000 SERIES A 6.2
C/O H.I.G. INFORMATION MANAGEMENT SERVICES, INC. CONVERTIBLE
1001 BRICBALL BAY DRIVE, SUITE 2708 PREFERRED
MIAMI, FL 33131 STOCK
VICTOR BENNETT 2,600,000 COMMON STOCK 19.0
OBTEK, L.P.(3)
C/O OBTEK, L.P.
208 RAINBOW CIRCLE
ROCKWALK, TX 75087
STAN TIMS
ENTITIES AFFILIATED WITH TL VENTURES(4) 3,400,000 SERIES A 24.9
C/O TL VENTURES CONVERTIBLE
221 WEST 6TH STREET, SUITE 1550 PREFERRED
AUSTIN, TX 78701 STOCK
3,000 COMMON STOCK *
FORD TAMER 1,000,000 COMMON STOCK 7.3
ERIC ROTHFUS 1,000,000 COMMON STOCK 7.3
MIKE HATHAWAY 135,000 COMMON STOCK 1.0
ROBERT BRIDGE 142,500 COMMON STOCK 1.0
SAJOL GHOSHAL 160,000 COMMON STOCK 1.2
ROBERT LAMKIN 162,000 COMMON STOCK 1.2
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (10 11,152,500 COMMON STOCK 87.7
PERSONS) AND SERIES A
CONVERTIBLE
PREFERRED STOCK
</TABLE>
SEE THE FOLLOWING PAGE FOR NOTES TO THE TABLE.
73
<PAGE> 85
(1) includes 2,737,575 shares held by TL Ventures III L.P., 573,037 shares
held by TL Ventures III Offshore L.P., and 89,338 shares held by TL
Ventures III Interfund L.P. Mr. Fabbio, one of Agere's directors, is the
managing director of TL Ventures III LLC, which is the general partner of
TL Ventures Management L.P., which is the general partner of TL Ventures
III L.P. Mr. Fabbio is also managing director of TL Ventures III Offshore
Ltd., which is the general partner of TL Ventures III Offshore L.P.
Further, Mr. Fabbio is managing director of TL Ventures III LLC, which is
the general partner of TL Ventures III Offshore L.P. and TL Ventures
Interfund L.P. Mr. Fabbio disclaims beneficial ownership of the shares
held by TL Ventures III L.P. and TL Ventures III Interfund L.P., except to
the extent of his pecuniary interest arising from his partnership
interest, as the case may be.
(2) Includes 2,500,000 shares held by Austin Ventures VI, L.P. Mr. Olkkola is
the general partner of AV Partners, VI, L.P., which is the general partner
of Austin Ventures, VI, L.P., Mr. Olkkola disclaims beneficial ownership
of the shares held by Austin Ventures VI, L.P., except to the extent of
his pecuniary interest arising from him partnership interests, as the case
may be.
(3) Includes 2,600,000 shares held by Obtek L.P. Mr. Bennett, one of Agere's
directors, is a limited partner of Obtek L.P.
(4) Includes 2,737,575 shares held by TL Ventures III L.P., 573,037 shares
held by TL Ventures III Offshore L.P., and 89,338 shares held by TL
Ventures III Interfund L.P. Mr. Tims, one of Agere's directors is a
partner of TL Ventures III LLC, which is the general partner of TL
Ventures Management L.P., which is the general partner of TL Ventures III
L.P. Mr. Tims is also partner of TL Ventures III Offshore Ltd., which is
the general partner of TL Ventures III Offshore Ltd., which is the general
partner of TL Ventures III Offshore L.P. Further, Mr. Tims is partner of
TL Ventures III LLC, which is the general partner of TL Ventures Interfund
L.P. Mr. Tims disclaims beneficial ownership of the shares held by TL
Ventures III L.P., TL Ventures III Offshore L.P. and TL Ventures III
Interfund L.P., except to the extent of his pecuniary interest arising
from his partnership interests, as the case may be. Mr. Tims also holds
3,000 shares beneficially as an individual.
* less than 1%.
74
<PAGE> 86
LEGAL MATTERS
The legality of Lucent common stock offered by this proxy
statement/prospectus will be passed upon for Lucent by Jean F. Rankin, Vice
President--Law, of Lucent. As of March 6, 2000 Jean F. Rankin owned 0 shares
of Lucent common stock and options and stock units for 70,600 shares of Lucent
common stock.
Certain United States federal income tax consequences of the merger will
be passed upon for Agere's special counsel Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Austin, Texas.
EXPERTS
The consolidated financial statements of Lucent incorporated in this proxy
statement/prospectus by reference in Exhibit 99.1 to Lucent's Current Report on
Form 8-K dated February 10, 2000 for the year ended September 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.
Ernst & Young, LLP, independent auditors, have audited the balance sheets
of Agere, Inc. (a development stage company) as of December 31, 1999 and 1998,
and the related statements of operations, redeemable convertible preferred stock
and stockholders' deficit, and cash flows for the year ended December 31, 1999
and the period from May 29, 1998 (inception) to December 31, 1998 and the period
from May 29, 1998 (inception) to December 31, 1999, as set forth in their
report. We have included Agere, Inc.'s financial statements in this prospectus
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Agere board of
directors knows of no matters that will be presented for consideration at the
special meeting of stockholders other than as described in this proxy
statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Lucent files 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 files with the
Securities and Exchange Commission at the Securities and Exchange Commission's
public reference rooms at the following locations:
75
<PAGE> 87
Public Reference New York Regional Office Chicago Regional Office
Room 7 World Trade Center Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. Chicago, IL 60661-2511
20549
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.
Lucent filed a registration statement on Form S-4 on March 17, 2000 to
register with the Securities and Exchange Commission the Lucent common stock to
be issued to Agere stockholders in the merger. This proxy statement/prospectus
is a part of that registration statement. 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 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 previously filed with the Securities and Exchange
Commission. These documents contain important business and financial information
about Lucent 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, 1999, as amended by Form 8-K filed on
February 11, 2000
Quarterly Report on Form 10-Q Quarter ended December 31, 1999
</TABLE>
76
<PAGE> 88
<TABLE>
<S> <C>
Current Reports on Form 8-K Filed October 29, 1999, November 19, 1999,
January 7, 2000, February 11, 2000 and March 1,
2000
Proxy Statement Filed December 21, 1999
The description of Lucent Filed under Section 12 of the Exchange Act on
common stock and Lucent February 26, 1996, as amended by Amendment No.
rights to acquire junior 1 thereto filed on Form 10/A on March 12, 1996,
preferred stock set forth Amendment No. 2 thereto filed on Form 10/A on
in the Lucent Registration March 22, 1996 and Amendment No. 3 thereto
Statement on Form 10 filed on Form 10/A on April 1, 1996, including
any amendments or reports filed for the purpose
of updating such descriptions
</TABLE>
Lucent also incorporates by reference additional documents that may be
filed with the Securities and Exchange Commission under Sections 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 Agere has supplied all
such information relating to Agere.
Agere stockholders should not send in their Agere certificates or warrants
until they receive the transmittal materials from the exchange agent. Agere
stockholders of record who have further questions about their share certificates
or the exchange of their Agere stock for Lucent common stock should call the
exchange agent.
You can obtain any of the documents incorporated by reference through
Lucent, 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 Lucent without charge, excluding all exhibits,
except that if Lucent has 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 Lucent at the following address:
Lucent Technologies Inc.
c/o The Bank of New York
Church Street Station
P.O. Box 11009
New York, New York 10286-1009
Telephone: 1-888-LUCENT6
77
<PAGE> 89
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 March 17,
2000. 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.
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 Agere 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. These
forward-looking statements, including, without limitation, those relating to the
future business prospects, revenues and income, in each case relating to Lucent
and Agere, wherever they occur in this proxy statement/prospectus, are
necessarily estimates reflecting the best judgment of the senior management of
Lucent and Agere and involve a number of risks and uncertainties that could
cause actual results to differ materially from those suggested by the
forward-looking statements. These 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 Agere,
including their respective product lines
- the effects of vigorous competition in the markets in which
Lucent and Agere 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 year ended September 30, 1999 of Lucent, 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 Agere 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.
78
<PAGE> 90
INDEX TO AGERE, INC. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors............................................................................ F-2
Balance Sheets............................................................................................ F-3
Statements of Operations.................................................................................. F-5
Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit............................ F-6
Statements of Cash Flows.................................................................................. F-7
Notes to Financial Statements............................................................................. F-8
</TABLE>
F-1
<PAGE> 91
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Agere, Inc.
We have audited the accompanying balance sheets of Agere, Inc. (a development
stage company) as of December 31, 1999 and 1998, and the related statements of
operations, redeemable convertible preferred stock and stockholders' deficit,
and cash flows for the year ended December 31, 1999 and the period from May 29,
1998 (inception) to December 31, 1998 and for the period from May 29, 1998
(inception) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Agere, Inc. (a development
stage company) at December 31, 1999 and 1998, and the results of its operations
and cash flows for the year ended December 31, 1999 and for the period from May
29, 1998 (inception) to December 31, 1998 and for the period from May 29, 1998
(inception) to December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company is in the development stage and has not generated cash flow from
operations. As a result, the Company is dependent on future financing to fund
cash shortfalls. These conditions raise substantial doubt about the Company's
ability to continue as a going concern (management's plans in regard to these
matters are also described in Note 1). The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
January 21, 2000
F-2
<PAGE> 92
Agere, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,442,161 $ 7,078,494
Accounts receivable 35,999 --
Interest receivable -- 35,282
Prepaid expenses 321,092 152,383
Inventory 215,536 --
Other assets 1,080 --
----------- -----------
Total current assets 2,015,868 7,266,159
Property and equipment
Computer equipment 320,625 42,359
Furniture and fixtures 356,189 42,398
Leasehold improvements 15,069 9,385
Purchased software 851,234 186,736
----------- -----------
Total property and equipment 1,543,117 280,878
Accumulated depreciation and amortization (260,783) (8,586)
----------- -----------
Net property and equipment 1,282,334 272,292
Other assets -- 1,759
----------- -----------
Total assets $ 3,298,202 $ 7,540,210
=========== ===========
</TABLE>
F-3
<PAGE> 93
<TABLE>
<CAPTION>
December 31
1999 1998
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 357,517 $ 290,684
Accrued expenses 531,714 107,395
Current portion of long-term debt 1,714,092 --
----------- -----------
Total current liabilities 2,603,323 398,079
Notes payable 1,626,193 --
Redeemable Convertible Preferred Stock--6,812,510 shares
authorized, 6,800,000 issued and outstanding; aggregate
preferences on voluntary or involuntary liquidation of
$ 7,999,520 7,933,281 7,933,281
Warrants on Redeemable Convertible Preferred stock
subscribed 280,000 --
Stockholders' deficit
Common Stock--$.001 par value; 14,475,000 shares
authorized; 6,060,000 and 4,707,500 shares issued and
outstanding at December 31, 1999 and 1998,
respectively 6,060 4,708
Additional paid-in capital 473,031 311,887
Deficit accumulated during the development stage (9,623,686) (1,107,745)
----------- -----------
Total stockholders' deficit (9,144,595) (791,150)
----------- -----------
Total liabilities and stockholders' deficit $ 3,298,202 $ 7,540,210
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 94
Agere, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 29, 1998 MAY 29, 1998
YEAR ENDED (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenue - Development Systems $ 142,962 $ -- $ 142,962
Cost of revenues 109,320 -- 109,320
----------- ----------- -----------
Gross profit 33,642 -- 33,642
Research and development 4,755,853 817,588 5,573,441
Selling and marketing 2,647,233 114,329 2,761,562
General and administrative 1,245,802 217,519 1,463,321
----------- ----------- -----------
Loss from operations (8,615,246) (1,149,436) (9,764,682)
Interest income, net 224,453 50,071 274,524
Other income and expenses (125,148) (8,380) (133,528)
----------- ----------- -----------
Net loss from development stage
activities $(8,515,941) $(1,107,745) $(9,623,686)
=========== =========== ===========
Basic and diluted net loss per share $ (1.84) $ (0.40)
=========== ===========
Shares used in computing basic and
diluted net loss per share 4,628,372 2,781,664
=========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 95
Agere, Inc.
(A Development Stage Company)
Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE REDEEMABLE
PREFERRED STOCK CONVERTIBLE COMMON STOCK
--------------- PREFERRED ------------
NUMBER OF STOCK NUMBER OF
SHARES AMOUNT SUBSCRIBED SHARES AMOUNT
------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C>
Income of common stock -- $ -- $ -- 2,004,500 $2,005
Issuance of Series A Redeemable Convertible
Preferred Stock 6,539,022 7,692,505 --
Issuance of common stock for technology license -- -- -- 2,600,000 2,600
Issuance of Series A Redeemable Convertible
Preferred Stock for forgiveness of debt 260,978 307,015 -- -- --
Issuance costs of Series A Redeemable Convertible
Preferred Stock -- (66,239) -- -- --
Exercise of stock options -- -- -- 103,000 103
Net loss from development stage activities -- -- --
--------- ---------- --------- --------- ------
Balance at December 31, 1998 6,800,000 7,933,281 4,707,500 4,708
Issuance of common stock -- -- -- 89,500 89
Exercise of stock options -- -- -- 1,263,000 1,263
Redeemable Convertible Preferred Stock subscribed t
holders of notes payable -- -- 280,000 -- --
Net loss from development stage activities -- -- -- -- --
--------- ---------- --------- --------- ------
Balance at December 31, 1999 6,800,000 $7,933,281 $ 280,000 6,060,000 $6,060
========= ========== ========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
DEFICIT TOTAL REDEEMABLE
ACCUMULATED CONVERTIBLE
ADDITIONAL DURING THE PREFERRED STOCK
PAID-IN DEVELOPMENT AND STOCKHOLDERS'
CAPITAL STAGE DEFICIT
------- ----- -------
<S> <C> <C> <C>
Income of common stock $ -- $ -- $ 2,005
Issuance of Series A Redeemable Convertible
Preferred Stock -- 7,692,505
Issuance of common stock for technology license 309,400 -- 312,000
Issuance of Series A Redeemable Convertible
Preferred Stock for forgiveness of debt -- -- 307,015
Issuance costs of Series A Redeemable Convertible
Preferred Stock -- -- (66,239)
Exercise of stock options 2,487 -- 2,590
Net loss from development stage activities -- (1,107,745) (1,107,745)
------- ---------- --------
Balance at December 31, 1998 311,887 (1,107,745) 7,142,131
Issuance of common stock 10,847 -- 10,936
Exercise of stock options 150,297 -- 151,560
Redeemable Convertible Preferred Stock subscribed to
holders of notes payable -- -- 280,000
Net loss from development stage activities -- (8,515,941) (8,515,941)
------- ---------- --------
Balance at December 31, 1999 473,031 (9,623,686) (931,314)
======= ========== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 96
Agere, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from PERIOD FROM
May 29, 1998 MAY 29, 1998
YEAR ENDED (inception) to (INCEPTION) TO
DECEMBER 31, December 31, DECEMBER 31,
1999 1998 1999
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss from development stage activities $ (8,515,941) $ (1,107,745) $ (9,623,686)
Adjustment to reconcile net loss to cash used in operating
activities:
Depreciation and amortization expense 252,197 8,586 260,783
Write-off of purchased technology license at inception -- 312,000 312,000
Interest expense related to conversion of debt to Series A
Redeemable Convertible Preferred Stock -- 7,015 7,015
Amortization of discount on note payable 23,333 -- 23,333
Changes in operating assets and liabilities:
Accounts receivable (35,999) -- (35,999)
Interest receivable 35,282 (35,282) --
Inventory (215,536) -- (215,536)
Prepaid expenses (168,709) (152,383) (321,092)
Other assets 679 (1,759) (1,080)
Accounts payable 66,833 290,684 357,517
Accrued expenses 424,320 107,395 531,715
------------ ------------ ------------
Net cash used in operating activities (8,133,541) (571,489) (8,705,030)
INVESTING ACTIVITIES
Purchase of property and equipment (1,262,240) (280,878) (1,543,118)
------------ ------------ ------------
Net cash used in investing activities (1,262,240) (280,878) (1,543,118)
FINANCING ACTIVITIES
Proceeds from issuance of debt 3,750,000 300,000 4,050,000
Repayment of long-term debt (153,048) -- (153,048)
Proceeds from issuance of Series A Redeemable Convertible Preferred
Stock -- 7,626,266 7,626,266
Proceeds from issuance of common stock 162,496 4,595 167,091
------------ ------------ ------------
Net cash provided by financing activities 3,759,448 7,930,861 11,690,309
------------ ------------ ------------
Change in cash and cash equivalents (5,636,333) 7,078,494 1,442,161
Cash and cash equivalents, beginning of period 7,078,494 -- --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 1,442,161 $ 7,078,494 $ 1,442,161
============ ============ ============
Noncash transactions:
Unamortized discount on subordinated promissory note payable 256,667 -- 256,667
Conversion of debt to Series A Redeemable Convertible
Preferred Stock $ -- $ 300,000 $ 300,000
============ ============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 97
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
1. ORGANIZATION
Agere, Inc. (a development stage company) was incorporated in Delaware on May
29, 1998, for the purpose of developing, marketing and supporting high
performance network processors.
In 1998, Agere, Inc. (the "Company") issued 2,600,000 shares of common stock as
consideration for a license to use certain technology. Substantially all of the
purchase price was allocated to acquired in-process research and development
based on the fair market value of the Company's common stock at the purchase
date. The allocation of the entire purchase price was determined to be
reasonable based on the Company's estimate of cost it would incur if it had
performed this effort internally. The efforts required to develop this
technology include design and verification of the hardware, development and
quality assurance of the software and documentation.
As this is the Company's first attempt to develop network processors, at the
time of the transaction there existed a significant amount of uncertainty as to
the Company's ability to complete the development of a new product within an
acceptable timeframe and ahead of competitors. Since its inception, the Company
has devoted its efforts principally to research and development, and raising
capital and developing markets for its product. As a result, the Company is
considered a "development stage company." Management believes that the Company
will achieve its targeted revenue and operating goals for 2000. Management also
believes the Company's access to cash through equity or debt financing will fund
the projected shortfall in cash flow from operations during fiscal year 2000.
Also, see Note 8 for discussion of the purchase and sale agreement signed
between the Company and Lucent Technologies Inc. on January 21, 2000. However,
there is no guarantee that additional financing will be available to fund its
operations through the end of fiscal year 2000 or that the agreement with Lucent
will be consummated. The financial statements do not include any adjustments to
reflect the possible effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
outcome of this uncertainty.
2. Significant Accounting Policies
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to makes estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F-8
<PAGE> 98
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
Cash equivalents primarily consist of cash deposits and liquid investments with
maturities of three months or less and are stated at cost.
INVENTORY
Inventory consists of raw materials, work-in-process and finished goods (all
development systems) and are stated at the lower of cost (on a first-in,
first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation of property and equipment is computed using the straight-line
method over the useful lives of the assets (generally 1 to 7 years).
REVENUES - DEVELOPMENT SYSTEMS
Revenues are recognized on development systems sales when the system has been
shipped to the customer, persuasive evidence of a sale exists, the price of the
system has been determined and collectibility of the sale amount is reasonably
assured.
ADVERTISING COSTS
The cost of advertising is expensed as incurred. For the year ended December 31,
1999, the Company incurred advertising expenses of approximately $16,000. The
Company had no advertising expenses for the period from May 29, 1998 (inception)
to December 31, 1998.
RESEARCH AND DEVELOPMENT
The Company accounts for research and development costs in accordance with
Financial Accounting Standards Board Statement No. 2, Accounting for Research
and Development Costs (FAS 2), which requires that expenditures be expensed to
operations as incurred.
F-9
<PAGE> 99
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes (FAS 109). This
statement prescribes the use of the liability method whereby deferred tax asset
and liability account balances are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Since the Company had no items of other comprehensive income
in any of the periods presented, there was no impact from the adoption of SFAS
No. 130 on reporting or display of financial information.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with Financial
Accounting Standards Board Statement No. 123, Accounting for Stock-Based
Compensation (FAS 123), which prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options. As allowed
by FAS 123, the Company has elected to account for its employee stock-based
compensation in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25).
Stock and options granted to non-employees are accounted for under the
provisions of EITF 96-18, Equity Investments That are Issued to Other Than
Employees for Acquiring, or in conjunction with Selling, Goods or Services.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist of short-term investments. The Company's short-term investments, which
are included in cash and cash equivalents for reporting purposes, are placed
with high credit quality financial institutions and issuers.
F-10
<PAGE> 100
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Shares associated
with stock options and the Redeemable Convertible Preferred Stock are not
included because they are antidilutive for all applicable periods presented. The
total number of shares excluded from the calculations of diluted net loss per
share, prior to application of the treasury stock method for options, was
8,507,875 and 7,051,000 for the year ended December 31, 1999 and the period from
May 29, 1998 (inception) to December 31, 1998, respectively. Such securities,
had they been dilutive, would have been included in the computations of diluted
net loss per share.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, which is
effective for fiscal years beginning after June 15, 2000. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for the Company's financial statements for the year ending December
31, 2001. Management believes that this statement will not have a material
impact on the Company's financial position or results of operations.
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB Opinion No. 25. However, the exposure draft has not been
finalized. Once finalized and issued, the current accounting practices for
transactions involving stock compensation may need to change and such changes
could affect the Company's future operating results.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The application of SAB No. 101
did not have a material impact on the financial statements of the Company.
RECLASSIFICATION
Certain amounts in the prior year financial statements have been reclassified to
conform to current year presentation.
F-11
<PAGE> 101
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. NOTES PAYABLE
Notes payable consisted of the following amounts at December 31, 1999 (no notes
were outstanding at December 31, 1998):
<TABLE>
<S> <C>
Revolving $750,000 facility note due May 31, 2000 with interest at prime
(8.5% at December 1999), collateralized by the assets of the Company $ 750,000
Revolving $250,000 facility note due May 31, 2000 with interest at prime (8.5%
at December 1999), collateralized by the assets of the Company -
Equipment financing lease for $1,000,000 with a three year term and interest
at 7.5% -
Equipment facility term note for $1,000,000 due August 1, 2002 with interest
at the sum of the U.S. Treasury note yield to maturity (5.6% at December
1999) plus 2.5%, collateralized by the assets of the Company 846,952
Subordinated promissory notes with interest at
12%, collateralized by the assets of the Company payable in monthly
installments through November 1, 2002 and additional undrawn committment of
$1,000,000 payable in 36 monthly installments commencing one month after
the committment is funded. 2,000,000
-----------
3,596,952
Less discount on subordinated promissory note payable (256,667)
-----------
3,340,285
Less current portion of long term debt (1,714,092)
-----------
$ 1,626,193
===========
</TABLE>
The Company's notes payable contain certain financial covenants that would upon
default make the notes payable due and payable on demand.
Following are maturities of long-term debt:
<TABLE>
<CAPTION>
Year ending: December 31
------------
<S> <C>
2000 $ 1,714,092
2001 1,011,025
2002 871,835
------------
3,596,952
Less discount (256,667)
------------
$ 3,340,285
============
</TABLE>
F-12
<PAGE> 102
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. STOCKHOLDERS' DEFICIT
COMMON STOCK
The Company authorized 14,475,000 shares of common stock, of which 6,812,510
shares have been reserved for the conversion of Series A Redeemable Convertible
Preferred Stock and 2,000,000 shares have been reserved for issuance of stock
options. The common stock is subject to the prior and superior rights of the
preferred stock. The holders of common stock are entitled to one vote per share.
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A Redeemable Convertible Preferred Stock is convertible into common stock
at the option of the holder at any time based upon the conversion price defined
in the Second Amended and Restated Certificate of Incorporation. At December 31,
1999, the conversion price was $1.1764 per share. All of the outstanding shares
of Series A Redeemable Convertible Preferred Stock shall be automatically
converted into common stock in the event of a public offering whose offering
price is equal to or greater than $3.5292 per share and whose gross proceeds
equal or exceed $10,000,000.
In the event of voluntary or involuntary liquidation, including an acquisition,
of the Company, the holders of the Series A Redeemable Convertible Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of assets of the Company to holders of common stock, an amount for each share of
$1.1764, plus accrued or declared, but unpaid dividends.
At any time after October 13, 2003, each holder of Series A Redeemable
Convertible Preferred Stock shall have the option to require the Company to
redeem all of the Series A Redeemable Convertible Preferred Stock held by such
holder at a price per share equal to the liquidation amount or the then fair
value per share as determined by an independent appraisal.
Each holder of shares of Series A Redeemable Convertible Preferred Stock has
voting rights equal to common stock. Prior to January 1, 2003, the holders of
shares of Series A Redeemable Convertible Preferred Stock are entitled to
receive dividends as and if declared by the Board of Directors. Beginning
January 1, 2003, the holders will be entitled to receive cumulative dividends at
an annual rate of $.0823 per share.
F-13
<PAGE> 103
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. STOCKHOLDERS' DEFICIT (CONTINUED)
REDEEMABLE CONVERTIBLE PREFERRED STOCK SUBSCRIBED
In 1999 the Company signed an agreement with a lender to provide financing of up
to $3,000,000 in the form of a note and up to $1,000,000 in additional equipment
financing (See Note 3). In consideration of the agreements, the Company agreed
to issue $280,000 in warrants to purchase redeemable convertible preferred
stock. The number of warrants to be issued are based on the average of the value
assigned to the company's Series A redeemable convertible preferred stock
financing and the value assigned to the redeemable convertible preferred stock
in the Company's next financing. At December 31, 1999 no warrants had been
issued as the Company had not completed its next financing. The Company recorded
the obligation to issue the warrants as Preferred Stock Warrants Subscribed in
the accompanying financial statements. The value of the warrants has been
recognized as a discount to the related debt and is being amortized as
additional interest expense over the term of the note and the equipment
financing.
STOCK OPTIONS
The Company's 1998 Stock Plan (the "Plan") allows for the grant of options to
purchase shares of common stock and the issuance of common stock directly to
eligible persons.
The Plan provides for the options to be either Incentive Options or
Non-Statutory Options and approves issuance of up to 2,000,000 shares of common
stock over the term of the Plan. The exercise price per share of Incentive
Options shall not be less than 100% of the fair market value of the shares of
common stock. Vesting is generally ratable over a four year period beginning one
year after the grant date. No option shall have a term exceeding ten years from
the grant date.
The Plan provides the grantee the right to exercise prior to vesting. Options
exercised prior to an employee becoming fully vested in such options are subject
to repurchase by the Company should the employee be terminated or leave the
Company prior to becoming fully vested in such options. At December 31, 1999,
1,302,125 shares that were exercised by optionees remained unvested and subject
to repurchase.
Pro forma information regarding net loss and loss per share is required by FAS
123. The fair value for options was estimated at the date of grant using a
minimum value option pricing model with the following weighted-average
assumptions: weighted-average risk free interest rate of 6.00%; a dividend yield
of 0.0% and a weighted-average expected life of the option of four years.
F-14
<PAGE> 104
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. STOCKHOLDERS' DEFICIT (CONTINUED)
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
---- ----
<S> <C> <C>
Pro forma stock-based compensation expense $ (7,142) $ (85)
Pro forma net loss (8,523,083) (1,107,830)
------------- -------------
Pro forma basic and diluted net loss per share $ (1.84) $ (0.40)
</TABLE>
A summary of the Company's 1998 Stock Plan activity and related information for
the period from inception to December 31, 1998 and the year ended December 31,
1999 follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS RANGE OF EXERCISE PRICES EXERCISE PRICE
------- ------------------------ --------------
<S> <C> <C> <C>
Outstanding, May 29, 1998
(inception) -- $ -- $ --
Granted 251,000 0.005-0.12 0.08
Exercised (103,000) 0.005-0.12 0.03
Forfeited -- -- --
------- --------- ----
Outstanding, December 31, 1998 148,000 0.12 0.12
Granted 1,529,750 0.12-0.24 0.13
Exercised (1,263,000) 0.12 0.12
Forfeited (9,000) 0.12 0.12
------- --------- ----
Outstanding December 31, 1999 405,750 0.12-0.24 0.16
------- --------- ----
Exerciseable, December 31, 1999 405,750 0.12-0.24 0.16
------- --------- ----
</TABLE>
The weighted-average remaining contractual life of outstanding options is 9.78
years. Options available for grant at December 31, 1999 were 219,250.
During 1999, the Company sold 27,000 restricted shares of common stock at fair
market value to consultants. Also in 1999 the Company sold 60,000 restricted
shares of common stock at fair market value to non-employees. These shares vest
over 2 years and fully vest upon change of control.
5. INCOME TAXES
As of December 31, 1999, the Company has net operating loss carryforwards of
approximately $9,097,000 for federal tax reporting purposes and research and
development credit carryforwards of approximately $214,000. The net operating
loss and research and development credit carryforwards begin to expire in 2018
if not utilized. Utilization of the net operating losses and credits may be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986. The annual limitation may
result in the expiration of net operating losses and credits before utilization.
F-15
<PAGE> 105
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax liabilities:
$
Depreciable assets $ -- $ (11,072)
Prepaid expenses (50,373) (14,449)
----------- -----------
Total deferred tax liabilities (50,373) (25,521)
Deferred tax assets:
Depreciable assets 97,279 --
Accrued expenses 20,495 10,318
Net operating loss and tax credit carryforwards 3,579,302 329,948
----------- -----------
Total deferred tax assets 3,697,076 340,266
Net deferred tax assets 3,646,703 314,745
Valuation allowance for deferred tax assets (3,646,703) (314,745)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
</TABLE>
The Company has established a valuation allowance equal to the net deferred tax
assets due to uncertainties regarding the realization of net deferred tax assets
based on the Company's lack of earnings history. The valuation allowance
increased by $3,331,958 during the year ended December 31, 1999.
F-16
<PAGE> 106
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The Company's provision (benefit) for income taxes differs from the expected tax
expense (benefit) amount computed by applying the federal income tax rate to
income (loss) before income taxes as a result of the following:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Pre tax book income (loss) (34.0%) (34.0%)
State taxes net of federal benefit (3.0) (2.2)
Permanent items and other (2.1) 7.7
Change in valuation allowance 39.1 28.5
----- -----
0.0% 0.0%
===== =====
</TABLE>
6. LEASE COMMITMENTS
The Company is obligated under operating lease agreements covering certain
facilities and equipment. Rental expense was approximately $112,000 and $42,000
for the year ended December 31, 1999 and the period from May 29, 1998
(inception) to December 31, 1998, respectively. Future minimum payments by year
and in aggregate for all operating leases with initial terms of one year or more
consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
2000 $414,188
2001 506,238
2002 746
Thereafter 373
--------
Total minimum lease payments $921,545
========
</TABLE>
7. RELATED PARTY
Under a consulting agreement, the Company paid consulting fees of approximately
$315,000 to one of its stockholders for the year ended December 31, 1999. The
Company will continue to pay $300,000 per year in consulting fees to this
stockholder until termination of the agreement by the Company.
Under a separate consulting agreement, the Company paid consulting fees of
approximately $47,000 to one of its stockholders for the year ended December 31,
1999. The agreement with this stockholder was terminated June 30, 1999.
F-17
<PAGE> 107
Agere, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. RELATED PARTY (CONTINUED)
On November 19, 1999 the Company signed two option agreements to license
technology from one of its stockholders. The Company paid $100,000 for the
options and immediately recognized the payment as research and development
expense. Upon exercise of the options, the Company would be obligated to pay a
total purchase price of $1,950,000.
8. SUBSEQUENT EVENTS
ACQUISITION OF THE COMPANY
On January 19, 2000, the Board of Directors signed a definitive purchase
agreement with Lucent Technologies Inc. ("Lucent") for the merger of the
Company with Lucent.
EQUIPMENT FINANCING
During January 2000, the Company obtained approximately $306,000 in equipment
financing under the terms of an existing debt agreement (see Note 3). The
agreement has a three year term, with interest at 7.5% and a maximum loan amount
of $1,000,000.
F-18
<PAGE> 108
ANNEX A
-----------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LUCENT TECHNOLOGIES INC.,
CHIP ACQUISITION INC.
AND
AGERE, INC.
-------------------------------------------
Dated as of January 19, 2000
-------------------------------------------
A-1
<PAGE> 109
AGREEMENT AND
PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of January 19,
2000, by and among LUCENT TECHNOLOGIES INC., a Delaware corporation ("Lucent"),
CHIP ACQUISITION INC., a Delaware corporation ("Acquisition"), and AGERE, INC.,
a Delaware corporation (the "Company").
BACKGROUND
A. The Company is a Delaware corporation with its registered office
located at 15 East North Street, City of Dover, County of Kent, Delaware, and
has authorized 14,475,000 shares of common stock, par value $.001 per share
(collectively, the "Company Common Stock"), and 6,800,000 shares of preferred
stock, $.001 par value per share, of which 6,800,000 shares have been designated
Series A Convertible Preferred Stock (collectively, the "Company Preferred
Stock", and together with the Company Common Stock, the "Company Capital
Stock"). The Company is engaged principally in the design, development,
production, marketing, distribution, maintenance and support of network
processors (the "Business").
B. Lucent is a Delaware corporation with its registered office located
at 1013 Centre Road, Wilmington, Delaware.
C. Acquisition is a wholly-owned subsidiary of Lucent and was formed to
merge with and into the Company so that as a result of the merger the Company
will survive and become a wholly-owned subsidiary of Lucent. Acquisition is a
Delaware corporation with its registered office located at 1013 Centre Road,
Wilmington, Delaware, and has authorized an aggregate of 1,000 shares of common
stock, no par value per share ("Acquisition Common Stock").
D. The Board of Directors of each of Acquisition and the Company has
determined that the merger of Acquisition with and into the Company (the
"Merger") in accordance with the provisions of the Delaware General Corporation
Law, as amended (the "DGCL"), and subject to the terms and conditions of this
Agreement, is in the best interests of Acquisition and the Company and their
respective stockholders.
E. The Boards of Directors of Acquisition and the Company have approved
this Agreement and the transactions contemplated hereby.
F. The parties intend that, for federal income tax purposes, the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Code and that this Agreement shall constitute a plan of reorganization.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound do hereby agree
as follows:
A-2
<PAGE> 110
1. The Merger
1.1 General. (a) Subject to the terms and conditions of this
Agreement and in accordance with the DGCL, at the Effective Time, (i)
Acquisition shall be merged with and into the Company, (ii) the separate
corporate existence of Acquisition shall cease and (iii) the Company shall be
the surviving corporation (the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of Delaware.
(b) The Merger shall become effective at the time of filing of
a Certificate of Merger, substantially in the form of Exhibit A attached hereto
(the "Certificate of Merger"), with the Secretary of State of the State of
Delaware in accordance with the provisions of Section 251 of the DGCL, or at
such later time as may be stated in the Certificate of Merger or such later date
as the parties may mutually agree (the "Effective Time"). Subject to the terms
and conditions of this Agreement, the Company and Acquisition shall duly execute
and file the Certificate of Merger with the Secretary of State of the State of
Delaware at the time of the Closing. The closing of the Merger (the "Closing")
shall take place at the offices of Sidley & Austin, 875 Third Avenue, New York,
New York, at 10:00 A.M. two business days after the date on which the last of
the conditions set forth in Section 6 shall have been satisfied or waived, or on
such other date, time and place as the parties may mutually agree (the "Closing
Date").
(c) At the Effective Time, the effect of the Merger shall be
as provided in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company and
Acquisition shall vest in the Surviving Corporation, and all debts, liabilities,
obligations, restrictions, disabilities and duties of the Company and
Acquisition shall become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Corporation.
1.2 Certificate of Incorporation. The Certificate of
Incorporation of Acquisition, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided therein and by law except that Article I of
such Certificate of Incorporation shall be amended to read as follows: "The name
of the Corporation is: "AGERE, INC."
1.3 By-Laws. The By-laws of Acquisition, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter amended as provided therein and by law.
1.4 Directors and Officers. From and after the Effective Time,
(a) the directors of Acquisition at the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and By-laws of the Surviving Corporation, and
(b) the officers of Acquisition at the Effective Time shall be the initial
officers of the Surviving Corporation, in each case, until their respective
successors are duly elected or appointed and qualified.
1.5 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Acquisition, the Company or the
holders of any of the following securities:
A-3
<PAGE> 111
(a) Each issued and outstanding share of common stock of
Acquisition shall be converted into one validly issued, fully paid and
nonassessable share of Common Stock, no par value per share, of the Surviving
Corporation;
(b) Each share of Company Capital Stock held in the treasury
of the Company and each share of Company Capital Stock owned by Acquisition or
Lucent shall be canceled without any conversion thereof and no payment or
distribution shall be made with respect thereto; and
(c) Subject to the provisions of Sections 1.6 and 1.8, each
share of Company Capital Stock issued and outstanding immediately prior to the
Effective Time (other than (i) shares canceled in accordance with Section 1.5(b)
and (ii) Dissenting Shares) shall be converted into (A) in the case of each
share of Company Common Stock, .57953 (such number as adjusted in accordance
with Section 1.6 (the "Common Stock Exchange Ratio")) and (B) in the case of
each share of Company Preferred Stock, .60227 (such number as adjusted in
accordance with Section 1.6 (the "Preferred Stock Exchange Ratio"); each of the
Common Stock Exchange Ratio, the Preferred Stock Exchange Ratio and the Warrant
Exchange Ratio is referred to as an "Exchange Ratio" and collectively referred
to as the "Exchange Ratios") of a validly issued, fully paid and nonassessable
share of Lucent Common Stock including the corresponding percentage right (the
"Right") to purchase shares of junior preferred stock, par value $1.00 per
share, pursuant to the Rights Agreement dated as of April 4, 1996, as amended,
between Lucent and The Bank of New York (successor to First Chicago Trust
Company of New York), as Rights Agent. All references in this Agreement to
Lucent Common Stock to be received in accordance with the Merger shall be
deemed, from and after the Effective Time, to include the Rights. As of the
Effective Time, each share of Company Capital Stock shall no longer be
outstanding and shall automatically be canceled and retired, and each holder of
a certificate representing any shares of Company Capital Stock shall cease to
have any rights with respect thereto other than (i) the right to receive shares
of Lucent Common Stock to be issued in consideration therefor upon the surrender
of such certificate, (ii) any dividends and other distributions in accordance
with Section 1.9(c) and (iii) any cash, without interest, to be paid in lieu of
any fractional share of Lucent Common Stock in accordance with Section 1.8.
1.6 Adjustment of the Exchange Ratios. In the event that,
prior to the Effective Time, any stock split, combination, reclassification or
stock dividend with respect to the Lucent Common Stock, any change or conversion
of Lucent Common Stock into other securities or any other dividend or
distribution with respect to the Lucent Common Stock (other than regular
quarterly dividends) should occur or, if a record date with respect to any of
the foregoing should occur, appropriate and proportionate adjustments shall be
made to each Exchange Ratio, and thereafter all references to an Exchange Ratio
shall be deemed to be to such Exchange Ratio as so adjusted.
1.7 Dissenting Shares. (a) Notwithstanding any provision of
this Agreement to the contrary, shares of Company Capital Stock that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall not have voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the consideration set forth in Section 1.5(c). Such stockholders shall
be entitled to receive such consideration as is determined to be due with
respect to such Dissenting Shares in accordance with the provisions of Section
262, except that all Dissenting Shares held by stockholders who shall have
failed to perfect or who effectively shall have withdrawn
A-4
<PAGE> 112
or lost their rights to appraisal of such shares under Section 262 shall
thereupon be deemed to have been converted into and to have become exchangeable
for, as of the Effective Time, the right to receive the shares of Lucent Common
Stock specified in Section 1.5(c), without any interest thereon, upon surrender,
in the manner provided in Section 1.9, of the certificate or certificates that
were formerly evidenced by such Dissenting Shares less the number of shares of
Lucent Common Stock allocable to such stockholder that have been deposited in
the Escrow Fund in respect of Company Capital Stock pursuant to Sections 1.9(b)
and 8.1.
(b) The Company shall give Lucent (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands, and
any other instruments served pursuant to the DGCL and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of Lucent, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
1.8 No Fractional Shares. No certificates or scrip
representing fractional shares of Lucent Common Stock shall be issued upon the
surrender for exchange of Certificates or Warrants, as applicable, and such
fractional share shall not entitle the record or beneficial owner thereof to
vote or to any other rights as a stockholder of Lucent. In lieu of receiving any
such fractional share, the stockholder shall receive cash (without interest) in
an amount rounded to the nearest whole cent, determined by multiplying (i) the
per share closing price on the New York Stock Exchange, Inc. (the "NYSE") of
Lucent Common Stock (as reported on the NYSE Composite Transactions Tape as such
Tape is reported in the Wall Street Journal or another recognized business
publication) on the date immediately preceding the date on which the Effective
Time shall occur (or, if the Lucent Common Stock did not trade on the NYSE on
such prior date, the last day of trading in Lucent Common Stock on the NYSE
prior to the Effective Time) by (ii) the fractional share to which such holder
would otherwise be entitled. Lucent shall make available to the Exchange Agent
the cash necessary for this purpose.
1.9 Exchange Procedures; Distributions with Respect to
Unexchanged Shares; Stock Transfer Books. (a) As of the Effective Time, Lucent
shall deposit with the Exchange Agent, for the benefit of the holders of shares
of Company Capital Stock and Warrants, certificates representing the shares of
Lucent Common Stock to be issued pursuant to Sections 1.5(c) and 5.6(g) in
exchange for the shares of Company Capital Stock and Warrants, less the number
of shares of Lucent Common Stock to be deposited in the Escrow Fund pursuant to
Section 8.1. Such shares of Lucent Common Stock deposited with the Exchange
Agent, together with any dividends or distributions with respect thereto
pursuant to Sections 1.8 and 1.9(c), are referred to herein as the "Exchange
Fund".
(b) As soon as practicable after the Effective Time, Lucent
shall use its reasonable best efforts to cause the Exchange Agent to send to
each Person who was, at the Effective Time, a holder of record of certificates
which represented outstanding Company Capital Stock (the "Certificates"), which
shares were converted into the right to receive Lucent Common Stock pursuant to
Section 1.5(c), or a holder of Warrants entitled to receive shares of Lucent
Common Stock pursuant to Section 5.6(g), a letter of transmittal which (i) shall
specify that delivery shall be effected and risk of loss and title to such
Certificates or Warrants, as applicable, shall pass, only upon actual delivery
thereof to the Exchange Agent and (ii) shall contain instructions for use in
effecting the
A-5
<PAGE> 113
surrender of the Certificates or Warrants, as applicable. Upon surrender to the
Exchange Agent of Certificates or Warrants, as applicable, for cancellation,
together with such letter of transmittal duly executed and such other documents
as the Exchange Agent may reasonably require, such holder shall be entitled to
receive in exchange therefor (A) a certificate representing the number of whole
shares of Lucent Common Stock into which the Company Capital Stock represented
by the surrendered Certificate or Warrant, as applicable, shall have been
converted at the Effective Time less the number of shares of Lucent Common Stock
to be deposited in the Escrow Fund on such holder's behalf pursuant to Section
8.1, (B) cash in lieu of any fractional share of Lucent Common Stock in
accordance with Section 1.8 and (C) dividends and distributions, if any, that
are payable in accordance with Section 1.9(c), and the Certificates or Warrants,
as applicable, so surrendered shall then be canceled. Subject to Section 1.8 and
Section 1.9(c), until surrendered as contemplated by this Section 1.9(b), each
Certificate or Warrant, as applicable, from and after the Effective Time shall
be deemed to represent only the right to receive, upon such surrender, the
number of shares of Lucent Common Stock into which such Company Capital Stock or
Warrant, as applicable, shall have been converted. In accordance with Section
8.1, as soon as practicable after the Closing Date and subject to the provisions
of Section 8, Lucent shall cause to be delivered to the Escrow Agent
certificates representing shares of Lucent Common Stock to be deposited in the
Escrow Fund pursuant to Section 8 which shall be registered in the name of the
Escrow Agent as nominee for the holders of Certificates canceled pursuant to
this Section 1.9. Such shares shall be beneficially owned by such holders, shall
be entitled to receive any dividends or other distributions as set forth in
Section 1.9(c) and shall be held in escrow and shall be available to compensate
Lucent as provided in Section 8. To the extent not used for such purpose, such
shares shall be released, as provided in Section 8.
(c) No dividends or other distributions declared or made after
the Effective Time with respect to the Lucent Common Stock with a record date
after the Effective Time shall be paid to any holder entitled by reason of the
Merger to receive certificates representing Lucent Common Stock and no cash
payment in lieu of a fractional share of Lucent Common Stock shall be paid to
any such holder pursuant to Section 1.8 until such holder shall have surrendered
its Certificates or Warrants, as applicable, pursuant to this Section 1.9.
Subject to applicable law, following surrender of any such Certificate or
Warrant, as applicable, such holder shall be paid, in each case, without
interest, (i) the amount of any dividends or other distributions theretofore
paid with respect to the shares of Lucent Common Stock represented by the
certificate received by such holder and having a record date on or after the
Effective Time and a payment date prior to such surrender and (ii) at the
appropriate payment date, or as promptly as practicable thereafter, the amount
of any dividends or other distributions payable with respect to such shares of
Lucent Common Stock and having a record date on or after the Effective Time but
prior to such surrender and a payment date on or after such surrender.
(d) If any certificate representing shares of Lucent Common
Stock or any cash is to be issued or paid to any Person other than the
registered holder of the Certificate or Warrant, as applicable, surrendered in
exchange therefor, it shall be a condition to such exchange that such
surrendered Certificate or Warrant, as applicable, shall be properly endorsed
and otherwise in proper form for transfer and such Person either (i) shall pay
to the Exchange Agent any transfer or other taxes required as a result of the
issuance of such certificates of Lucent Common Stock and the distribution of
such cash payment to such Person or (ii) shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable. Lucent or
the Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this
A-6
<PAGE> 114
Agreement to any holder of shares of Company Capital Stock or Warrant, as
applicable, such amounts as Lucent or the Exchange Agent is required to deduct
and withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Lucent or the Exchange Agent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Company Capital Stock or Warrant in respect of which such deduction
and withholding was made by Lucent or the Exchange Agent. All amounts in respect
of taxes received or withheld by Lucent shall be disposed of by Lucent in
accordance with the Code or such state, local or foreign tax law, as applicable.
(e) If any Certificate or Warrant, as applicable, shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Certificate or Warrant to be lost, stolen or destroyed
and subject to such other conditions as the Board of Directors of the Surviving
Corporation may impose, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed Certificate or Warrant the shares of Lucent Common
Stock as determined under Section 1.5(c) or Section 5.6(g), as applicable, and
pay any cash, dividends or other distributions as determined in accordance with
Sections 1.8 and 1.9(c) in respect of such Certificate or Warrant; provided that
Lucent may, in its reasonable discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificate or Warrant to deliver a bond in such sum as it may reasonably
require as indemnity against any claim that may be made against Lucent, the
Surviving Corporation or the Exchange Agent with respect to the Certificate or
Warrant alleged to have been lost, stolen or destroyed.
(f) At the close of business on the day on which the Effective
Time occurs, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of shares of
Company Capital Stock on the records of the Company. From and after the
Effective Time, the holders of shares of Company Capital Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares except as otherwise provided herein or by applicable law.
1.10 Return of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the former holders of Company Capital Stock or
holders of Warrants, as applicable, for six months after the Effective Time
shall be delivered to Lucent, upon its request, and any such former holders who
have not theretofore surrendered to the Exchange Agent their Certificates or
Warrants, as applicable, in compliance herewith shall thereafter look only to
Lucent for payment of their claim for shares of Lucent Common Stock, any cash in
lieu of fractional shares of Lucent Common Stock and any dividends or
distributions with respect to such shares of Lucent Common Stock, and Lucent
agrees to promptly pay any such claims. None of Lucent, Acquisition, the
Exchange Agent or the Company shall be liable to any former holder of Company
Capital Stock or Warrants, as applicable, for any such shares of Lucent Common
Stock held in the Exchange Fund (and any cash, dividends and distributions
payable in respect thereof) which are delivered to a public official pursuant to
an official request under any applicable abandoned property, escheat or similar
law.
1.11 No Further Ownership Rights in Company Capital Stock. All
certificates representing shares of Lucent Common Stock delivered upon the
surrender for exchange of any Certificate or Warrant, as applicable, in
accordance with the terms hereof (including any cash paid
A-7
<PAGE> 115
pursuant to Section 1.8 or Section 1.9) shall be deemed to have been delivered
(and paid) in full satisfaction of all rights pertaining to the Company Capital
Stock previously represented by such Certificate or Warrant.
1.12 Further Assurances. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
either the Company or Acquisition or (b) otherwise to carry out the purposes of
this Agreement, the Surviving Corporation and its proper officers and directors
or their designees shall be authorized to execute and deliver, in the name and
on behalf of either the Company or Acquisition, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of the Company or
Acquisition, all such other acts and things necessary, desirable or proper to
vest, perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of the Company or
Acquisition, as applicable, and otherwise to carry out the purposes of this
Agreement.
2. Approval by Stockholders
2.1 Approval by Stockholders. Each of Acquisition and the
Company shall call a meeting of its respective stockholders to be held as
promptly as practicable after the date hereof for purposes of voting upon this
Agreement. Each of the Company and Acquisition will, through their respective
boards of directors, recommend to their respective stockholders approval of this
Agreement. The Company shall provide Lucent with a copy of all materials to be
distributed to its stockholders describing the transactions contemplated hereby
not later than one day prior to distribution. The Company, Acquisition and
Lucent each agree to execute and deliver such further documents and instruments
and to do such other acts and things as may be required to complete all
requisite corporate action in connection with the transactions contemplated by
this Agreement. All materials distributed to the stockholders of the Company
with respect to this Agreement, including any description of the transactions
contemplated hereunder, the recommendation of the Board of Directors of the
Company that such stockholders approve the Merger, the vote by such stockholders
to approve this Agreement and the Merger and any description of appraisal rights
available to such stockholders shall be in form and substance reasonably
acceptable to Lucent and the Company, and shall be in accordance with applicable
law.
3. Representations and Warranties of the Company. The Company
represents and warrants to Acquisition and Lucent as follows:
3.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority and all necessary
governmental approval to carry on its business as it has been and is now being
conducted. The Company is duly qualified or licensed as a foreign corporation to
do business and is in good standing in each jurisdiction where the nature of its
business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed and in good standing would not have a Material Adverse
Effect on the Company.
A-8
<PAGE> 116
3.2 Capitalization; Options and Other Rights. (a) The total
authorized shares of capital stock of the Company consists of (i) 14,475,000
shares of Company Common Stock, of which 6,345,250 shares are issued and
outstanding (the "Outstanding Common Shares") and 6,800,000 shares have been
reserved for the conversion of the Company Preferred Stock (the "Reserved Common
Shares" and collectively with the Outstanding Common Shares, the "Common
Shares"); and (ii) 6,800,000 shares of Company Preferred Stock, of which
6,800,000 shares have been designated as Series A Preferred Stock, of which
6,800,000 shares are issued and outstanding (the "Preferred Shares") and 12,510
shares are reserved for issuance upon exercise of the Warrants at an exercise
price set forth in Schedule 3.2(a) (the "Warrant Shares"; the Common Shares, the
Preferred Shares and the Warrant Shares are collectively referred to herein as
the "Shares"). All the Outstanding Common Shares have been duly and validly
authorized and issued and are fully paid and nonassessable and all the Reserved
Common Shares if and when issued upon the conversion of the Company Preferred
Stock will be duly and validly authorized and issued and fully paid and
nonassessable. All the Preferred Shares have been duly and validly authorized
and issued and are fully paid and nonassessable and all the shares of Series A
Preferred Stock when issued in accordance with the terms of the Warrants will be
duly and validly authorized and issued and fully paid and nonassessable. None of
the Shares has been issued and none of such Company Capital Stock will be issued
in violation of the preemptive rights of any stockholder of the Company. The
Outstanding Common Shares, the Preferred Shares and the Warrants have been
issued, and the Reserved Common Shares reserved for issuance upon the conversion
of the Company Preferred Stock and the shares of Series A Preferred Stock to be
issued upon exercise of the Warrants will be issued, in compliance in all
material respects with all applicable laws, statutes, ordinances, rules,
regulations, orders, writs, injunctions, judgments or decrees entered, enacted,
promulgated, enforced or issued by any court or other governmental or regulatory
authority, domestic or foreign (collectively, "Laws").
(b) Except as set forth in Schedules 3.2(b) and 3.15(e), there
are no existing agreements, subscriptions, options, warrants, calls,
commitments, trusts (voting or otherwise), or rights of any kind whatsoever
granting to any Person any interest in or the right to purchase or otherwise
acquire from the Company or granting to the Company any interest in or the right
to purchase or otherwise acquire from any Person, at any time, or upon the
occurrence of any stated event, any securities of the Company, whether or not
presently issued or outstanding, nor are there any outstanding securities of the
Company or any other entity which are convertible into or exchangeable for other
securities of the Company, nor are there any agreements, subscriptions, options,
warrants, calls, commitments or rights of any kind granting to any Person any
interest in or the right to purchase or otherwise acquire from the Company or
any other Person any securities so convertible or exchangeable, nor, to the best
knowledge of the Company, are there any proxies, agreements or understandings
with respect to the voting of the Shares or the direction of the business
operations or conduct of the Company, except as contemplated by this Agreement.
(c) Schedule 3.2(c) sets forth a true and complete list of all
holders of Company Capital Stock (including the amount and type of security held
by such holder).
3.3 Authority; Stockholder Vote. (a) The Company has full
power and authority to execute, deliver and perform this Agreement and the
transactions contemplated hereunder. The execution, delivery and performance of
this Agreement by the Company has been duly authorized and approved by all
necessary corporate or other action and, except for (i) the approval of this
Agreement by the stockholders of the Company and (ii) the filing and recordation
of appropriate merger
A-9
<PAGE> 117
documents as required by the DGCL, no other corporate or other proceedings on
the part of the Company are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and is the legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(b) The execution, delivery and performance by the Company of
this Agreement and the consummation of the Merger do not, and will not, (i)
violate or conflict with any provision of the Certificate of Incorporation or
By-laws of the Company, (ii) violate any Law applicable to the Company, except
for violations which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company, or (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any note, bond, indenture, lien, mortgage, lease,
permit, guaranty or other agreement, instrument or obligation to which the
Company is a party or by which any of its properties may be bound, except (A) as
set forth on Schedule 3.3(b) and (B) for violations, breaches or defaults which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Company.
(c) The execution and delivery of this Agreement by the
Company do not, and the performance by the Company of this Agreement will not,
require any consent, approval, authorization or permission of, or filing with or
notification to any governmental or regulatory authority, domestic or foreign,
or any other Person except for (i) the filing and recordation of appropriate
merger documents as required by the DGCL and (ii) any such consent, approval,
authorization, permission, notice or filing which if not obtained or made could
not reasonably be expected to have a Material Adverse Effect on the Company.
(d) The Board of Directors of the Company (i) has approved
this Agreement and the transactions contemplated hereby, (ii) has determined
that the terms of the Merger are in the best interests of the stockholders of
the Company, and (iii) has resolved to recommend the approval of the Merger and
the adoption of this Agreement and the consummation of the transactions
contemplated hereby to the stockholders of the Company.
(e) Pursuant to the provisions of the DGCL, the Certificate of
Incorporation of the Company, the By-laws of the Company and any other
applicable law, the only approval of holders of Company Capital Stock required
to approve the Merger and to approve and adopt the Agreement and the
transactions contemplated hereby is the approval of (i) a majority of the
outstanding shares of Company Common Stock and Series A Preferred Stock voting
as a single class and (ii) at least 67% of the outstanding shares of Series A
Preferred Stock, voting separately as a single class.
3.4 Charter Documents. The Company has previously furnished to
Lucent a true, complete and correct copy of the Certificate of Incorporation and
the By-laws of the Company. The Certificate of Incorporation and By-laws of the
Company are in full force and effect. The Company is not in violation of any
provision of its Certificate of Incorporation or By-laws.
A-10
<PAGE> 118
3.5 Financial Statements. (a) The Company has previously
furnished to Lucent true and complete copies of the following financial
statements of the Company (collectively, the "Financial Statements"):
(i) the audited balance sheet as of December 31, 1998 (the
"Balance Sheet"), with a report by Ernst & Young LLP;
(ii) the audited statement of operations, stockholders' equity
and cash flows for the fiscal year ended December 31, 1998, with a
report by Ernst & Young LLP;
(iii) the unaudited balance sheet as of November 30, 1999; and
(iv) the unaudited statement of operations, stockholders'
equity and cash flows for the eleven-month period ended November 30,
1999.
(b) The Financial Statements were prepared in accordance with
GAAP. The Financial Statements were prepared on the basis of the books and
records of the Company and present fairly, in all material respects, the
financial position of the Company as of the dates thereof and the results of its
operations, changes in stockholders' equity and cash flows for each of the
periods then ended in conformity with GAAP (except, in the case of the unaudited
financial statements, for normal and recurring year-end adjustments and the
omission of footnotes).
3.6 Absence of Undisclosed Liabilities; Indebtedness. (a)
Except as disclosed on Schedule 3.6(a) or as set forth in the notes to the
Financial Statements, the Company does not have any liability or obligation of
any nature (whether absolute, accrued or contingent or otherwise) which is in
excess of amounts shown or reserved therefor in the Financial Statements other
than (i) liabilities or obligations not required under GAAP on a basis
consistent with that of preceding accounting periods to be reported on such
Financial Statements and (ii) liabilities or obligations incurred after the date
of the Balance Sheet incurred in the ordinary course of business and consistent
with past practice.
(b) Except as disclosed on Schedule 3.6(b), the Company has no
Indebtedness which in aggregate principal amount is greater than $100,000.
3.7 Operations and Obligations. (a) Except as set forth in
Schedule 3.7(a) or as reflected in the Financial Statements, and except as a
result of the transactions contemplated by this Agreement, since December 31,
1998,
(i) there has been no material adverse change in the assets,
business, financial condition or operations of the Company and there
has been no event or condition that has had or could reasonably be
expected to have a Material Adverse Effect on the Company; and
(ii) there has been no impairment, damage, destruction, loss
or claim, whether or not covered by insurance, or condemnation or other
taking which could reasonably be expected to have a Material Adverse
Effect on the Company.
A-11
<PAGE> 119
(b) Except (i) as set forth in Schedule 3.7(b) and (ii) for
actions required to be taken hereunder or approved by Lucent, since December 31,
1998, the Company has conducted its business only in the ordinary course and
consistent with past practice. Without limiting the generality of the foregoing,
since December 31, 1998, except as set forth in such Schedule, the Company has
not:
(i) issued, delivered or agreed (conditionally or
unconditionally) to issue or deliver, or granted any option, warrant or
other right to purchase, any of its capital stock or other equity
interest or any security convertible into its capital stock or other
equity interest, except for the grant of options or the issuance of its
capital stock upon the exercise of options in the ordinary course of
business consistent with past practice;
(ii) other than in the ordinary course of business consistent
with past practice, issued, delivered or agreed (conditionally or
unconditionally) to issue or deliver any bonds, notes or other debt
securities, or borrowed or agreed to borrow any funds or entered into
any lease the obligations of which, in accordance with generally
accepted accounting principles, would be capitalized;
(iii) paid any obligation or liability (absolute or
contingent) other than current liabilities reflected or reserved
against on the Balance Sheet and current liabilities incurred
thereafter in the ordinary course of business consistent with past
practice;
(iv) declared or made, or agreed to declare or make, any
payment of dividends or distributions to its stockholders or purchased
or redeemed, or agreed to purchase or redeem, any Shares;
(v) except in the ordinary course of business consistent with
past practice, made or permitted any material amendment or termination
of any agreement to which the Company is a party and is or should be
set forth on Schedule 3.9;
(vi) undertaken or committed to undertake capital expenditures
exceeding $100,000 for any single project or related series of
projects;
(vii) sold, leased (as lessor), transferred or otherwise
disposed of, mortgaged or pledged, or imposed or suffered to be imposed
any Lien on, any of the assets reflected on the Balance Sheet or any
assets thereafter acquired by the Company, except for inventory and
personal property sold or otherwise disposed of for fair value in the
ordinary course of its business consistent with past practice and
except for Permitted Liens;
(viii) canceled any debts owed to or claims held by the
Company (including the settlement of any claims or litigation) other
than in the ordinary course of its business consistent with past
practice;
(ix) accelerated or delayed collection of accounts receivable
in advance of or beyond their regular due dates or the dates when the
same would have been collected except in the ordinary course of its
business consistent with past practice;
A-12
<PAGE> 120
(x) delayed or accelerated payment of any account payable or
other liability beyond or in advance of its due date or the date when
such liability would have been paid except in the ordinary course of
its business consistent with past practice;
(xi) entered into or become committed to enter into any other
material transaction except in the ordinary course of business;
(xii) allowed the levels of supplies or other materials
included in the inventory of the Company to vary materially from the
levels customarily maintained in accordance with past practice;
(xiii) except for increases in the ordinary course of business
consistent with past practice, instituted any increase in any
compensation payable to any employee of the Company, amended any Plan
or modified any other benefits made available to any such employees;
(xiv) made any change in the accounting principles or made any
material change in accounting practices used by the Company, in each
case, from those applied in the preparation of the Financial
Statements; or
(xv) taken any action which would be prohibited under Section
5.2 if such action had been taken between the date hereof and the
Closing Date.
(c) Except as set forth in Schedule 3.7(c), there are no
accrued and unpaid dividends or distributions with respect to any capital stock
of the Company.
3.8 Properties. (a) The Company has good and valid title to
all its properties and assets reflected on the Balance Sheet or acquired after
the date thereof except for (i) properties and assets sold or otherwise disposed
of in the ordinary course of business since the date of such Balance Sheet, (ii)
leasehold interests, in which event the Company has a valid leasehold interest
and (iii) properties and assets which individually or in the aggregate are not
material.
(b) The Company does not own any real property.
3.9 Contracts. Schedule 3.9 lists any of the following not
otherwise listed on any other Schedule:
(a) each written contract or commitment which creates an
obligation on the part of the Company in excess of $100,000;
(b) each written debt instrument, including, without
limitation, any loan agreement, line of credit, promissory note, security
agreement or other evidence of indebtedness, where the Company is a lender,
borrower or guarantor, in a principal amount in excess of $50,000;
(c) each written contract or commitment restricting the
Company from engaging in any industry or in any line of business in any
location;
A-13
<PAGE> 121
(d) each written contract to which the Company is a party
containing a change of control provision;
(e) each written contract or commitment in excess of $25,000
to which the Company is a party for any charitable contribution;
(f) each written joint venture or partnership agreement to
which the Company is a party;
(g) each written distributorship, sales agency, sales
representative, reseller or marketing, value added reseller, original equipment
manufacturing, technology transfer, source code license or other license or
other agreement containing the right to sublicense software and/or technology,
in each case, to which the Company is a party;
(h) each written agreement in excess of $50,000 to which the
Company is a party with respect to any assignment, discounting or reduction of
any receivables of the Company;
(i) each agreement, option or commitment or right with, or
held by, any third party to acquire any assets or properties, or any interest
therein, of the Company, having a value in excess of $50,000, except for
contracts for the sale of inventory, machinery or equipment in the ordinary
course of business;
(j) each written employment or consulting contract entered
into by the Company which is currently in effect; and
(k) each supply agreement that the Company could not readily
replace without a material impact on the Company.
Except as set forth on Schedule 3.9, (i) there are no oral
contracts or commitments of the types described in this Section 3.9 which create
an obligation on the part of the Company which are individually in excess of
$50,000 or in the aggregate in excess of $150,000, (ii) there are no contracts
or commitments between the Company and any Affiliate, (iii) there are no
contracts, commitments or arrangements with any employee which require the
payment of any compensation upon the occurrence of any specified contingency,
(iv) there are no contracts or arrangements, except this Agreement, which
require notice to, the consent of, or any payment of any compensation (whether
as a penalty, liquidated damages or otherwise) to any party with respect to the
Merger or any of the transactions contemplated hereby or in the event of the
termination of such contract or arrangement on or following the Effective Time,
and (v) there are no contracts which would create rights to any Person against
Lucent or any of its Affiliates (other than rights against the Company as in
effect on the Closing Date).
3.10 Absence of Default. Except as set forth in Schedule 3.10,
(a) each of the agreements listed on Schedules 3.9, 3.13, 3.16 and 3.22 that
creates obligations of any person in excess of $50,000 or in the aggregate in
excess of $150,000 are, and after giving effect to the Merger will be, valid,
binding and in full force and effect; (b) the Company has fulfilled and
performed in all material respects its obligations required to be fulfilled or
performed as of the date hereof under each such agreement (in each case, to
which the Company is a party); (c) the Company is not and has not
A-14
<PAGE> 122
received any written allegation that it is, and to the best knowledge of the
Company, each other party to any such agreement is not, in default under, nor is
there or is there alleged in writing to be any basis for termination of, any
such agreement; (d) no event has occurred and no condition or state of facts
exists which, with the passage of time or the giving of notice or both, would
constitute such a default or breach by the Company or, to the best knowledge of
the Company, by any such other party; and (e) the Company is not currently
renegotiating any such agreement or paying liquidated damages in lieu of
performance thereunder. The Company has previously delivered complete and
correct copies of all such agreements (including all amendments) to Lucent.
3.11 Litigation. Except as set forth in Schedule 3.11, (i)
there are no actions, suits, arbitrations, legal or administrative proceedings
or investigations pending or, to the best knowledge of the Company, threatened
against the Company; and (ii) neither the Company nor the assets, properties or
business of the Company is subject to any judgment, order, writ, injunction or
decree of any court, arbitration tribunal or other governmental or regulatory
authority, domestic or foreign. Except as set forth in Schedule 3.11, the
Company is neither a plaintiff in any such proceeding nor contemplating
commencing legal action against any other Person.
3.12 Compliance with Law. Except as set forth in Schedule
3.12:
(a) the Company has complied in all material respects with,
and is not in violation of, in any material respect, any Law to which it or its
business is subject; and
(b) the Company has obtained all licenses, permits,
certificates or other governmental authorizations (collectively
"Authorizations") necessary for the ownership or use of its assets and
properties or the conduct of its business other than Authorizations (i) which
are ministerial in nature and which the Company has no reason to believe would
not be issued in due course and (ii) which, the failure of the Company to
possess, would not subject the Company to penalties other than fines not to
exceed $20,000 in the aggregate ("Immaterial Authorizations"); and
(c) the Company has not received written notice of violation
of, or knows of any material violation of, any Laws to which it or its business
is subject or any Authorization necessary for the ownership or use of its assets
and properties or the conduct of its business (other than Immaterial
Authorizations).
3.13 Intellectual Property; Year 2000. (a) The Company owns,
or is validly licensed or otherwise has the right to use, all patents, and
patent rights ("Patents") and all trademarks, trade secrets, trademark rights,
trade names, trade name rights, service marks, service mark rights, copyrights
and other proprietary intellectual property rights and computer programs (the
"Intellectual Property Rights"), in each case, which are material to the conduct
of the business of the Company. Schedule 3.13(a) contains a list of (i) Patents
and Patent applications, (ii) trademark registrations and applications and (iii)
copyright registrations and applications owned by the Company.
(b) To the best knowledge of the Company, the Company has not
interfered with, infringed upon (without license to infringe), misappropriated
or otherwise come into conflict with any Patent of any other Person. The Company
has not interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property Rights of any other Person. The Company
has not received any written charge, complaint, claim, demand or notice alleging
any such
A-15
<PAGE> 123
interference, infringement, misappropriation or violation (including any claim
that the Company must license or refrain from using any Patents or Intellectual
Property Rights of any other Person) which has not been settled or otherwise
fully resolved. To the best knowledge of the Company, no other Person has
interfered with, infringed upon (without license to infringe), misappropriated
or otherwise come into conflict with any Patents or Intellectual Property Rights
of the Company.
(c) Assuming that Lucent continues to operate the business of
the Company as presently conducted and proposed to be conducted by the Company,
then, to the best knowledge of the Company, Lucent's use of the Patents or
Intellectual Property Rights which is material to the conduct of the business by
the Company will not interfere with, infringe upon (without license to
infringe), misappropriate or otherwise come into conflict with the Patents or
Intellectual Property Rights of any other Person by virtue of any change of
control or prohibition of assignment provisions in agreements between the
Company and such Person.
(d) Each employee, agent, consultant, officer, director or
contractor who has materially contributed to or participated in the creation or
development of any copyrightable, patentable or trade secret material on behalf
of the Company or any predecessor in interest thereto either: (i) is a party to
a "work-for-hire" agreement under which the Company is deemed to be the original
owner/author of all property rights therein; or (ii) has executed an assignment
or an agreement to assign in favor of the Company or such predecessor in
interest, as applicable, all right, title and interest in such material, a copy
of which assignment or agreement to assign has been made available to Lucent.
(e) The Company has taken all necessary steps directed at
ensuring that its products (including prior and current products and technology
and products and technology currently under development) will, when used in
accordance with associated documentation on a specified platform or platforms,
be capable upon installation of (i) operating in accordance with their
specifications 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; provided, that all non-Company products
(e.g., hardware, software or firmware) used in or in combination with the
Company's products properly exchange data with the Company's products in the
same manner on dates in both the Twentieth and Twenty-First centuries. Further,
the Company has taken all necessary steps to assure that the year 2000 date
change will not adversely affect its operations or the systems and facilities
that support the operations of the Company, except as could not reasonably be
expected to have a Material Adverse Effect on the Company. Finally, in
conjunction with the Year 2000 date transition, the Company has not experienced
any material date-related failures of its systems and has no knowledge of any
date related issues experienced by its customers with respect to the Company's
products.
(f) Except as set forth on Schedule 3.13(f), the Company has
not sold, assigned, transferred, licensed or sublicensed, or entered into any
contract (oral or written) or other arrangement to sell, assign, transfer or
sublicense its Patents or Intellectual Property Rights other than, in connection
with the Company's assets, in the ordinary course of business, permitting its
customers to use any Patents or Intellectual Property Rights embedded in its
products, and the Company has not entered into any contract (oral or written) or
other arrangement pursuant to which the Company has agreed or is obligated to
license, transfer or place in escrow the source code for any
A-16
<PAGE> 124
of its products (prior or current) or restrict the use of any of its Patents or
Intellectual Property Rights.
(g) To the best knowledge of the Company, no stockholder of
the Company, nor any past or present employee, agent, officer, director,
consultant or contractor of the Company, has any interest or right, or claims
any interest or right (other than as a stockholder of the Company) in any Patent
or Intellectual Property Right that is material to the business and operations
of the Company as currently conducted or proposed or contemplated to be
conducted by the Company, except for such rights to be conveyed to the Company
by Obtek, L.P. pursuant to the Intellectual Property Transfer. Without limiting
the generality of the foregoing, all Patents and Intellectual Property Rights
held by Obtek, L.P. or any of its partners that is material to the business and
operations of the Company as currently conducted, or as proposed or contemplated
to be conducted by the Company, shall be conveyed to the Company in the
Intellectual Property Transfer.
3.14 Tax Matters. (a) Except as set forth on Schedule 3.14(a),
(i) the Company has filed all Tax Returns required to be filed; (ii) all such
Tax Returns are complete and accurate in all material respects and all Taxes
shown to be due on such Tax Returns have been or will be timely paid; (iii) all
Taxes (whether or not shown on any Tax Return) owed by the Company have been
timely paid or have been reserved against and entered into the books and records
of the Company in accordance with GAAP; (iv) the Company has not waived or been
requested to waive any statute of limitations in respect of Taxes; (v) the Tax
Returns referred to in clause (i) have been examined by the Internal Revenue
Service or the appropriate state, local or foreign taxing authority or the
period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (vi) to the best knowledge of the Company,
there is no action, suit, investigation, audit, claim or assessment pending or
proposed or threatened with respect to Taxes of the Company; (vii) all
deficiencies asserted or assessments made as a result of any examination of the
Tax Returns referred to in clause (i) have been paid in full or have been
reserved against and entered into the books and records of the Company in
accordance with GAAP; (viii) Tax indemnity arrangements, if any, will terminate
prior to Closing and the Surviving Corporation will not have any liability
thereunder on or after Closing; (ix) there are no liens for Taxes upon the
assets of the Company except liens relating to current Taxes not yet due; (x)
all Taxes which the Company is required by law to withhold or to collect for
payment have been duly withheld and collected, and have been paid or accrued,
reserved against and entered on the books of the Company in accordance with
GAAP; (xi) except for the Merger, since December 31, 1998, the Company has not
taken any action that would, under applicable law, materially adversely impact
Lucent's or the Company's ability to utilize any net operating carry forwards of
the Company; and (xii) the Company is not and has not been a member of any group
of corporations filing a consolidated tax return for United States federal
income tax purposes.
(b) No consent to the application of Section 341(f)(2) of the
Code has been filed with respect to any property or assets held or acquired or
to be acquired by the Company. Except in the ordinary course of its business,
the Company shall not make any election that could result in any adverse tax
consequences to the Company.
(c) The Company (i) has not agreed to and is not required to
make any adjustment pursuant to Section 481(a) of the Code; (ii) has no
knowledge that the Internal Revenue Service ("IRS") has proposed any such
adjustment or change in accounting method with respect to the
A-17
<PAGE> 125
Company; and (iii) does not have any application pending with the IRS or any
other tax authority requesting permission for any change in accounting method.
(d) Except as set forth on Schedule 3.14(d), the Company does
not own any interest in any (i) domestic international sales corporation, (ii)
foreign sales corporation, (iii) controlled foreign corporation, or (iv) passive
foreign investment company.
(e) The Company is not a party (other than as an investor) to
any industrial development bond.
(f) The Company has never been and is not a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(g) The Company has not 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 (i) in the two years prior
to the date of this Agreement or (ii) 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.
3.15 Employee Benefit Plans. (a) Schedule 3.15(a) contains a
list of all "employee pension benefit plans" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (the
"Pension Plans"), "employee welfare benefit plans" (as defined in Section 3(1)
of ERISA) (sometimes referred to as "Welfare Plans") and all other Benefit Plans
(together with the Pension Plans and Welfare Plans, the "Plans") maintained, or
contributed to, by the Company or any Person that, together with the Company, is
treated as a single employer under Section 414(b), (c), (m) or (o) of the Code
(the Company and each such other Person, a "Commonly Controlled Entity") for the
benefit of any current or any former employees, officers or directors of the
Company. The Company has made available to Lucent true, complete and correct
copies of (i) each Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (ii) the most recent annual report on Form 5500 filed
with the Internal Revenue Service with respect to each Plan (if any such report
was required), (iii) the most recent summary plan description for each Plan for
which such summary plan description is required, (iv) each trust agreement and
group annuity contract relating to any Plan and (v) all correspondence with the
IRS or the United States Department of Labor relating to any outstanding
controversy or audit. Except as would not have a Material Adverse Effect on the
Company, (x) each Plan has been administered in accordance with its terms, and
(y) the Company and all Plans are in compliance with applicable provisions of
ERISA and the Code.
(b) All Pension Plans that are intended to be qualified under
Section 401(a) of the Code have been the subject of a determination opinion,
notification or advisory letter from the Internal Revenue Service to the effect
that such Pension Plans is so qualified and the trust thereunder is exempt from
Federal income taxes under Section 501(a) of the Code, and no such determination
letter has been revoked nor has any event occurred since the date of such Plan's
most recent determination letter that would adversely affect its qualification
or materially increase its costs.
(c) Neither the Company nor any Commonly Controlled Entity has
maintained, contributed to or been obligated to contribute to any Plan that is
subject to Title IV of ERISA.
A-18
<PAGE> 126
(d) The Company does not have any liability or obligation
under any Welfare Plan to provide life insurance or medical benefits after
termination of employment to any employee or dependent other than as required by
Part 6 of Title I of ERISA.
(e) Schedule 3.15(e) lists all outstanding Company Stock
Options, showing for each such option: (i) the name of the optionee, (ii) the
number of shares issuable, (iii) the number of vested shares, (iv) the date of
expiration and (v) the exercise price. As set forth in such Schedule and
Schedule 3.2(b), the per share exercise price of each option granted under the
Company Stock Plan is not less than the fair market value of a share of Company
Common Stock on the date of grant of the applicable Company Stock Option, as
determined in good faith by the Board of Directors.
(f) Except as set forth in Schedule 3.15(f) or as provided by
this Agreement, no employee of the Company will be entitled to any additional
compensation or benefits or any acceleration of the time of payment or vesting
of any compensation or benefits under any Plan as a result of the transactions
contemplated by this Agreement.
(g) The deduction of any amount payable pursuant to the terms
of the Plans will not be subject to disallowance under Section 162 (m) of the
Code.
(h) Schedule 3.15(h) lists all shares of Company Capital Stock
issued pursuant to any restricted stock purchase agreement or stock option
agreement (including, without limitation, any such agreement amended in
accordance with the provisions of this Agreement and any stock option agreement
issued under the Company Stock Plan, the "Restricted Stock Agreements"),
including (i) the date such shares were sold, (ii) the purchase price per share
(which is also the price at which the Company may repurchase such shares), (iii)
the number of shares issued, (iv) the number of such shares which, as of the
date hereof, are no longer subject to repurchase rights in favor of the Company
and (v) the number of such shares which, as of the date hereof, remain subject
to repurchase rights in favor of the Company and the schedule for which such
rights expire. All Restricted Stock Agreements are for the purchase of Company
Common Stock. Except as indicated on Schedule 3.15(h) hereto, the transactions
contemplated by this Agreement, including without limitation the Merger, shall
not cause any acceleration, vesting or other similar consequences to the rights
of the parties under any provision of any Restricted Stock Agreement or under
the Company Stock Plan; and following the Merger, the repurchase rights in favor
of the Company (to the extent otherwise applicable at that time) shall remain in
full force and effect on the Substitute Restricted Stock. Prior to the date
hereof, certain of the parties to a Restricted Stock Agreement agreed to make
certain adjustments to such Agreements which adjustments are set forth in
Schedule 3.15(h).
3.16 Executive Employees. (a) Schedule 3.16(a) lists the
names, titles and current annual salary rates of and bonuses paid during the
1999 fiscal year or payable to all present officers and employees of each of the
Company whose 1999 annual base salary exceeded $100,000 ("Executive Employees").
(b) Except as set forth in Schedules 3.15(a) or 3.16(b), the
Company does not have any employment agreement with, or maintain any employee
benefit plan (within the meaning of Section 3(3) of ERISA) with respect to, any
of its Executive Employees. Except as set forth on Schedule 3.16(b), there are
no agreements with respect to Executive Employees which are subject
A-19
<PAGE> 127
to Section 280G of the Code or which would obligate the Company to make any
payment or provide any benefit that could be subject to tax under Section 4999
of the Code.
3.17 Employees. (a) The Company has complied in all respects
with all applicable Laws respecting employment and employment practices, terms
and conditions of employment, wages and hours, other than instances of
non-compliance which, individually or in the aggregate, could not reasonably be
expected to result in penalties other than fines in an amount not exceeding
$50,000 in the aggregate, and the Company is not liable for any arrears of wages
or any taxes or penalties for failure to comply with any such Laws; (b) the
Company believes that the Company's relations with its employees is
satisfactory; (c) there are no controversies pending or, to the best knowledge
of the Company, threatened between the Company and any of its employees, which
controversies have or could reasonably be expected to have a Material Adverse
Effect; (d) the Company is not a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by the Company, nor,
to the best knowledge of the Company, are there any activities or proceedings of
any labor union to organize any such employees; (e) there are no unfair labor
practice complaints pending against the Company before the National Labor
Relations Board or any current union representation questions involving
employees of the Company; (f) there is no strike, slowdown, work stoppage or
lockout existing, or, to the best knowledge of the Company, threatened, by or
with respect to any employees of the Company; (g) no charges are pending before
the Equal Employment Opportunity Commission or any state, local or foreign
agency responsible for the prevention of unlawful employment practices with
respect to the Company; (h) there are no claims pending against the Company
before any workers' compensation board; and (i) the Company has not received
notice that any Federal, state, local or foreign agency responsible for the
enforcement of labor or employment laws intends to conduct an investigation of
or relating to the Company and, to the best knowledge of the Company, no such
investigation is in progress.
3.18 Environmental Laws. The Company has not received any
notice or claim (and is not aware of any facts that would form a reasonable
basis for any claim), or entered into any negotiations or agreements with any
other Person, and, to the best knowledge of the Company, the Company is not the
subject of any investigation by any governmental or regulatory authority,
domestic or foreign, relating to any material or potentially material liability
or remedial action under any Environmental Laws. There are no pending or, to the
knowledge of the Company, threatened, actions, suits or proceedings against the
Company or any of its properties, assets or operations asserting any such
material liability or seeking any material remedial action in connection with
any Environmental Laws.
3.19 Bank Accounts, Letters of Credit and Powers of Attorney.
Schedule 3.19 lists (a) all bank accounts, lock boxes and safe deposit boxes
relating to the business and operations of the Company (including the name of
the Bank or other institution where such account or box is located and the name
of each authorized signatory thereto), (b) all outstanding letters of credit
issued by financial institutions for the account of the Company (setting forth,
in each case, the financial institution issuing such letter of credit, the
maximum amount available under such letter of credit, the terms (including the
expiration date) of such letter of credit and the party or parties in whose
favor such letter of credit was issued), and (c) the name and address of each
Person who has a power of attorney to act on behalf of the Company. The Company
has heretofore delivered to Lucent true, correct and complete copies of each
letter of credit and each power of attorney described on Schedule 3.19.
A-20
<PAGE> 128
3.20 Subsidiaries. The Company does not, directly or
indirectly, have any ownership or other interest in, or control of, any Person,
nor is the Company controlled by or under common control with any Person.
3.21 Insurance. Schedule 3.21 sets forth a list of all
policies of insurance maintained, owned or held by the Company during the period
from inception up to and including the date hereof. The Company shall use all
commercially reasonable efforts to keep such insurance or comparable insurance
in full force and effect through the Closing Date. The Company has complied with
each such insurance policy to which it is a party and has not failed to give any
notice or present any claim thereunder in a due and timely manner, except for
non-compliance or failure that could not reasonably be expected to have a
Material Adverse Effect. Except as disclosed in Schedule 3.21, to the best
knowledge of the Company, the full policy limits (subject to deductibles
provided in such policies) are available and unimpaired under each such policy
and, to the best knowledge of the Company, no insurer under any of such policies
has a basis to void such policy on grounds of non-disclosure on the part of the
Company thereunder. Each such policy is in full force and effect and will not in
any way be affected by or terminate or lapse by reason of the transactions
contemplated by this Agreement.
3.22 Leases. Schedule 3.22 lists all outstanding leases, both
capital and operating, or licenses, pursuant to which the Company has (i)
obtained the right to use or occupy any real property or personal property where
the value of such personal property exceeds $25,000 in the case of any single
lease or $50,000 in the aggregate, or (ii) granted to any other Person the right
to use any property described on Schedule 3.23(a).
3.23 Assets. (a) Schedule 3.23(a) lists each material item of
machinery, equipment, furniture, vehicles or other personal property owned by
the Company having an original cost of $25,000 or more.
(b) Except as set forth in Schedule 3.23(b), the assets and
properties owned or leased by the Company constitute all the material assets and
properties used by the Company in the operation of its business (including all
books, records, computers and computer programs and data processing systems but
excluding Intellectual Property Rights and Patents) and are in good and
serviceable condition (subject, in each case, to normal wear and tear and
obsolescence and except for assets the book value of which does not exceed
$25,000 in the aggregate; provided that the foregoing wear, tear and
obsolescence shall not materially disrupt the business of the Company as
presently being conducted) and are suitable for the uses for which intended.
3.24 Minute Books. The minute books of the Company made
available to Lucent contain, in all material respects, a complete and accurate
summary of all meetings of directors and stockholders or actions by written
resolutions since the time of incorporation of the Company through the date of
this Agreement, and reflect all transactions referred to in such minutes and
resolutions accurately, except for omissions which are not material.
3.25 Complete Copies of Materials. The Company has delivered
or made available true and complete copies of each document that has been
requested by Lucent or its counsel in connection with their legal and accounting
review of the Company.
A-21
<PAGE> 129
3.26 Disclosure. None of the representations or warranties of
the Company contained herein, none of the information contained in the Schedules
referred to in this Section 3, and none of the other information or documents
furnished or to be furnished to Lucent or Acquisition by the Company or pursuant
to the terms of this Agreement, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact herein or therein
necessary in order to make the statements contained herein or therein not
misleading in any material respect.
3.27 Reorganization. The Company has not taken any action or
failed to take any action which action or failure would jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
3.28 Information in Lucent Registration Statement. None of the
information supplied or to be supplied by the Company specifically for inclusion
or incorporation by reference in the registration statement on Form S-4 to be
filed with the Securities and Exchange Commission (the "SEC") by Lucent under
the Securities Act of 1933 (together with the rules and regulations thereunder,
the "Securities Act"), for the purpose of registering shares of Lucent Common
Stock to be issued in the Merger (together with any amendments or supplements
thereto, whether prior to or after the effective date thereof, the "Registration
Statement") will, at the time the Registration Statement is filed with the SEC
and at the time the Registration Statement 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 necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.29 Hart-Scott-Rodino Compliance. The Company is its own
"ultimate parent entity" (as defined in 16 CFR Section 801.1(a)(3)). The
"person" (as defined in 16 CFR Section 801.1(a)(1)) in which the Company is
included does not have annual net sales or "total assets" (as each such term
is defined in 16 CFR Section 801.11)) of $10,000,000 or more.
4. Representations and Warranties of Acquisition and Lucent. Each of
Acquisition and Lucent represents and warrants to the Company as follows:
4.1 Organization. Each of Lucent and Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority and
all necessary governmental approvals to enter into and perform this Agreement
and the transactions contemplated hereby to be performed by it.
4.2 Capital Structure. The authorized capital stock of Lucent
as of the date of this Agreement consists of (i) 6,000,000,000 shares of common
stock, par value $.01 per share (the "Lucent Common Stock") and (ii) 250,000,000
shares of preferred stock, par value $1.00 per share ("Lucent Authorized
Preferred Stock"), of which 15,000,000 shares have been designated Series A
Junior Participating Preferred Stock (the "Lucent Junior Preferred Stock"). All
the outstanding shares of Lucent Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable. None of the
outstanding shares of Lucent Common Stock has been issued in violation of the
preemptive rights of any stockholder of Lucent. The shares of outstanding Lucent
Common Stock were issued in compliance in all material respects with all Laws.
The shares of Lucent Common Stock to be issued pursuant to the Merger will be
duly and validly authorized and
A-22
<PAGE> 130
issued, will be fully paid and non-assessable and will not be issued in
violation of the preemptive rights of any stockholder of Lucent or in violation
of any Laws.
4.3 Authority. (a) Each of Lucent and Acquisition has full
corporate power and authority to execute, deliver and perform this Agreement and
the transactions contemplated hereunder. The Board of Directors of Acquisition
has declared the Merger advisable and approved this Agreement and resolved to
recommend the approval of the Merger and adoption of this Agreement and the
consummation of the transactions contemplated hereby to the sole stockholder of
Acquisition. The execution, delivery and performance of this Agreement by each
of Lucent and Acquisition has been duly authorized and approved (i) in the case
of Acquisition, by its Board of Directors and sole stockholder and (ii) in the
case of Lucent, by all necessary corporate action and, except for (A) the
adoption of this Agreement by the stockholders of Acquisition and (B) the filing
of appropriate merger documents as required by the DGCL, no other corporate
proceedings other than actions previously taken on the part of either Lucent or
Acquisition are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by each of Lucent and Acquisition and is the legal, valid and binding
obligation of each of Lucent and Acquisition enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law). The filing of the Registration Statement has been duly authorized by
Lucent.
(b) The execution, delivery and performance by each of Lucent
and Acquisition of this Agreement and the consummation of the Merger do not, and
will not, (i) violate or conflict with any provision of the Certificate of
Incorporation or By-laws of either Lucent or Acquisition, (ii) violate any Law,
except for violations which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on Lucent and
Acquisition taken as a whole, or (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
note, bond, indenture, lien, mortgage, lease, permit, guaranty or other
agreement, instrument or obligation, oral or written, to which Lucent or
Acquisition is a party or by which any of the properties of Lucent or
Acquisition may be bound, except for violations, breaches or defaults which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on Lucent, its Subsidiaries and Acquisition taken as a
whole.
(c) The execution and delivery of this Agreement by each of
Lucent and Acquisition does not, and the performance by each of Lucent and
Acquisition of this Agreement will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, or any other Person except for (i)
the filing and recordation of appropriate merger documents as required by the
DGCL; (ii) any such consent, approval, authorization, permission, notice or
filing which is required under the Securities Act, the Securities Exchange Act
of 1934 (together with the rules and regulations promulgated thereunder, the
"Exchange Act") and applicable state securities laws; and (iii) any such
consent, approval, authorization, permission, notice or filing which if not
obtained or made could not reasonably be expected to have a Material Adverse
Effect on Lucent, its Subsidiaries and Acquisition taken as a whole.
A-23
<PAGE> 131
4.4 Litigation. (a) Neither Lucent nor Acquisition is a party
to any suit, action, arbitration or legal, administrative, governmental or other
proceeding or investigation pending or, to its knowledge threatened, which
reasonably could adversely affect or restrict its ability to consummate the
transactions contemplated by this Agreement or to perform its obligations
hereunder or which could reasonably be expected to have a Material Adverse
Effect on Lucent, its Subsidiaries and Acquisition taken as a whole.
(b) There is no judgment, order, writ, injunction or decree of
any court, arbitration tribunal or other governmental or regulatory authority,
domestic or foreign, to which Lucent or Acquisition is subject which might
adversely affect or restrict its ability to consummate the transactions
contemplated by this Agreement or to perform its obligations hereunder or which
could reasonably be expected to have a Material Adverse Effect on Lucent, its
Subsidiaries and Acquisition taken as a whole.
4.5 SEC Filings; Lucent Financial Statements. (a) Since
October 1, 1998, Lucent has filed with the SEC all reports, schedules, forms,
statements and other documents (including exhibits and all other information
incorporated therein) required to be filed under the Securities Act and the
Exchange Act (the "Lucent SEC Documents"). As of their respective dates, the
Lucent SEC Documents have 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, 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 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. 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
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (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).
(b) Except for liabilities (i) reflected in such financial
statements or in the notes thereto, (ii) incurred in the ordinary course of
business consistent with past practice since the date of the most recent audited
financial statements included in the Lucent Filed SEC Documents, or (iii)
incurred in connection with this Agreement or the transactions contemplated
hereby, neither Lucent nor any of its Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Lucent and its Subsidiaries taken as a whole.
4.6 Information Supplied. None of the information supplied or
to be supplied by Lucent specifically for inclusion or incorporation by
reference in the Registration Statement at the time the Registration Statement
is filed with the SEC and at the time the Registration Statement becomes
effective under the Securities Act will contain any untrue statement of a
material fact or omit
A-24
<PAGE> 132
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading. The Registration Statement will comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder, except that no representation or warranty
is made by Lucent with respect to statements made or incorporated by reference
therein based on information supplied by the Company specifically for inclusion
or incorporation by reference in the Registration Statement.
4.7 Operations and Obligations. Except as described in the
Lucent SEC Documents, since the date of the most recent audited balance sheet of
Lucent contained in the Lucent SEC Documents, (i) except as a result of the
transactions contemplated by this Agreement or in connection with the
acquisition by Lucent or any of its Subsidiaries of all or substantially all the
capital stock or all or substantially all the assets of another Person, there
has not been any development that has had or could reasonably be expected to
have a Material Adverse Effect on Lucent and its Subsidiaries taken as a whole;
(ii) there has not been any material change by Lucent in its accounting methods,
principles or practices, except as required by changes in GAAP or any other
change provided such other change could not reasonably be expected to have a
Material Adverse Effect on Lucent and its Subsidiaries; or (iii) except as a
result of the transactions contemplated by this Agreement or in connection with
the acquisition by Lucent or any of its Subsidiaries of all or substantially all
the capital stock or all or substantially all the assets of another Person,
there has not been any material revaluation by Lucent of any of its assets
including, without limitation, writing down the value of capitalized software or
inventory or writing off notes or accounts receivable which could reasonably be
expected to have a Material Adverse Effect.
4.8 Interim Operations of Acquisition. Acquisition 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.
4.9 Reorganization. Neither Lucent nor any of its Subsidiaries
has taken or will take any action or failed to take any action which action or
failure would jeopardize the qualification of the Merger as a "Reorganization"
within the meaning of Section 368(a) of the Code.
5. Conduct Pending Closing.
5.1 Conduct of Business Pending Closing. From the date hereof
until the Closing, the Company will:
(a) maintain its existence in good standing;
(b) maintain the general character of its business and
properties and conduct its business in the ordinary and usual manner consistent
with past practices, except as expressly permitted by this Agreement;
(c) maintain business and accounting records consistent with
past practices; and
(d) use its reasonable best efforts (i) to preserve its
business intact, (ii) to keep available to the Company the services of its
present officers and employees, and (iii) to preserve for
A-25
<PAGE> 133
the Company the goodwill of its suppliers, customers and others having business
relations with the Company.
5.2 Prohibited Actions Pending Closing. Unless otherwise
provided for herein or approved by Lucent in writing, from the date hereof until
the Closing, the Company shall not:
(a) amend or otherwise change its Certificate of Incorporation
or By-laws;
(b) issue or sell or authorize for issuance or sale, or grant
any options or make other agreements with respect to, any shares of its capital
stock or any other of its securities, except for (i) the grant of options under
the Company Stock Plan to purchase up to 247,750 shares of Company Common Stock
at an exercise price based on the fair market value of such shares on the date
of grant (as determined in good faith by the Board of Directors) with 100% of
such options becoming exercisable under Restricted Stock Agreements on the date
of grant and subject to a right of repurchase by the Company, which right shall
lapse with respect to 25% of such shares when the optionee completes 12 months
of service from the date of grant and with respect to 6.25% of such shares when
the optionee completes each 3 months of service thereafter, (ii) in connection
with the exercise of outstanding Company Stock Options or Warrants, and (iii)
those provisions of the agreement with the Exchange Agent which provisions are
in furtherance of this Agreement;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise with respect to any
of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership,
other business organization or any division thereof, (ii) acquire assets with an
aggregate purchase price of in excess of $100,000; (iii) incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee or endorse,
or otherwise as an accommodation become responsible for, the obligations of any
Person, or make any loans or advances, except (A) for interest and fees on
Indebtedness set forth on Schedule 3.6 incurred in the ordinary course of
business and consistent with past practice or (B) as contemplated by Section
5.14 or (C) for indebtedness in aggregate principal amount not in excess of
$100,000; (iii) enter into any contract or agreement other than in the ordinary
course of business, consistent with past practice; (iv) authorize any capital
commitment which is in excess of $200,000 or capital expenditures which are, in
the aggregate, in excess of $500,000; or (v) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter set forth in
this Section 5.2(e);
(f) mortgage, pledge or subject to Lien, any of its assets or
properties or agree to do so except for Permitted Liens;
(g) assume, guarantee or otherwise become responsible for the
obligations of any other Person or agree to so do;
A-26
<PAGE> 134
(h) enter into or agree to enter into or terminate (prior to
the expiration date thereof) any employment agreement;
(i) increase the compensation or benefits payable or to become
payable to its officers or employees, except for increases in accordance with
past practices in salaries or wages of employees of the Company who are not
officers of the Company, or grant any severance or termination pay to, or enter
into any severance agreement with any director, officer or other employee of the
Company, or establish, adopt, enter into or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any such director, officer or employee;
(j) take any action, other than in the ordinary course of
business and consistent with past practice, with respect to accounting policies
or procedures (including, without limitation, procedures with respect to the
payment of accounts payable and collection of accounts receivables);
(k) make any material Tax election or settle or compromise any
material federal, state, local or foreign income Tax liability;
(l) settle or compromise any pending or threatened suit,
action or claim which is material or which relates to any of the transactions
contemplated by this Agreement;
(m) pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than (i) the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or reserved
against in the Balance Sheet or subsequently incurred in the ordinary course of
business and consistent with past practice and (ii) other claims, liabilities or
obligations (qualified as aforesaid) that in the aggregate do not exceed
$50,000.
(n) except in connection with the sale or licensing of the
Company's products in the ordinary course of business and consistent with past
practice, sell, assign, transfer, license, sublicense, pledge or otherwise
encumber any of the Intellectual Property Rights; or
(o) announce an intention, commit or agree to do any of the
foregoing.
5.3 Access; Documents; Supplemental Information. (a) From and
after the date hereof until the Closing, the Company shall afford and, with
respect to clause (ii) below, shall use its reasonable best efforts to cause the
independent certified public accountants for the Company to afford, (i) to the
officers, independent certified public accountants, counsel and other
representatives of Acquisition and Lucent, upon reasonable notice free and full
access at all reasonable times to the properties, books and records including
tax returns filed and those in preparation of the Company and the right to
consult with the officers, employees, accountants, counsel and other
representatives of the Company in order that Acquisition and Lucent may have
full opportunity to make such investigations as they shall reasonably desire to
make of the operations, properties, business, financial condition and prospects
of the Company, (ii) to the independent certified public accountants of
Acquisition and Lucent, free and full access at all reasonable times to the work
papers and other records of the accountants relating to the Company, and (iii)
to Acquisition and Lucent and their
A-27
<PAGE> 135
representatives, such additional financial and operating data and other
information as to the properties, operations, business, financial condition and
prospects of the Company as Acquisition and Lucent shall from time to time
reasonably require.
(b) From the date of this Agreement through and including the
Closing, Acquisition, Lucent and the Company agree to furnish to each other
copies of any notices, documents, requests, court papers, or other materials
received from any governmental agency or any other third party with respect to
the transactions contemplated by this Agreement, except where it is obvious from
such notice, document, request, court paper or other material that the other
party was already furnished with a copy thereof.
(c) The Company shall deliver to Lucent, without charge, the
following financial information (the "Supplemental Financial Information"): (i)
within 45 days after each fiscal quarter ending after the date hereof and prior
to the Effective Time, the unaudited balance sheet of the Company as of the end
of such quarter and the unaudited statements of income, stockholders' equity and
cash flows of the Company for such quarter and for the portion of the fiscal
year then completed, (ii) within 90 days after each fiscal year ending after the
date hereof and prior to the Effective Time, the audited balance sheet of the
Company as of the end of such year and the audited statements of income,
stockholders' equity and cash flows of the Company for such year, in each case,
prepared in accordance with GAAP certified by Ernst & Young LLP, and (iii)
promptly upon the reasonable request by Lucent, such additional financial
information as may be required in connection with any filing by Lucent pursuant
to the requirements of federal or state securities laws. Such Supplemental
Financial Information shall present fairly, in all material respects, the
consolidated financial position of the Company and its Subsidiaries for the
period covered, subject in the case of unaudited financials to normal year-end
adjustments and the omission of footnotes.
(d) Lucent shall deliver to the Company, without charge, a
copy of any filing made by Lucent with the SEC under the Exchange Act,
including, without limitation, any Form 10-Q, 8-K or 10-K, not later than five
business days after the date of such filing with the SEC.
5.4 No Solicitation. The Company shall not, nor shall it
authorize or permit any of its officers, directors, employees, investment
bankers, attorneys or other advisers or representatives, nor shall it encourage
any of its other Affiliates to (i) solicit, initiate, or encourage the
submission of, any Acquisition Proposal (as hereinafter defined), (ii) enter
into any agreement or understanding with respect to any Acquisition Proposal or
(iii) participate in any discussions or negotiations regarding, or furnish to
any Person any information for the purpose of facilitating the making of, or
take any other action to facilitate any inquiries or the making of, any proposal
that constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal. Without limiting the foregoing, it is understood that any violation,
of which the Company or any of its Affiliates had knowledge at the time of such
violation, of the restrictions set forth in the immediately preceding sentence
by any officer, director, employee, investment banker, attorney, employee, or
other adviser or representative of the Company or any of its Affiliates, whether
or not such Person is purporting to act on behalf of the Company or any of its
Affiliates or otherwise, shall be deemed to be a breach of this Section 5.4 by
the Company. The Company promptly shall advise Lucent of any Acquisition
Proposal and inquiries with respect to any Acquisition Proposal. "Acquisition
Proposal" means any proposal for a merger or other business combination
involving the Company or any of its Affiliates or any proposal or offer to
acquire in any manner, directly or indirectly, an equity interest in the
A-28
<PAGE> 136
Company or any of its Affiliates, any voting securities of the Company or any of
its Affiliates or a substantial portion of the assets of the Company (other than
sales of the Company's products in the ordinary course of business consistent
with past practice).
5.5 Filings; Other Actions. (a) As promptly as practicable
after the date hereof, and in any event within seven days following receipt by
Lucent of all information reasonably requested by it from the Company in order
to prepare such Registration Statement, Lucent shall prepare and file the
Registration Statement with the SEC. Lucent acknowledges that the Company and
its counsel may participate in the preparation of the Registration Statement;
provided that the final determination of any issues related thereto shall be
made by Lucent. Lucent shall use its reasonable best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. Lucent shall also take such actions (other
than qualifying to do business in any jurisdiction in which Lucent is now not so
qualified) as may be required to be taken under any applicable state securities
laws in connection with the issuance of Lucent Common Stock in the Merger and
upon the exercise of the Adjusted Options. The Company shall furnish all
information concerning the Company and the holders of Company Capital Stock as
may be reasonably requested in connection with any of the foregoing.
(b) Each party hereto agrees, subject to applicable laws
relating to the exchange of information, promptly to furnish the other parties
hereto with copies of written communications (and memoranda setting forth the
substance of all oral communications) received by such party, or any of its
Subsidiaries, affiliates or associates (as such terms are defined in Rule 12b-2
under the Exchange Act as in effect on the date hereof), from, or delivered by
any of the foregoing to, any governmental or regulatory authority, domestic or
foreign, relating to or in respect of the transactions contemplated under this
Agreement.
5.6 Company Stock Options; Warrants. (a) Prior to the Closing
Date, the Board of Directors of the Company (or, if appropriate, any committee
administering the 1998 Agere Equity Incentive Plan (the "Company Stock Plan"))
shall adopt such resolutions or take such other actions as may be required to
effect the following:
(i) adjust the terms of all outstanding options to
purchase shares of Company Common Stock under the Company
Stock Plan (other than the Excluded Option) (all such options
other than the Excluded Option being referred to herein as the
"Company Stock Options"), whether vested or unvested, as
necessary to provide that, at the Effective Time, each Company
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
Company 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 Company Common Stock subject to such
Company Stock Option immediately prior to the Effective Time
multiplied by (B) the Common Stock Exchange Ratio, at an
exercise price per share of Lucent Common Stock (rounded to
the nearest 1/100th of a whole cent) equal to (x) the exercise
price per share of such Company Common Stock immediately prior
to the Effective Time divided by (y) the Common Stock Exchange
Ratio (each Company Stock Option as so adjusted, an "Adjusted
Option"); and
A-29
<PAGE> 137
(ii) make such other changes to the Company Stock
Plan as the Company and Lucent may agree are appropriate to
give effect to the Merger, including as provided in Section
5.7.
(b) As soon as practicable after the Effective Time, Lucent
shall deliver to the holders of Company Stock Options appropriate notices (the
"Company Stock Option Notices") setting forth (i) such holders' rights pursuant
to the respective Company Stock Plan and the agreements evidencing the grants of
such Company Stock Options and that such Company 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 5.6 after giving
effect to the Merger) and (ii) the procedures for the exercise of the Adjusted
Options. The term, exercisability, vesting schedule (including any acceleration
provisions therein as set forth in Schedule 3.15(h)), status as an "incentive
stock option" under Section 422 of the Code, if applicable, and all of the other
terms of the Company Stock Options shall otherwise remain unchanged.
(c) A holder of an Adjusted Option may exercise such Adjusted
Option in whole or in part by (i) following the exercise procedures to be
delivered by Lucent as set forth in the Company Stock Option Notice and (ii)
concurrently delivering to Lucent the consideration therefor and any applicable
withholding tax.
(d) Except as otherwise contemplated by this Section 5.6 and
except to the extent required under the respective terms of the Company Stock
Options all restrictions or limitations on transfer and vesting with respect to
Company Stock Options awarded under the Company Stock Plan or any other plan,
program or arrangement of the Company, to the extent that 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) As soon as practicable following the date of this
Agreement, each Restricted Stock Agreement set forth on Schedule 5.6 shall be
assumed by Lucent and, in accordance with Section 1.5(c) hereof, each share of
restricted Company Common Stock which is outstanding and unvested thereunder at
or immediately prior to the Effective Time pursuant to the Company Stock Plan or
any Restricted Stock Agreement shall be converted into the right to receive the
Common Stock Exchange Ratio (such number as adjusted in accordance with Section
1.6) including the Right, subject to the same restrictions and vesting as set
forth therein (the "Substitute Restricted Stock").
(f) The Company shall furnish all information concerning the
Company and the holders of Company Capital Stock as may be reasonably requested
in connection with any of the foregoing. Within 30 days after the later of the
Effective Time and the date on which the Company shall have provided to Lucent
all information reasonably requested by it from the Company in order to prepare
such registration statement and to administer the Adjusted Options, Lucent shall
prepare and file with the SEC a registration statement on Form S-8 (or another
appropriate form) registering the number of shares subject to the Adjusted
Options. Such registration statement shall be kept effective (and the current
status of the prospectus required thereby shall be maintained in accordance with
the relevant requirements of the Securities Act and the Exchange Act) at least
for so long as any Adjusted Options remain outstanding.
A-30
<PAGE> 138
(g) Prior to the Effective Time, the Company shall take all
actions to receive from each holder of an outstanding warrant (each, a
"Warrant") to purchase shares of Series A Preferred Stock an agreement that, as
of the Effective Time, such Warrant shall be converted into a right of such
holder to receive from the Exchange Agent the consideration set forth in the
next sentence at the same time that each such holder of Series A Preferred Stock
is entitled to receive shares of Lucent Common Stock in connection with the
Merger. Each holder of a Warrant shall be entitled to receive from the Exchange
Agent in respect of the shares of Series A Preferred Stock to be issued upon the
exercise of such Warrant, the number of shares of Lucent Common Stock (rounded
down to the nearest whole share) equal to the number of shares of Series A
Preferred Stock subject to such Warrant immediately prior to the Effective Time
multiplied by .14685 (the "Warrant Exchange Ratio"). Lucent shall pay cash
(without interest) to holders of Warrants in lieu of issuing fractional shares
of Lucent Common Stock in an amount, rounded to the nearest whole cent, computed
in accordance with the formula set forth in Section 1.8.
(h) Prior to the Effective Time, the Company shall take all
actions to cause the holder of the Company Stock Option referenced on Schedule
3.9(e) (the "Excluded Option") to exercise such Excluded Option in a manner
permitted by the terms thereof.
5.7 Company Stock Plans. At the Effective Time, by virtue of
the Merger, the Company Stock Plans and the Company Stock Options granted
thereunder shall be assumed by Lucent, with the result that all obligations of
the Company under the Company Stock Plans, including with respect to awards
outstanding at the Effective Time under each Company Stock Plan, shall be
obligations of Lucent following the Effective Time; provided, that in the case
of any Company Stock Option to which Section 421 of the Code applies by reason
of its qualification under Section 422 or Section 423 of the Code, the option
price, number of shares purchasable pursuant to such Company Stock Option and
the terms and conditions of exercise of such Company Stock Option shall be
determined in order to comply with Section 424 of the Code. Prior to the
Effective Time, Lucent shall take all necessary actions (including, if required
to comply with Section 162(m) of the Code (and the regulations thereunder) or
applicable law or rule of the NYSE, obtaining the approval of its stockholders
at the next regularly scheduled annual meeting of Lucent following the Effective
Time) for the assumption of the Company Stock Plans, including the reservation,
issuance and listing of Lucent Common Stock in a number at least equal to the
number of shares of Lucent Common Stock that will be subject to the Adjusted
Options.
5.8 Comfort Letters. (a) The Company shall use its reasonable
best efforts to cause to be delivered to Lucent a "comfort" letter of Ernst &
Young LLP, the Company's independent public accountants, dated the date on which
the Registration Statement shall become effective and as of the Effective Time,
and addressed to Lucent and the Company, in form and substance reasonably
satisfactory to Lucent and reasonably customary in scope and substance for
letters delivered by independent public accounts in connection with transactions
such as those contemplated by this Agreement.
(b) Lucent shall use its reasonable best efforts to cause to
be delivered to the Company a "comfort" letter of PricewaterhouseCoopers LLP.,
Lucent's independent public accountants, dated the date on which the
Registration Statement shall become effective and as of the Effective Time,
addressed to the Company and Lucent, in form and substance reasonably
satisfactory
A-31
<PAGE> 139
to the Company and reasonably customary in scope and substance for letters
delivered by independent public accountants in connection with transactions such
as those contemplated by this Agreement.
5.9 Stock Exchange Listing. Lucent shall use its reasonable
best efforts to list on the NYSE, upon official notice of issuance, the shares
of Lucent Common Stock to be issued in connection with the Merger and upon
exercise of Adjusted Options.
5.10 Affiliates. As soon as practicable after the date hereof,
the Company shall deliver to Lucent a letter identifying all Persons who are, at
the time this Agreement is submitted for adoption by the stockholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its reasonable best efforts to cause each
such Person to deliver to Lucent as of the Closing Date, a written agreement
substantially in the form attached as Exhibit B hereto.
5.11 Notification of Certain Matters. The Company shall give
prompt notice to Lucent, and Lucent shall give prompt notice to the Company, of
(a) the occurrence, or non-occurrence, of any event which would be likely to
cause (i) any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect or (ii) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied; and
(b) any failure of the Company, Lucent or Acquisition, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided that the delivery of any notice pursuant
to this Section 5.11 shall not limit or otherwise affect the remedies available
to the party receiving such notice.
5.12 Tax Returns; Cooperation. The Company on the one hand and
Lucent on the other will cooperate with each other and provide such information
as any party may require in order to file any return to determine Tax liability
or a right to a Tax refund or to conduct a Tax audit or other Tax proceeding.
Such cooperation shall include, but not be limited to, making employees
available on a mutually convenient basis to explain any documents or information
provided hereunder or otherwise as required in the conduct of any audit or other
proceeding. The Company and Lucent will retain until the expiration of any
applicable statute of limitations (including any extensions thereof) all Tax
Returns, schedules and workpapers and all other material records or documents
relating to the Company for all Tax periods through the first Tax period ending
after the Closing Date. At the expiration of such statutory period (including
any extensions thereof), each party shall have the right to dispose of any such
Tax Returns and other documents or records on thirty (30) days written notice to
the other party. Any information, documents or records obtained under this
Section 5.12 shall be kept confidential, except as may be otherwise necessary in
connection with the filing of Tax Returns or claims for refund or in conducting
an audit or other proceeding.
5.13 Reorganization. Each of Lucent and the Company shall use
its reasonable best efforts to cause the business combination of the Merger to
be qualified as a reorganization under Section 368(a) of the Code.
5.14 Working Capital Financing. Lucent shall provide to the
Company working capital financing in an aggregate principal amount not to exceed
$10,000,000 at such times and in such amounts as set forth in Schedule 5.14;
provided, that no such financing shall be provided by Lucent if, as a result of
providing such financing, the representations and warranties made in Section
A-32
<PAGE> 140
3.29 would at any time not be true and correct. A portion of such financing
shall be used as consideration for the Intellectual Property Transfer. Such
financing shall be evidenced by one or more promissory notes each substantially
in the form attached as Exhibit C hereto.
5.15 Actions by the Parties. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties hereto will use its
reasonable best efforts to take or cause to be taken all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable Law
to consummate and make effective in the most expeditious manner practicable, the
transactions contemplated by this Agreement including (i) the obtaining of all
necessary actions and non-actions, waivers and consents, if any, from any
governmental or regulatory authority, domestic and foreign, and the making of
all necessary registrations and filings and the taking of all reasonable steps
as may be necessary to obtain an approval or waiver from, or to avoid an action
or proceeding by any governmental or regulatory authority, domestic and foreign;
(ii) the obtaining of all necessary consents, approvals or waivers from any
other Person; (iii) the defending of any claim, investigation, action, suit or
other legal proceeding, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby; and (iv)
the execution of additional instruments necessary to consummate the transactions
contemplated by this Agreement. Each party will promptly consult with the other
and provide necessary information (including copies thereof) with respect to all
filings made by such party with the any agency or authority in connection with
this Agreement and the transactions contemplated hereby.
5.16 Employee Benefit Plans. (a) As soon as practicable after
the Effective Time (the "Benefits Date"), Lucent shall provide, or cause to be
provided, employee benefit plans, programs and arrangements to employees of the
Company that are the same as those made generally available to similarly
situated employees of Lucent's Microelectronic Group who are hired by Lucent
after December 31, 1999. 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 the Company), Lucent shall provide, or cause
to be provided, the employee benefit plans, programs and arrangements of the
Company provided to employees of the Company as of the date hereof.
(b) With respect to each benefit plan, program or arrangement
maintained by Lucent in which employees of the Company subsequently participate
(the "Lucent Plans"), for purposes of eligibility to participate, vesting and
vacation entitlement (but not for accrual of pension or post retirement health
benefits), service with the Company shall be treated as service with Lucent.
Such service also shall apply for purposes of satisfying any waiting periods,
evidence of insurability requirements, or the application of any pre-existing
condition limitations. The Company's employees shall be given credit for amounts
paid under a corresponding benefits plan during the same period for purposes of
applying deductibles, co-payments and out-of-pocket maximums as though such
amounts had been paid in accordance with the terms and conditions of the Lucent
Plans.
5.17 Indemnification. (a) From and after the Effective Time,
Lucent shall, or shall cause the Surviving Corporation to, fulfill and honor in
all respects the obligations of the Company to indemnify each Person who is or
was a director or officer (an "Indemnified Party") of the Company pursuant to
any indemnification provision of the Certificate of Incorporation or By-laws or
equivalent constituent documents of the Company as each is in effect on the date
hereof.
A-33
<PAGE> 141
(b) For a period of six years after the Effective Time, Lucent
shall cause to be maintained in effect officers' and directors' liability
insurance with respect to each Indemnified Party of the Company covering acts or
omissions by such Person occurring prior to the Effective Time under customary
terms and conditions. This Section 5.17 shall survive the closing of all the
transactions contemplated hereby, is intended to benefit the Indemnified Parties
and their respective heirs and personal representative (each of which shall be
entitled to enforce this Section 5.17 against Lucent and the Surviving
Corporation, as the case may be, as a third-party beneficiary of this
Agreement).
6. Conditions Precedent.
6.1 Conditions Precedent to Each Party's Obligation to Effect
the Merger. The respective obligations of each party hereto to effect the Merger
shall be subject to the fulfillment or satisfaction, prior to or on the Closing
Date of the following conditions:
(a) Stockholder Approval. The Merger shall have been duly
approved by the requisite vote of the outstanding shares of the Capital Stock of
the Company and the common stock, $.01 par value per share, of Acquisition
entitled to vote thereon in accordance with the DGCL and the Certificate of
Incorporation and By-laws of each of the Company and Acquisition, respectively.
(b) Approvals. All authorizations, consents, orders,
declarations or approvals of, or filings with, or terminations or expirations of
waiting periods imposed by, any governmental or regulatory authority, domestic
or foreign, which the failure to obtain, make or occur would have the effect of
making the Merger or any of the transactions contemplated hereby illegal or
would have a Material Adverse Effect on Lucent or the Company (as Surviving
Corporation), assuming the Merger had taken place, shall have been obtained,
made or occurred.
(c) 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, "Restraints") shall be in effect
with respect to the transactions contemplated hereby, and there shall not be
pending any suit, action or proceeding by any Governmental Entity (i) preventing
the consummation of the Merger or (ii) which otherwise is reasonably likely to
have a Material Adverse Effect on the Company or Lucent, as applicable;
provided, that each of the parties shall have used its reasonable best efforts
to prevent the entry of any such Restraints and to appeal as promptly as
possible any such Restraints that may be entered.
(d) Escrow Agreement. Each of Lucent, the Company, the Escrow
Agent and the Stockholders' Representative shall have entered into the Escrow
Agreement substantially in the form of Exhibit D hereto (the "Escrow
Agreement").
(e) Representation Letters. Each of the Company and Lucent
shall have executed and delivered a letter of representation relating to certain
tax matters substantially in the form of Exhibits E and F hereto.
A-34
<PAGE> 142
(f) Affiliate Letters. Each of the Company and its affiliates
shall have executed and delivered a letter in connection with Rule 145 under the
Securities Act substantially in the form of Exhibit B hereto.
(g) Registration Statement. The Registration Statement shall
have become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Lucent Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall have
been initiated or, to the knowledge of Lucent or the Company, threatened by the
SEC.
(h) Stock Exchange Listing. The shares of Lucent Common Stock
issued in accordance with the Merger shall have been authorized for listing on
the NYSE, subject to official notice of issuance.
6.2 Conditions Precedent to Obligations of Acquisition and
Lucent. All obligations of Acquisition and Lucent under this Agreement are
subject to the fulfillment or satisfaction, prior to or on the Closing Date, of
each of the following conditions precedent:
(a) Performance of Obligations; Representations and
Warranties. The Company shall have performed and complied in all material
respects with all agreements and conditions contained in this Agreement that are
required to be performed or complied with by it prior to or at the Closing. Each
of the Company's representations and warranties contained in Section 3 of this
Agreement to the extent it is qualified by Material Adverse Effect or
materiality and the Company's representations and warranties contained in
Section 3.13 shall be true and correct and each of the Company's representations
and warranties to the extent it is not so qualified by Material Adverse Effect
or materiality or contained in Section 3.13, shall be true and correct in all
material respects, in each case, on and as of the Closing with the same effect
as though such representations and warranties were made on and as of the
Closing, except for changes permitted by this Agreement and except to the extent
that any representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall be as of such earlier date.
Lucent shall have received a certificate dated the Closing Date and signed by
the Chairman, President or a Vice-President of the Company certifying that the
conditions specified in this Section 6.2(a) have been satisfied.
(b) Opinion of Counsel. Lucent and Acquisition shall have
received the favorable written opinion dated the Closing Date of Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Company, in
form satisfactory to Lucent and Acquisition.
(c) Resignations. The Company shall have delivered to Lucent
and Acquisition the written resignation of each director and officer of the
Company as shall be requested in writing by Lucent.
(d) No Material Adverse Change. There shall have been no
material adverse change in the assets, business, financial condition or
operations of the Company and no event or events shall have occurred that could
reasonably be expected to have a Material Adverse Effect on the Company other
than as a result of (i) general economic conditions, (ii) business and economic
conditions affecting the network processor microelectronics industry, (iii)
liabilities incurred in
A-35
<PAGE> 143
connection with this Agreement or the transactions contemplated hereby, or (iv)
resulting from the announcement of the transactions contemplated hereby.
(e) Consents. The Company shall have received all necessary
consents, in form and substance satisfactory to Lucent and Acquisition, from the
other parties to each contract, lease or agreement to which the Company is a
party, except where the failure to receive such consent would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
the Company. The requisite vote of outstanding shares of Company Capital Stock
shall have been obtained approving the right of any "disqualified individual"
(as such term is defined in Treas. Reg. Sec. 1.280G-1) under the Company Stock
Plan or any Restricted Stock Agreement to receive any amounts payable to such
person on an acceleration of vesting on or following the Closing Date.
(f) Non-Competition Agreements. Obtek, L.P. shall have entered
into a Non-Competition Agreement with the Surviving Corporation substantially in
the form of Exhibit G hereto, and each of the persons set forth in Schedule
6.2(f), shall have entered into Non-Competition Agreements with the Surviving
Corporation, each substantially in the form of Exhibit H hereto, and such
agreements shall be in full force and effect.
(g) Certificates. Each of Ford Tamer, Eric Rothfus and Obtek,
L.P. shall have provided their Certificates to Lucent to be delivered to the
Exchange Agent in accordance with Section 1.9(b).
(h) Real Property Certificate. Lucent shall have received a
certificate from the Company certifying that the Company has never been and is
not a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code pursuant to Treas. Reg. Sec. 1.897-2(h) and Treas.
Reg. Sec. 1.1445-2(c)(3)(i) at the Closing.
(i) Intellectual Property Transfer. Prior to or concurrently
with the Closing hereunder, the Company shall have purchased from Obtek, L.P.
all the intellectual property subject to (x) the Option Agreement dated as of
November 19, 1999, between the Company and Obtek, L.P. and (y) the Additional
Option Agreement dated as of November 19, 1999, between the Company and Obtek,
L.P., in accordance with the terms thereof (the "Intellectual Property
Transfer").
(j) Retention Agreements; Consulting Agreement. Each of
Lucent, Obtek, L.P. and Victor Bennett shall have entered into a Retention
Agreement, substantially in the form of Exhibit I hereto. Victor Bennett shall
have extended the term of his consulting arrangement with the Company on terms
reasonably acceptable to Lucent so that such arrangement shall not terminate
prior to the second anniversary of the Closing Date.
(k) Stockholder Agreements, Registration Rights Agreements and
Voting Agreements. Each of the stockholder agreements and voting agreements
entered into by the stockholders of the Company prior to the date hereof,
registration rights agreements entered into by the Company and other parties
thereto prior to the date hereof and other similar agreements shall have been
terminated either according to their terms or by the Company and each of the
other parties thereto.
A-36
<PAGE> 144
(l) Stock Option Agreement. Each holder of Company Stock
Options or party to a Restricted Stock Agreement shall have entered into a
letter agreement regarding the Substitute Restricted Stock, each substantially
in the form of Exhibit J hereto.
6.3 Conditions Precedent to the Company's Obligations. All
obligations of the Company under this Agreement are subject to the fulfillment
or satisfaction, prior to or on the Closing Date, of each of the following
conditions precedent:
(a) Performance of Obligations; Representations and
Warranties. Acquisition and Lucent shall have performed and complied in all
material respects with all agreements and conditions contained in this Agreement
that are required to be performed or complied with by them prior to or at the
Closing. Each of the representations and warranties of Acquisition and Lucent
contained in Section 4 of this Agreement to the extent it is qualified by
Material Adverse Effect shall be true and correct and each of the
representations and warranties of Acquisition and Lucent to the extent it is not
so qualified by Material Adverse Effect shall be true and correct in all
material respects, in each case, on and as of the Closing with the same effect
as though such representations and warranties were made on and as of the Closing
except for changes permitted by this Agreement and except to the extent that
such representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall be as of such earlier date.
The Company shall have received certificates dated the Closing Date and signed
by the President or a Vice-President of Acquisition and an authorized signatory
of Lucent, certifying that the conditions specified in this Section 6.3(a) have
been satisfied.
(b) Opinion of Counsel. The Company shall have received the
favorable written opinion dated the Closing Date of Sidley & Austin, special
counsel to Acquisition and Lucent, and internal counsel to Acquisition and
Lucent, each in form satisfactory to the Company. The Company shall have
received a written opinion dated the Closing Date of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, counsel to the Company addressing certain
tax matters which opinion shall be in form and substance satisfactory to the
Company.
(c) No Material Adverse Change. There shall have been no
material adverse change in the assets, business, financial condition or
operations of Lucent and no event or events shall have occurred that could
reasonably be expected to have a Material Adverse Effect on Lucent other than as
a result of (i) general economic conditions, (ii) business and economic
conditions affecting the network processor microelectronics industry, (iii)
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, or (iv) resulting from the announcement of the transactions
contemplated hereby.
(d) Letter Agreement. Lucent shall have entered into a letter
agreement with the Sellers' Representative regarding certain payments to
employees of the Company following the Closing Date, substantially in the form
of Exhibit K hereto.
7. Survival of Representation and Warranties.
7.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement (including the schedules
to the Agreement which are hereby incorporated by reference) or in any
instrument delivered pursuant to this Agreement shall survive
A-37
<PAGE> 145
for 12 months following the Effective Time. This Section shall not limit any
claim for fraud or any covenant or agreement by the parties which contemplates
performance after the Effective Time.
8. Indemnification.
8.1 Escrow Shares. As soon as practicable after the Closing
Date, 10% of the total number of shares of Lucent Common Stock to be issued to
each Indemnifying Stockholder pursuant to Section 1.5(c) (rounded to the nearest
whole number) (the "Escrow Fund") shall be deposited with The Bank of New York
(or another institution selected by Lucent), as escrow agent (the "Escrow
Agent"), such deposit to be governed by the terms set forth herein and in the
Escrow Agreement. The Escrow Fund shall be the sole and exclusive source
available to compensate Lucent for the indemnification obligations of each
holder of Company Capital Stock (each, a "Company Stockholder" and collectively,
the "Company Stockholders") under Section 8.2, except that Lucent may elect not
to have recourse to the Escrow Fund for any claim of fraud.
8.2 General Indemnification. (a) Subject to the limitations
set forth in this Section 8, the Indemnifying Stockholders will indemnify and
hold harmless Lucent and each Person, if any, who controls, may control or is
Controlled by Lucent within the meaning of the Securities Act and their
respective officers, directors, employees, agents and advisors (each such
indemnitee being referred to herein as an "Indemnified Person"), from and
against any and all losses, costs, damages, liabilities, obligations,
impositions, inspections, assessments, fines, deficiencies and expenses arising
from claims, demands, actions, causes of action, including, without limitation,
reasonable legal fees (collectively, "Damages"), arising out of (i) any
inaccuracy in any representation or warranty made by the Company in this
Agreement or in any exhibit or schedule to this Agreement and (ii) any breach or
default by the Company of any of the covenants or agreements given or made by
any of them in this Agreement.
(b) Lucent and the Indemnifying Stockholders each acknowledge
that such Damages, if any, would relate to unresolved contingencies existing at
the Closing Date, which if resolved at the Closing Date would have led to a
reduction in the total consideration that Lucent would have agreed to pay in
connection with the transactions contemplated hereby.
8.3 Damage Threshold. (a) Notwithstanding anything to the
contrary contained in this Agreement, solely with respect to any claim by Lucent
for indemnification under Section 8.2(a)(i) (other than any claim for any
inaccuracy in Section 3.13), Lucent may not seek indemnification with respect to
any claim for Damages until the aggregate amount of all Damages for which Lucent
is seeking indemnification under Section 8.2(a)(i) equals or exceeds $500,000
(the "Threshold"), whereupon Lucent shall be entitled to seek indemnification
with respect to all such Damages that exceed the Threshold.
(b) In determining the amount of any Damage for which Lucent
may seek indemnification under Section 8.2(a)(i) or Section 8.2(a)(iii) but not
in determining whether there has been a breach of any representation, warranty
or covenant, any materiality standard contained in a representation, warranty or
covenant shall be disregarded.
8.4 Escrow Period; Release of Escrow Fund. The Escrow Fund
shall commence on the date hereof and terminate on the first anniversary of the
Closing Date (the "Escrow Period").
A-38
<PAGE> 146
On such first anniversary, all shares of Lucent Common Stock then remaining in
the Escrow Fund shall be released and promptly delivered by the Escrow Agent to
the Indemnifying Stockholders in accordance with each Indemnifying Stockholder's
percentage of the Escrow Fund as set forth in the Escrow Agreement; provided
that the amount of any claim made pursuant to Section 8.5 during the Escrow
Period shall not be released and shall remain in the Escrow Fund pending the
resolution of such claim; provided further that the number of shares of Lucent
Common Stock in the Escrow Fund which is necessary to satisfy any unsatisfied
claims specified in any Lucent Notice theretofore delivered to the Escrow Agent
prior to the termination of the Escrow Period with respect to facts and
circumstances existing prior to the expiration of the Escrow Period, shall not
be released and shall remain in the Escrow Fund until such claims have been
resolved. No shares of Lucent Common Stock shall be released from the Escrow
Fund to any Indemnifying Stockholder until such time as such holder's
Certificates have been surrendered to the Exchange Agent in accordance with
Section 1.9 hereof.
8.5 Claims Upon Escrow Fund. Subject to the provisions of this
Section 8, Lucent shall make claims upon the Escrow Fund by delivering to the
Escrow Agent on or before the last day of the Escrow Period of a notice signed
by a representative of Lucent (a "Lucent Notice") specifying in reasonable
detail the individual items of Damages for which indemnification is being
sought, the date each such item was paid or properly accrued or arose, the
nature of the misrepresentation, breach of warranty or claim to which such item
is related. Upon receipt by the Escrow Agent of a Lucent Notice, the Escrow
Agent shall, subject to the provisions of Section 8.6, deliver to Lucent, as
promptly as practicable, the number of Shares held in the Escrow Fund having a
fair market value on the date of such distribution equal to such Damages. Lucent
shall, concurrent with the sending of any Lucent Notice to the Escrow Agent,
provide a copy of such Lucent Notice to the Company Stockholders'
Representative.
8.6 Objections to Claims. (a) If the Company Stockholders'
Representative shall object to a Lucent Notice within the five-day period after
receipt thereof, then Lucent and the Company Stockholders' Representative shall
use their good faith efforts to resolve such dispute. If Lucent and the Company
Stockholders' Representative resolve such dispute, the parties shall deliver a
written notice to the Escrow Agent directing the delivery of the Escrow Fund as
agreed between Lucent and the Company Stockholder Representative. The number of
shares of Lucent Common Stock necessary to satisfy the Damages specified in the
applicable Lucent Notice shall not be released by the Escrow Agent and shall
remain in the Escrow Fund pending the resolution in accordance with this Section
8.6 of any such objection.
(b) If Lucent and the Company Stockholders' Representative are
unable to resolve such dispute within 30 days after the Company Stockholders'
Representative objects to such Lucent Notice, either Lucent or the Company
Stockholders' Representative may, by written notice to the other and the Escrow
Agent, demand arbitration of such dispute. Any such arbitration shall be
conducted by such alternative dispute service ("Arbitration Service") as shall
be reasonably acceptable to Lucent and the Company Stockholders' Representative.
The Arbitration Service shall select one arbitrator reasonably acceptable to
Lucent and the Company Stockholders' Representative who shall be expert in the
area of development and production of network processor microelectronics
products. The decision by the Arbitration Service shall be binding and
conclusive and, notwithstanding any other provisions of this Section 8, the
Escrow Agent shall be entitled to act in accordance with such decision and make
delivery of the Escrow Fund in accordance therewith.
A-39
<PAGE> 147
(c) The arbitration shall be held in New York, New York. The
costs of any such arbitration shall be borne one-half for the account of Lucent
and one-half by the Indemnifying Stockholders (out of the Escrow Fund to the
extent available after all claims have been satisfied). Judgment upon any award
rendered by the arbitrator may be entered in any court of competent
jurisdiction.
8.7 Third-Party Claims. In the event Lucent becomes aware of a
third-party claim which Lucent believes may result in a demand pursuant to this
Section 8, Lucent shall promptly notify the Company Stockholders' Representative
of such claim, and the Company Stockholders' Representative shall be entitled,
at the Company Stockholders' expense (out of the Escrow Fund to the extent
available after all claims have been satisfied), to participate in any defense
of such claim; provided that Lucent shall control such defense, and shall have
the right with the consent of the Company Stockholders' Representative (which
consent shall not be unreasonably withheld) to settle any such claim (it being
understood that no such consent of the Company Stockholders' Representative
shall be required where the third-party claim, which Lucent proposes to settle
could reasonably be expected to adversely affect, in any material respect, the
business reputation of Lucent or its Affiliates, or the possible criminal
liability of Lucent or its Affiliates or any of their respective officers,
directors or employees). In the event that the Company Stockholders'
Representative has consented to any such settlement, the Indemnifying
Stockholders shall have no power or authority to object under any provision of
this Section 8 to the amount of any claim by Lucent for indemnity with respect
to such settlement.
8.8 Company Stockholders' Representative. (a) Ford Tamer is
hereby appointed as the representative (the "Company Stockholders'
Representative") for and on behalf of the Company Stockholders to take all
actions necessary or appropriate in the judgment of the Company Stockholders'
Representative for the accomplishment of the terms of this Agreement. The
holders of a majority in interest of the Shares held in the Escrow Fund may
replace the Company Stockholders' Representative upon not less than 10 days'
prior written notice to Lucent. No bond shall be required of the Company
Stockholders' Representative and the Company Stockholders' Representative shall
receive no compensation for his services. Notices of communications to or from
the Company Stockholders' Representative shall constitute notice to or from each
of the Company Stockholders. If Ford Tamer is no longer willing or able to
perform the duties of Company Stockholders' Representative, the Company
Stockholders' Representative shall be chosen by a majority in interest by the
Shares held in the Escrow Fund.
(b) The Company Stockholders' Representative shall not be
liable for any act done or omitted in such capacity while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted pursuant
to the advise of counsel shall be conclusive evidence of such good faith. The
Company Stockholders shall severally indemnify the Company Stockholders'
Representative and hold him harmless against any loss, liability or expense
(including expenses of legal counsel) incurred without gross negligence or bad
faith on the part of the Company Stockholders' Representative and arising out of
or in connection with the acceptance or administration of his duties hereunder.
(c) Any decision, act, consent or instruction of the Company
Stockholders' Representative shall constitute a decision of all and shall be
final, binding and conclusive upon every Company Stockholder, and the Escrow
Agent and Lucent may rely upon any decision, act, consent
A-40
<PAGE> 148
or instruction of the Company Stockholders' Representative. The Escrow Agent and
Lucent are hereby relieved from any liability to any person for acts done by
them in accordance with such decision, act, consent or instruction of the
Company Stockholders' Representative.
9. Brokers' and Finders' Fees.
9.1 Company. The Company represents and warrants to
Acquisition and Lucent that no broker, investment banker or financial advisor
other than Hambrecht & Quist LLC is entitled to receive a brokerage fee,
financing commission or other commission from the Company in respect of the
execution of this Agreement or the consummation of the transactions contemplated
hereby. The Company agrees that if the transactions contemplated by this
Agreement are not consummated (other than as a result of a breach or default by
Lucent or Acquisition), it shall indemnify and hold Acquisition and Lucent
harmless against any and all claims, losses, liabilities, costs or expenses
which may be asserted against them as a result of the Company's or any of its
Affiliates' dealings, arrangements or agreements with any such Person.
9.2 Acquisition and Lucent. Acquisition and Lucent represent
and warrant to the Company that no broker, investment banker or financial
advisor is entitled to receive any brokerage fee, financing commission or other
commission from Lucent in respect of the execution of this Agreement or the
consummation of the transactions contemplated hereby. Acquisition and Lucent
agree that if the transactions contemplated hereby are not consummated (other
than as a result of a breach or default by the Company), they shall jointly and
severally indemnify and hold the Company harmless against any and all claims,
losses, liabilities, costs or expenses which may be asserted against them, as a
result of Acquisition's or Lucent's or any of their respective Affiliates'
dealings, arrangements or agreements with any such Person.
10. Expenses. Each party hereto shall pay its own expenses
incidental to the preparation of this Agreement, the carrying out of the
provisions of this Agreement and the consummation of the transactions
contemplated hereby, whether or not the Merger is consummated.
11. Press Releases. Except as required by law or Lucent's listing
agreement with the New York Stock Exchange, Lucent, Acquisition and the Company
shall not issue any press release or otherwise make public any information with
respect to this Agreement nor the transactions contemplated hereby, prior to the
Closing, without the prior written consent of the other parties to this
Agreement.
12. Contents of Agreement; Parties in Interest; etc. This
Agreement and the agreements, schedules and exhibits referred to or contemplated
herein and the letter agreement dated November 19, 1999 concerning
confidentiality (the "Confidentiality Agreement"), set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby, and, except as set forth in this Agreement, such other
agreements and the Exhibits hereto and the Confidentiality Agreement, there are
no representations or warranties, express or implied, made by any party to this
Agreement with respect to the subject matter of this Agreement and the
Confidentiality Agreement. Except for the matters set forth in the
Confidentiality Agreement, any and all previous agreements and understandings
between or among the parties regarding the subject matter hereof, whether
written or oral, are superseded by this Agreement and the agreements referred to
or contemplated herein. All statements contained in schedules, exhibits,
certificates and other instruments attached
A-41
<PAGE> 149
hereto shall be deemed representations and warranties (or exceptions thereto) by
the Company, Acquisition or Lucent, as the case may be.
13. Assignment and Binding Effect. This Agreement may not be assigned
by either party hereto without the prior written consent of the other parties;
provided, that Acquisition may assign its rights and obligations under this
Agreement to any directly or indirectly wholly-owned Subsidiary of Lucent, upon
written notice to the Company if the assignee shall assume the obligations of
Acquisition hereunder and Lucent shall remain liable for its obligations
hereunder. All the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
14. Termination. This Agreement may be terminated, and the Merger may
be abandoned at any time prior to the Effective Time whether before or after the
approval and adoption of this Agreement and the transactions contemplated hereby
by the stockholders of the Company or the stockholders of Acquisition:
(a) by the mutual agreement of (i) the Board of Directors of
Acquisition, (ii) the Board of Directors of the Company and (iii) the
appropriate corporate authority of Lucent;
(b) by Lucent, Acquisition or the Company if (i) the Effective
Time shall not have occurred by June 30, 2000; provided that the right to
terminate this Agreement under this Section 14(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date; or (ii) any court of competent jurisdiction in the United
States or other United States governmental authority shall have issued an order,
decree, ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable;
(c) by the Company, in the event Lucent or Acquisition
materially breaches its obligations under this Agreement, unless such breach is
cured within 15 days after notice to Lucent by the Company; or
(d) by Lucent or Acquisition, in the event the Company
materially breaches its obligations under this Agreement unless such breach is
cured within 15 days after notice by Lucent or Acquisition.
15. Definitions. As used in this Agreement the terms set forth below
shall have the following meanings:
(a) "Affiliate" of a Person shall mean any other Person who
(i) directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, such Person or (ii) owns more
than 5% of the capital stock or equity interest in such Person. "Control" means
the possession of the power, directly or indirectly, to direct or cause the
direction of the management and policies of a Person whether through the
ownership of voting securities, by contract or otherwise.
A-42
<PAGE> 150
(b) "Benefit Plan" shall mean any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other material plan,
arrangement or understanding (whether or not legally binding) providing material
benefits to any current or former employee, officer or director of the Company.
(c) "best knowledge" in respect of any representation and
warranty of the Company set forth in this Agreement shall mean the actual and
constructive knowledge of the executive officers of the Company and employees of
the Company charged with responsibility for the particular matter which is the
subject of such representation or warranty.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Environmental Laws" shall mean all applicable federal,
state, local or foreign laws, rules and regulations, orders, decrees, judgments,
permits, filings and licenses relating (i) to protection and clean-up of the
environment and activities or conditions related thereto, including those
relating to the generation, handling, disposal, transportation or release of
Hazardous Substances and (ii) the health or safety of employees in the workplace
environment, all as amended from time to time, and shall also include any common
law theory based on nuisance, trespass, negligence or other tortious conduct.
(f) "Exchange Agent" shall mean a bank or trust company
designated as the exchange agent by Lucent (which designation shall be
reasonably acceptable to the Company).
(g) "Final Determination" shall mean (i) a decision of the
United States Tax Court, or a decision, judgment, decree or other order by
another court of competent jurisdiction, which has become final and is either no
longer subject to appeal or for which a determination not to appeal has been
made; (ii) a closing agreement made under Section 7121 of the Code or any
comparable foreign, state, local or municipal Tax statute; (iii) any
disallowance of a claim for refund or credit in respect of an overpayment of Tax
unless a suit related thereto is filed on a timely basis; (iv) any final
disposition by reason of the expiration of the applicable statute of
limitations; or (v) the actual payment by the Company of Taxes.
(h) "GAAP" shall mean generally accepted accounting
principles.
(i) "Hazardous Substances" shall mean any and all hazardous
and toxic substances, wastes or materials, any pollutants, contaminants, or
dangerous materials (including, but not limited to, polychlorinated biphenyls,
PCBs, friable asbestos, volatile and semi-volatile organic compounds, oil,
petroleum products and fractions, and any materials which include hazardous
constituents or become hazardous, toxic, or dangerous when their composition or
state is changed), or any other similar substances or materials which are
included under or regulated by any Environmental Law.
(j) "Indebtedness" shall mean as at any date of determination,
the sum of the following items of the Company, without duplication: (i)
obligations of the Company created, issued or incurred for borrowed money,
including all fees and obligations thereunder (including, without limitation,
any prepayment or termination fees arising or which will arise out of the
prepayment of
A-43
<PAGE> 151
such Indebtedness prior to its maturity and termination), (ii) obligations of
the Company to pay the deferred purchase price or acquisition price of property
or services, other than trade or accounts payable arising, and accrued expenses
incurred, in the ordinary course of business consistent with past practice,
(iii) the face amount of all letters of credit issued for the account of the
Company and all drafts thereunder, (iv) capital lease obligations of the
Company, and (v) any obligation guaranteeing any Indebtedness or other
obligations of any other Person (including any obligations under any keep well
or support agreements).
(k) "Indemnifying Stockholders" shall mean Ford Tamer, Obtek,
L.P., Eric Rothfus and each holder of Preferred Stock as of the date hereof as
set forth in Schedule 3.2.
(l) "Liens" shall mean any mortgage, pledge, lien, security
interest, conditional or installment sale agreement, encumbrance, charge or
other claims of third parties of any kind.
(m) "Material Adverse Effect" on a Person shall mean (unless
otherwise specified) any condition or event that may: (i) have a material
adverse effect on the assets, business, financial condition or operations of
such Person; (ii) materially impair the ability of the such Person to perform
its obligations under this Agreement; or (iii) prevent or delay the consummation
of the transactions contemplated under this Agreement.
(n) "Permitted Liens" shall mean (i) Liens for taxes,
assessments, or similar charges, incurred in the ordinary course of business
that are not yet due and payable or are being contested in good faith; (ii)
pledges or deposits made in the ordinary course of business; (iii) Liens of
mechanics, materialmen, warehousemen or other like Liens securing obligations
incurred in the ordinary course of business that are not yet due and payable or
are being contested in good faith; and (iv) similar Liens and encumbrances which
are incurred in the ordinary course of business and which do not in the
aggregate materially detract from the value of such assets or properties or
materially impair the use thereof in the operation of such business.
(o) "Person" shall mean any individual, corporation,
partnership, limited partnership, limited liability company, trust, association
or entity or government agency or authority.
(p) "reasonable best efforts" shall mean prompt, substantial
and persistent efforts as a prudent Person desirous of achieving a result would
use in similar circumstances; provided that the Company, Lucent or Acquisition,
as applicable, shall be required to expend only such resources as are
commercially reasonable in the applicable circumstances.
(q) "Subsidiary" of a Person shall mean any corporation,
partnership, joint venture or other entity in which such Person (a) owns,
directly or indirectly, 50% or more of the outstanding voting securities or
equity interests or (b) is a general partner.
(r) "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") shall mean any federal, state, local, municipal or foreign net
income, gross income, gross receipts, windfall profit, severance, property,
production, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, value-added, transfer,
stamp, or environmental tax, or any other tax, custom, duty, tariff levy,
import, governmental fee or other like
A-44
<PAGE> 152
assessment or charge of any kind whatsoever, together with any interest or
penalty, addition to tax or additional amount imposed by any governmental or
regulatory authority, domestic and foreign.
(s) "Tax Return" shall mean any return, report or similar
statement required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
16. Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy (promptly followed by a
hard-copy delivered in accordance with this Section 16) or by registered or
certified mail (return receipt requested), with postage and registration or
certification fees thereon prepaid, addressed to the party at its address set
forth below:
If to Acquisition or Lucent:
Lucent Technologies Inc.
Microelectronics Group
2 Oak Way
Berkley Heights, New Jersey 07920-2332
Att.: President
Telecopy: (908) 508-8398
with copies to:
Lucent Technologies Inc.
Microelectronics Group
2 Oak Way
Berkley Heights, New Jersey 07920-2332
Att: Corporate Counsel, Microelectronics
Telecopy: (908) 508-8398
If to the Company:
Agere, Inc.
11801 Stonehollow Drive
Suite 200
Austin, Texas 78758
Att: Ford Tamer
Telecopy: (512) 502-2831
with a copy to:
Gunderson, Dettmer, Stough, Villeneuve,
Franklin & Hachigian, LLP
8911 Capital of Texas Highway
Suite 4240
A-45
<PAGE> 153
Austin, Texas 78759
Att: Brian K. Beard
Telecopy: (512) 342-2300
or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telegraphed or mailed.
17. Amendment. This Agreement may be amended, modified or supplemented
at any time prior to the Effective Time by the respective Boards of Directors of
the parties hereto notwithstanding the approval hereof by the stockholders of
the Company or the stockholders of Acquisition, as applicable, except as
provided in Section 251(d) of the DGCL. Any amendment, modification or revision
of this Agreement and any waiver of compliance or consent with respect hereto
shall be effective only if in a written instrument executed by the parties
hereto.
18. Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of New York as applied to
contracts made and fully performed in such state, except insofar as the DGCL
shall be mandatorily applicable to the Merger and the rights of the stockholders
of the Company in connection therewith.
19. No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto, and their respective successors and assigns, and they shall not
be construed as conferring, and are not intended to confer, any rights on any
other Person.
20. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of the Agreement shall
remain in full force and effect. Upon such determination, the parties hereto
shall negotiate in good faith to modify this Agreement so as to give effect to
the original intent of the parties to the fullest extent permitted by applicable
Law.
21. Section Headings. All section headings are for convenience only and
shall in no way modify or restrict any of the terms or provisions hereof.
22. Schedules and Exhibits. All Schedules and Exhibits referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
23. Extensions. At any time prior to the Effective Time, any party may
by corporate action, extend the time for compliance by or waive performance of
any representation, warranty, condition or obligation of any other party.
24. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and the Company,
Acquisition and Lucent may become a party hereto by executing a counterpart
hereof. This Agreement and any counterpart so executed shall be deemed to be one
and the same instrument.
A-46
<PAGE> 154
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have duly executed this Agreement as of the date first
above written.
LUCENT TECHNOLOGIES INC.
By: /s/ John T. Dickson
--------------------------------
Name: John T. Dickson
Title: Executive Vice President &
CEO Microelectronics and
Communications Technologies
CHIP ACQUISITION INC.
By: /s/ John T. Dickson
--------------------------------
Name: John T. Dickson
Title: President
AGERE, INC.
By: /s/ Ford Tamer
--------------------------------
Name: Ford G. Tamer
Title: CEO
<PAGE> 155
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Location of Definition
- ------------ ----------------------
<S> <C>
Acquisition............................................ Preamble
Acquisition Common Stock .............................. Recitals
Acquisition Proposal................................... Section 5.4
Adjusted Option........................................ Section 5.6
Affiliate.............................................. Section 15(a)
Agreement.............................................. Preamble
Arbitration Service.................................... Section 8.6(b)
Authorizations......................................... Section 3.12(b)
Balance Sheet.......................................... Section 3.5(a)
Benefit Plan........................................... Section 15(b)
Benefits Date.......................................... Section 5.16(a)
best knowledge......................................... Section 15(c)
Business............................................... Recitals
Certificate of Merger.................................. Section 1.1(b)
Certificates........................................... Section 1.9(b)
Closing................................................ Section 1.1(b)
Closing Date........................................... Section 1.1(b)
Code................................................... Section 15(d)
Common Shares.......................................... Section 3.2 (a)
Common Stock Exchange Ratio............................ Section 1.5(c)
Commonly Controlled Entity............................. Section 3.15(a)
Company................................................ Preamble
Company Capital Stock.................................. Recitals
Company Common Stock................................... Recitals
Company Preferred Stock................................ Recitals
Company Stock Options.................................. Section 5.6
Company Stock Option Notices........................... Section 5.6(b)
Company Stock Plan..................................... Section 5.6
Company's Stockholders' Representative................. Section 8.8(a)
Confidentiality Agreement.............................. Section 12
Damages................................................ Section 8.2
DGCL................................................... Recitals
Dissenting Shares...................................... Section 1.7(a)
Effective Time......................................... Section 1.1(b)
Environmental Laws..................................... Section 15(e)
Escrow Agent........................................... Section 8.1
Escrow Agreement ...................................... Section 6.1(d)
Escrow Fund............................................ Section 8.1
Escrow Period.......................................... Section 8.4
ERISA.................................................. Section 3.15(a)
Exchange Act........................................... Section 4.3(c)
Exchange Agent......................................... Section 15(f)
Exchange Fund.......................................... Section 1.9
</TABLE>
A-i
<PAGE> 156
<TABLE>
<S> <C>
Exchange Ratio......................................... Section 1.5(c)
Excluded Option........................................ Section 5.6(g)
Executive Employees.................................... Section 3.16(a)
Final Determination.................................... Section 15(g)
Financial Statements................................... Section 3.5(a)
GAAP................................................... Section 15(h)
Hazardous Substances................................... Section 15(i)
Immaterial Authorizations.............................. Section 3.12(b)
Indemnified Party...................................... Section 5.17
Indemnified Person..................................... Section 8.2
Indemnifying Stockholders.............................. Section 15(k)
Intellectual Property Rights........................... Section 3.13(a)
Intellectual Property Transfer......................... Section 6.2(i)
Indebtedness........................................... Section 15(j)
IRS.................................................... Section 3.14
Laws................................................... Section 3.2
Liens.................................................. Section 15(l)
Lucent................................................. Preamble
Lucent Common Stock.................................... Section 4.2
Lucent Notice.......................................... Section 8.5
Lucent Plans........................................... Section 5.16(b)
Lucent Authorized Preferred Stock...................... Section 4.2
Lucent Junior Preferred Stock.......................... Section 4.2
Lucent SEC Documents................................... Section 4.5(a)
Material Adverse Effect................................ Section 15(m)
Merger................................................. Recitals
NYSE................................................... Section 1.8
Outstanding Common Shares.............................. Section 3.2.(a)
Patents................................................ Section 3.13(a)
Pension Plans.......................................... Section 3.15(a)
Permitted Liens........................................ Section 15(n)
Person................................................. Section 15(o)
Plans.................................................. Section 3.15(a)
Preferred Shares....................................... Section 3.2(a)
Preferred Stock Exchange Ratio......................... 1.5(c)
reasonable best efforts................................ Section 15(p)
Registration Statement................................. Section 3.28
Reserved Common Shares................................. Section 3.2.(a)
Restraints............................................. Section 6.1(c)
Restricted Stock Agreement............................. Section 3.15(h)
Right.................................................. Section 1.5(c)
SEC.................................................... Section 3.28
Securities Act......................................... Section 3.28
Shares................................................. Section 3.2(a)
Subsidiary............................................. Section 15(q)
Substitute Restricted Stock............................ Section 5.6
Supplemental Financial Information..................... Section 5.3(c)
</TABLE>
A-ii
<PAGE> 157
<TABLE>
<S> <C>
Surviving Corporation.................................. Section 1.1(a)
Tax.................................................... Section 15(r)
Tax Return............................................. Section 15(s)
Threshold.............................................. Section 8.3
Warrant................................................ Section 5.6(g)
Warrant Exchange Ratio................................. Section 5.6(g)
Warrant Shares......................................... Section 3.2(a)
Welfare Plans.......................................... Section 3.15(a)
</TABLE>
A-iii
<PAGE> 158
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AGREEMENT AND
PLAN OF MERGER.......................................................................................... 1
BACKGROUND....................................................................................................... 1
1. The Merger............................................................................ 2
1.1 General............................................................................... 2
1.2 Certificate of Incorporation.......................................................... 2
1.3 By-Laws............................................................................... 2
1.4 Directors and Officers................................................................ 2
1.5 Conversion of Securities.............................................................. 3
1.6 Adjustment of the Exchange Ratios..................................................... 3
1.7 Dissenting Shares..................................................................... 3
1.8 No Fractional Shares.................................................................. 4
1.9 Exchange Procedures; Distributions with Respect to Unexchanged Shares;
Stock Transfer Books.................................................................. 4
1.10 Return of Exchange Fund............................................................... 6
1.11 No Further Ownership Rights in Company Capital Stock.................................. 7
1.12 Further Assurances.................................................................... 7
2. Approval by Stockholders....................................................................... 7
2.1 Approval by Stockholders.............................................................. 7
3. Representations and Warranties of the Company.................................................. 8
3.1 Organization.......................................................................... 8
3.2 Capitalization; Options and Other Rights.............................................. 8
3.3 Authority; Stockholder Vote........................................................... 9
3.4 Charter Documents..................................................................... 10
3.5 Financial Statements.................................................................. 10
3.6 Absence of Undisclosed Liabilities; Indebtedness...................................... 10
3.7 Operations and Obligations............................................................ 11
3.8 Properties............................................................................ 13
3.9 Contracts............................................................................. 13
3.10 Absence of Default.................................................................... 14
3.11 Litigation............................................................................ 14
3.12 Compliance with Law................................................................... 15
3.13 Intellectual Property; Year 2000...................................................... 15
3.14 Tax Matters........................................................................... 17
3.15 Employee Benefit Plans................................................................ 18
3.16 Executive Employees................................................................... 19
3.17 Employees............................................................................. 19
3.18 Environmental Laws.................................................................... 20
3.19 Bank Accounts, Letters of Credit and Powers of Attorney............................... 20
3.20 Subsidiaries.......................................................................... 20
3.21 Insurance............................................................................. 21
3.22 Leases................................................................................ 21
3.23 Assets................................................................................ 21
</TABLE>
A-i
<PAGE> 159
<TABLE>
<CAPTION>
Page
<S> <C>
3.24 Minute Books.......................................................................... 21
3.25 Complete Copies of Materials.......................................................... 21
3.26 Disclosure............................................................................ 21
3.27 Reorganization........................................................................ 22
3.28 Information in Lucent Registration Statement.......................................... 22
3.29 Hart-Scott-Rodino Compliance.......................................................... 22
4. Representations and Warranties of Acquisition and Lucent....................................... 22
4.1 Organization.......................................................................... 22
4.2 Capital Structure..................................................................... 22
4.3 Authority............................................................................. 23
4.4 Litigation............................................................................ 24
4.5 SEC Filings; Lucent Financial Statements.............................................. 24
4.6 Information Supplied.................................................................. 25
4.7 Operations and Obligations............................................................ 25
4.8 Interim Operations of Acquisition..................................................... 25
4.9 Reorganization........................................................................ 25
5. Conduct Pending Closing........................................................................ 25
5.1 Conduct of Business Pending Closing................................................... 25
5.2 Prohibited Actions Pending Closing.................................................... 26
5.3 Access; Documents; Supplemental Information........................................... 27
5.4 No Solicitation....................................................................... 28
5.5 Filings; Other Actions................................................................ 29
5.6 Company Stock Options; Warrants....................................................... 29
5.7 Company Stock Plans................................................................... 31
5.8 Comfort Letters....................................................................... 32
5.9 Stock Exchange Listing................................................................ 32
5.10 Affiliates............................................................................ 32
5.11 Notification of Certain Matters....................................................... 32
5.12 Tax Returns; Cooperation.............................................................. 32
5.13 Reorganization........................................................................ 33
5.14 Working Capital Financing............................................................. 33
5.15 Actions by the Parties................................................................ 33
5.16 Employee Benefit Plans................................................................ 33
5.17 Indemnification....................................................................... 34
6. Conditions Precedent........................................................................... 34
6.1 Conditions Precedent to Each Party's Obligation to Effect the Merger.................. 34
6.2 Conditions Precedent to Obligations of Acquisition and Lucent......................... 35
6.3 Conditions Precedent to the Company's Obligations..................................... 37
7. Survival of Representation and Warranties...................................................... 38
7.1 Representations and Warranties................................................................. 38
8. Indemnification......................................................................................... 38
8.1 Escrow Shares......................................................................... 38
8.2 General Indemnification........................................................................ 38
8.3 Damage Threshold............................................................................... 39
</TABLE>
A-ii
<PAGE> 160
<TABLE>
<CAPTION>
Page
<S> <C>
8.4 Escrow Period; Release of Escrow Fund.......................................................... 39
8.5 Claims Upon Escrow Fund........................................................................ 39
8.6 Objections to Claims.................................................................. 40
8.7 Third-Party Claims.................................................................... 40
8.8 Company Stockholders' Representative.................................................. 41
9. Brokers' and Finders' Fees..................................................................... 41
9.1 Company............................................................................... 41
9.2 Acquisition and Lucent................................................................ 42
10. Expenses....................................................................................... 42
11. Press Releases................................................................................. 42
12. Contents of Agreement; Parties in Interest; etc................................................ 42
13. Assignment and Binding Effect.................................................................. 42
14. Termination.................................................................................... 43
15. Definitions.................................................................................... 43
16. Notices........................................................................................ 46
17. Amendment...................................................................................... 47
18. Governing Law.................................................................................. 47
19. No Benefit to Others........................................................................... 47
20. Severability. ................................................................................ 47
21. Section Headings............................................................................... 47
22. Schedules and Exhibits......................................................................... 47
23. Extensions..................................................................................... 47
24. Counterparts................................................................................... 47
GLOSSARY OF DEFINED TERMS......................................................................................... i
</TABLE>
A-iii
<PAGE> 161
ANNEX B
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Section 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 Or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257, 258, 263
and 264 of this title to accept fOR such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
(or depository receipts in respect thereof) or
B-1
<PAGE> 162
depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand
for appraisal of such stockholder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of THIS title, each constituent corporation,
either before the effective date of the merger or
B-2
<PAGE> 163
consolidation or within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all
shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of
the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such
demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send
a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to
all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only
be sent to each stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a
B-3
<PAGE> 164
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be
B-4
<PAGE> 165
enforced, whether such surviving or resulting corporation be a corporation of
this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-5
<PAGE> 166
ANNEX C
EXECUTION COPY
VOTING AGREEMENT
This Voting Agreement dated as of January 19, 2000 (the
"Agreement"), is made by and among Lucent Technologies Inc., a Delaware
corporation ("Lucent"), Chip Acquisition Inc., a Delaware corporation
("Acquisition"), and each of the undersigned holders of shares of capital stock
(each, a "Stockholder" and collectively, the "Stockholders") of Agere, Inc., a
Delaware corporation (the "Company").
PRELIMINARY STATEMENTS
Concurrently with the execution of this Agreement, the
Company, Lucent and Acquisition have entered into a Agreement and Plan of Merger
(as the same may be amended from time to time, the "Merger Agreement"),
providing for the merger of Acquisition with and into the Company, with the
Company being the surviving corporation (the "Merger"), which Merger is subject
to the approval of the holders of shares of capital stock of the Company as
provided in the Merger Agreement, the Delaware General Corporation Law, as
amended, and the Company's Certificate of Incorporation, as amended.
The Stockholders own (a) the shares of the Company common
stock, par value $.001 per share (the "Common Stock"), set forth opposite their
respective names on Exhibit A hereto; and (b) the shares of the Company Series A
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"), set
forth opposite their respective names on Exhibit B hereto. As used herein, the
term "Shares" includes all shares of such Common Stock and Series A Preferred
Stock as to which each Stockholder (at any time prior to the termination of this
Agreement) is the beneficial owner or is otherwise able to direct the voting
thereof and all securities issued or exchanges with respect to any such Shares
upon any reclassification, recapitalization, reorganization, merger,
consolidation, spin-off, stock split, combination, stock or other dividend or
any other change in the Company's capital structure.
To induce Lucent and Acquisition to enter into the Merger
Agreement, the Company has agreed, upon the terms and subject to the conditions
set forth herein, to cause holders of not less than 67% of outstanding shares of
Common Stock and 67% of outstanding shares of Series A Preferred Stock to
execute this Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, the parties
to this Agreement agree as follows:
1. Stockholders' Representations and Warranties. Each
Stockholder, as to itself only, represents and warrants to Lucent and
Acquisition that (i) except as set forth in Schedule 1 hereto, such Stockholder
owns the Shares set forth on Exhibits A and/or B hereto, as the case may be,
free and clear of any mortgage, pledge, lien, security interest, claim,
restriction on voting or otherwise or other encumbrance and (ii) such
Stockholder has the right to vote such Shares free of
C-1
<PAGE> 167
any mortgage, pledge, lien, security interest, claim, restriction on voting or
otherwise or other encumbrance (other than any general fiduciary obligation
imposed by law).
2. No Voting Trusts. Each Stockholder hereby revokes any and
all proxies and voting instructions with respect to the Shares previously given
by such Stockholder and such Stockholder agrees that it will not grant or give
any other proxies or voting instructions with respect to the voting of the
Shares, enter into any voting trust or other arrangement or agreement with
respect to the voting of the Shares (and if given or executed, such proxies,
voting instructions, voting trust or other arrangement or agreement shall not be
effective), or agree, in any manner, to vote the Shares for or against any
proposal submitted to the stockholders of the Company except in furtherance of
the proposals set forth in paragraph 3 hereof.
3. Agreements with Respect to the Shares.
(a) Each Stockholder agrees during the term of this Agreement:
(i) to vote the Shares, to the extent entitled to
vote, (y) in favor of the approval of the Merger Agreement and the Merger, at
every meeting of the stockholders of the Company at which such matters are
considered and at every adjournment thereof and (z) with respect to all other
proposals submitted to the stockholders of the Company which, directly or
indirectly, in any way relate to the Merger, in such manner as Acquisition or
Lucent may direct;
(ii) not to solicit, encourage or recommend to other
stockholders of the Company that (w) they vote their shares of Common Stock or
Series A Preferred Stock or any such other securities in any contrary manner,
(x) they not vote their shares of Common Stock or Series A Preferred Stock at
all, (y) they tender, exchange or otherwise dispose of their shares of Common
Stock or Series A Preferred Stock pursuant to a Competing Transaction, as
hereinafter defined, or (z) they attempt to exercise any statutory appraisal or
other similar rights they may have; and
(iii) to take such action as required on the part of
such Stockholder to satisfy conditions to closing set forth in the Merger
Agreement including without limitation entering into any such agreements,
arrangements or understandings contemplated by Section 6 thereof.
(b) Unless otherwise instructed in writing by Lucent or
Acquisition, during the term of this Agreement, each Stockholder will vote the
Shares against any Competing Transaction.
(c) Except with the prior written consent of Lucent or
Acquisition, during the term of this Agreement, each Stockholder agrees that
such Stockholder will not, and shall use its reasonable best efforts not to
permit any employee, attorney, accountant, investment banker or other agent or
representative of such Stockholder to initiate, solicit, negotiate, encourage,
or provide confidential information in order to facilitate any Competing
Transaction.
(d) For purposes of this Agreement, a "Competing Transaction"
shall mean a transaction of any kind (including, without limitation, a merger,
consolidation, share exchange, reclassification, reorganization,
recapitalization, sale or encumbrance of substantially all the assets of
C-2
<PAGE> 168
the Company outside the ordinary course of business, or sale or exchange by
stockholders of the Company of all or substantially all the shares of the
Company's capital stock) proposed by any person(s) in lieu of or in opposition
to the Merger Agreement and the Merger.
4. Proxies. In furtherance of the foregoing, each Stockholder
is granting to Richard Bleicher, the Vice President of Acquisition, and/or Jean
Rankin, the Secretary of Acquisition, or to his or her designee(s), irrevocable
proxies and powers of attorney (which may be in the form annexed hereto or such
other form consistent with the terms hereof and thereof as Lucent or Acquisition
may specify) to vote the Shares, to the extent such Shares are entitled to vote,
and hereby specifically agrees not to revoke such proxies granted under any
circumstances:
(a) at any and all meetings of stockholders of the
Company, notice of which meetings are given prior to the due
and proper termination of this Agreement, with respect to
matters presented to the Company's stockholders for vote
which, directly or indirectly, in any way relate to or affect
(i) the Merger or the Merger Agreement or the approval of
either thereof; and (ii) any Competing Transaction; or
(b) with respect to actions to be taken by written
consent of the stockholders of the Company which, directly or
indirectly, in any way relates to or affects any of the
foregoing, and which consent is solicited prior to the due and
proper termination of this Agreement.
5. Limitation on Sales. During the term of this Agreement,
except pursuant to the Merger, each Stockholder agrees not to sell, assign,
transfer, loan, tender, pledge, hypothecate, exchange, encumber or otherwise
dispose of, or issue an option or call with respect to, any of the Shares, or
impair such Stockholder's Shares; provided, that any Stockholder may sell or
otherwise dispose of any of his or her Shares if the transferee of such Shares
agrees to be bound by and subject to the terms and conditions of this Agreement
as if such transferee had executed this Agreement on the date hereof as a
Stockholder.
6. Specific Performance. Each Stockholder acknowledges that it
will be impossible to measure in money the damage to Lucent or Acquisition if
the Stockholder fails to comply with the obligations imposed by this Agreement,
and that, in the event of any such failure, neither Lucent nor Acquisition will
have an adequate remedy at law or in damages. Accordingly, each Stockholder
agrees that injunctive relief or any other equitable remedy, in addition to any
remedies at law or damages, is the appropriate remedy for any such failure and
will not oppose the granting of any such remedy on the basis that Lucent or
Acquisition has an adequate remedy at law. Each Stockholder agrees not to seek,
and agrees to waive any requirement for, the securing or posting of a bond in
connection with Lucent or Acquisition seeking or obtaining such equitable
relief.
7. Reasonable Efforts. Each Stockholder will use all
reasonable efforts to cause to be satisfied the conditions to the obligations of
the Company to effect the Closing under the Merger Agreement.
C-3
<PAGE> 169
8. Publicity. Each Stockholder agrees that, from the date
hereof through the Closing Date, such Stockholder shall not issue any public
release or announcement concerning the transactions contemplated by this
Agreement and the Merger Agreement without the prior consent of Lucent, except
as such release or announcement may, in the opinion of such Stockholder's
counsel, be required by applicable law, in which case such Stockholder shall
allow Lucent reasonable time to comment on such release or announcement in
advance of such issuance.
9. Term of Agreement; Termination.
(a) The term of this Agreement shall commence on the date
hereof and shall terminate upon the earliest to occur of (i) the Effective Time
of the Merger (as defined in the Merger Agreement) and (ii) the due and proper
termination of the Merger Agreement in accordance with its terms. Upon such
termination, no party shall have any further obligations or liabilities
hereunder.
(b) The obligations of the Stockholders set forth in this
Agreement shall not be effective or binding upon any Stockholder until after
such time as the Merger Agreement is executed and delivered by Lucent,
Acquisition and the Company.
10. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter of this Agreement
and supersedes all prior written and oral and all contemporaneous oral
agreements and understandings with respect to the subject matter of this
Agreement.
(b) Notices. Any notice, request, instruction or other
document to be given hereunder by any party to the others shall be in writing
and shall be deemed to have been duly given on the next business day after the
same is sent, if delivered personally or sent by telecopy or overnight delivery,
or five calendar days after the same is sent, if sent by registered or certified
mail, return receipt requested, postage prepaid, as set forth below, or to such
other persons or addresses as may be designated in writing in accordance with
the terms hereof by the party to receive such notice.
C-4
<PAGE> 170
If to Acquisition or Lucent:
Lucent Technologies Inc.
Microelectronics Group
2 Oak Way
Berkley Heights, New Jersey 07920-2332
Att: President
Telecopy: (908) 508-8398
with a copy to:
Lucent Technologies Inc.
Microelectronics Group
2 Oak Way
Berkley Heights, New Jersey 07920-2332
Att: Corporate Counsel, Microelectronics
Telecopy: (908) 508-8398
If to a Stockholder, to the address set forth below such
Stockholder's name on Exhibits A and/or B hereto, with copies
to:
Gunderson, Dettmer, Stough, Villeneuve,
Franklin & Hachigian, LLP
8911 Capital of Texas Highway
Suite 4240
Austin, Texas 78759
Att: Brian K. Beard
Telecopy: (512) 342-8181
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York as applied to
contracts made and fully performed in such state without giving effect to the
principles of conflict of laws thereof and except insofar as the Delaware
General Corporation Law, as amended, shall be mandatorily applicable to the
Merger and the rights of the Stockholders of the Company in connection
therewith.
(d) Rules of Construction. The descriptive headings in this
Agreement are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement. Words
used in this Agreement, regardless of the gender and number specifically used,
shall be deemed and construed to include any other gender, masculine or
feminine, or neuter, and any other number, singular or plural, as the context
requires. As used in this Agreement, the word "including" is not limiting, and
the word "or" is not exclusive.
(e) Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of the parties to this Agreement and their legal
successors-in-interest, and nothing in this
C-5
<PAGE> 171
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
(f) Counterparts. This Agreement may be executed in one or
more counterparts, and each of such counterparts shall for all purposes be
deemed to be an original, but all such counterparts together shall constitute
but one instrument.
(g) Assignment. No party hereto shall assign its rights and
obligations under this Agreement or any part thereof, nor shall any party assign
or delegate any of its rights or duties hereunder without the prior written
consent of the other party, and any assignment made without such consent shall
be void. Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(h) Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
(i) Extension; Waiver. Any party to this Agreement may extend
the time for the performance of any of the obligations or other acts of any of
the other parties to this Agreement or waive compliance by any other party with
any of the agreements or conditions contained herein or any breach thereof. Any
agreement on the part of any 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.
(j) Severability. The provisions of this Agreement are
severable and, if any thereof are invalid or unenforceable in any jurisdiction,
the same and the other provisions hereof shall not be rendered otherwise invalid
or unenforceable.
(k) Fiduciary Duty as Director. The parties hereto acknowledge
and agree that each Stockholder's obligations hereunder are solely in his
capacity as a stockholder of the Company, and that none of the provisions herein
set forth shall be deemed to restrict or limit any fiduciary duty any of the
undersigned or any of their respective affiliates may have as a member of the
Board of Directors of the Company, as an executive officer of the Company, or
otherwise as a fiduciary to any person (other than any of the stockholders of
the Company) resulting from any circumstances other than as a stockholder of the
Company; provided that, no such duty shall excuse the Stockholder from his
obligations as a stockholder of the Company to vote the Shares, to the extent
that they may be so voted, or otherwise perform any obligation as herein
provided and to otherwise comply with the terms and conditions of this
Agreement.
C-6
<PAGE> 172
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have duly executed this Voting Agreement as of the date
first above written.
LUCENT TECHNOLOGIES INC.
By: /s/ Sohail Khan
----------------------------------
Name: Sohail Khan
Title: Vice President Strategy and
Business Development
CHIP ACQUISITION INC.
By: /s/ Sohail Khan
----------------------------------
Name: Sohail Khan
Title: Vice President Strategy and
Business Development
C-7
<PAGE> 173
TL VENTURES III L.P.
By: TL VENTURES III MANAGEMENT, L.P.,
its general partner
By: TL VENTURES III LLC,
its general partner
By: /s/ Robert Fabbio
----------------------------------
Robert A. Fabbio
Managing Director
SIGNATURE PAGE TO VOTING AGREEMENT DATED AS OF JANUARY 19, 2000
C-8
<PAGE> 174
OBTEK, L.P.
By: Obtek, Inc.
General Partner
By: /s/ Victoria Bennett
----------------------------------
Victoria M. Bennett
President
SIGNATURE PAGE TO VOTING AGREEMENT DATED AS OF JANUARY 19, 2000
C-9
<PAGE> 175
AUSTIN VENTURES VI, L.P.
By: AV PARTNERS VI, L.P.,
its general partner
By: /s/ Edward Olkkola
-------------------------------
Edward Olkkola
General Partner
SIGNATURE PAGE TO VOTING AGREEMENT DATED AS OF JANUARY 19, 2000
C-10
<PAGE> 176
/s/ Eric . Rothfus
---------------------------------------
Eric . Rothfus
Individually
/s/ Ford Tamer
---------------------------------------
F.G. Tamer
Individually
SIGNATURE PAGE TO VOTING AGREEMENT DATED AS OF JANUARY 19, 2000
C-11
<PAGE> 177
EXHIBIT A
HOLDINGS OF COMMON STOCK AS OF JANUARY 19, 2000
Name of Stockholder: Ford G. Tamer
Address: 7216 Valburn Drive
Austin, TX 78731
Telephone No.: 512/502-2810
Facsimile No.: 512/502-2830
Number of Shares of Common Stock: 1,000,000
Name of Stockholder: Eric J. Rothfus
Address: 8702 Royalwood Drive
Austin, TX 78750
Telephone No.: 512/502-2800
Facsimile No.: 512/502-2831
Number of Shares of Common Stock: 1,000,000
Name of Stockholder: Obtek, Inc.
Address: Victoria Bennett
711 Sunset Hill Drive
Rockwall, TX 75087
Telephone No.: 972/772-1040
Facsimile No.: 972/771-9049
Number of Shares of Common Stock: 2,600,000
C-12
<PAGE> 178
EXHIBIT B
HOLDINGS OF SERIES A PREFERRED STOCK AS OF JANUARY 19, 2000
Name of Stockholder: TL Ventures III L.P.
Address: c/o TL Ventures LLC
435 Devon Park Drive
700 Building
Wayne, PA 19087-1990
Telephone No.: 610/971-1515
Facsimile No.: 610/975-9330
Number of Shares of Series A Preferred Stock: 2,737,575
Name of Stockholder: Austin Ventures VI, L.P.
Address: 114 West Seventh Street
Suite 1300
Austin, TX 78701
Telephone No.: 512/479-0055
Facsimile No.: 512/476-3952
Number of Shares of Series A Preferred Stock: 2,550,000
C-13
<PAGE> 179
FORM OF
IRREVOCABLE PROXY AND POWER OF ATTORNEY
The undersigned hereby appoints Richard Bleicher, the Vice
President of Chip Acquisition Inc. ("Acquisition") and/or Jean Rankin, the
Secretary of Acquisition, as the undersigned's attorney-in-fact and proxy, with
full power of substitution, for and in the undersigned's name, to vote, express
consent or disapproval, or otherwise act in such manner (including pursuant to
written consent, but excluding the right to assert, perfect and prosecute
dissenters' rights of appraisal) upon such matters as set forth in Sections 3(a)
and 3(b) of the Voting Agreement with respect to all of the shares of Common
Stock, par value $.001 per share, and/or Series A Preferred Stock, par value
$.001 per share, of Agere, Inc., a Delaware corporation (the "Company"), owned
of record by the undersigned.
The proxy granted hereby shall be irrevocable and may be
exercised at any meeting of stockholders, notice of which is given, or in
respect of any written consent which is solicited prior to the due and proper
termination of, and subject to and in accordance with the terms and conditions
of, the Voting Agreement, dated of even date herewith, among the undersigned,
Lucent Technologies Inc., Acquisition and the stockholders of the Company
signatory thereto. This proxy is coupled with an interest sufficient in law to
support such proxy.
Dated: January __, 2000
By: ______________________________
Name:
Title:
C-14
<PAGE> 180
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 corporation 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 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.
II-1
<PAGE> 181
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
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) Not applicable.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post- effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933.
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post- effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement. Notwithstanding the foregoing,
any increase or decrease in volume of
securities offered (if the total dollar
amount of securities offered would not
exceed that which was registered) and any
deviation from the low or high end of the
estimated 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
percent change in the maximum aggregate
offering price set forth in the "Calculation
of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act 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.
II-2
<PAGE> 182
(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) The undersigned registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus
which is a part of this registration statement, by
any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus
will contain the information called for by the
applicable registration form with respect to
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i)
that is filed pursuant to 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.
II-3
<PAGE> 183
(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 this 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-4
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in Murray Hill, New Jersey, on March
17, 2000.
LUCENT TECHNOLOGIES INC.
(Registrant)
By: /s/ James S. Lusk
------------------
Name: James S. Lusk
Title: Senior Vice President, Chief
Financial Officer and
Controller
Pursuant to the requirements of the Securities Act of 1933, this
amendment has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER: ###
#
Richard A. McGinn Chairman of the Board and #
Chief Executive Officer #
#
PRINCIPAL FINANCIAL OFFICER: #
#
James S. Lusk Senior Vice President, Chief #
Financial Officer and Controller #
PRINCIPAL ACCOUNTING ###### By: /s/ James S. Lusk
OFFICER: # ------------------
# (James S. Lusk,
James S. Lusk Senior Vice President, Chief # attorney-in-fact)*
Financial Officer and Controller #
DIRECTORS: #
# * by power of attorney
Paul A. Allaire #
Carla A. Hills # Date: March 17, 2000
Richard A. McGinn #
Paul H. O'Neill #
Henry B. Schacht #
Franklin A. Thomas #
John A. Young #
###
</TABLE>
II-5
<PAGE> 185
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
2.1** Agreement and Plan of Merger dated as of January 19, 2000 by and among
the registrant, Chip Acquisition Inc. and Agere, Inc. (included as
Annex A to the proxy statement/prospectus which is part of this
registration statement on Form S-4).
4.1* Provisions of the Certificate of Incorporation of the registrant, as
amended effective February 16, 2000, that define the rights of security
holders of the registrant (incorporated by reference to the
registrant's Registration Statement (No. 333-31400) on Form S-4.
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 Annual Report on Form 10-K for the year ended September
30, 1999).
4.3* 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).
4.4 Other instruments in addition to Exhibits 4.1, 4.2 and 4.3 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 Jean F. Rankin, Vice President--Law of the registrant, as to
the legality of the securities to be issued.
8.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP as to certain United States federal income tax consequences of the
merger.
10.1* Separation and Distribution Agreement by and among the registrant, AT&T
Corp. and NCR Corporation, dated as of February 1, 1996 and amended and
restated as of March 29, 1996 (incorporated by reference to Exhibit
10.1 to Registration Statement on Form S-1 No. 333-00703).
10.2* Tax Sharing Agreement by and among the registrant, AT&T Corp. and NCR
Corporation, dated as of February 1, 1996 and amended and restated as
of March 29, 1996 (incorporated by reference to Exhibit 10.6 to
Registration Statement on Form S-1 No. 333-00703).
10.3* Employee Benefits Agreement by and between AT&T and the registrant,
dated as of February 1, 1996 and amended and restated as of March 29,
1996 (incorporated by reference to Exhibit 10.2 to Registration
Statement on Form S-1 No. 333-00703).
10.4* 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 on Form S- 1 No. 333-00703).
10.5* 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).
</TABLE>
II-6
<PAGE> 186
<TABLE>
<S> <C>
10.6* Brand License Agreement by and between the registrant and AT&T, dated
as of February 1, 1996 (incorporated by reference to Exhibit 10.5 to
Registration Statement on Form S-1 No. 333-00703).
10.7* Patent License Agreement among AT&T, NCR and the registrant, effective
as of March 29, 1996 (incorporated by reference to Exhibit 10.7 to
Registration Statement on Form S-1 No. 333-00703).
10.8* Amended and Restated Technology License Agreement among AT&T, NCR and
the registrant, effective as of March 29, 1996 (incorporated by
reference to Exhibit 10.8 to Registration Statement on Form S-1 No.
333-00703).
10.9* Lucent Technologies Inc. Short Term Incentive Program (incorporated by
reference to Exhibit (10)(iii)(A)(2) to the Quarterly Report on Form
10-Q for the quarter ended March 31, 1998).
10.10* Lucent Technologies Inc. 1996 Long Term Incentive Program (incorporated
by reference to Exhibit(10)(iii)(A)(1) to Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
10.11* Lucent Technologies Inc. 1996 Long Term Incentive Program (Plan)
Restricted Stock Unit Award Agreement (incorporated by reference to
Exhibit (10)(iii)(A)(3) to the registrant's Annual Report on Form 10K
for the period ended September 30, 1999).
10.12* Lucent Technologies Inc. 1996 Long Term Incentive Program (Plan)
Nonstatutory Stock Option Agreement (incorporated by reference to
Exhibit (10)(iii)(A)(4) to the registrant's Annual Report on Form 10K
for the period ended September 30, 1999).
10.13* Lucent Technologies Inc. Deferred Compensation Plan (incorporated by
reference to Exhibit (10)(iii)(A)(3) to the registrant's Annual Report
on Form 10-K for the period ended September 30, 1998).
10.14* Pension Plan for Lucent Non-Employee Directors (incorporated by
reference to Exhibit 10.11 to Registration Statement on Form S-1 No.
333-00703)(this plan has been terminated).
10.15* Lucent Technologies Inc. Stock Retainer Plan for Non-Employee Directors
(incorporated by reference to Exhibit (10)(iii)(A)(5) to the
registrant's Annual Report on Form 10-K for the period ended September
30, 1998).
10.16* Lucent Technologies Inc. Excess Benefit and Compensation Plan
(incorporated by reference to Exhibit (10)(iii)(A)(5) to the
registrant's Annual Report on Form 10-K for Transition Period ended
September 30, 1996).
10.17* Lucent Technologies Inc. Mid-Career Pension Plan (incorporated by
reference to Exhibit (10)(iii)(A)(6) to the registrant's Annual Report
on Form 10-K for Transition Period ended September 30, 1996).
10.18* Lucent Technologies Inc. Non-Qualified Pension Plan (incorporated by
reference to Exhibit (10)(iii)(A)(7) to the registrant's Annual Report
on Form 10-K for Transition Period ended September 30, 1996).
10.19* Lucent Technologies Inc. Officer Long-Term Disability and Survivor
Protection Plan (incorporated by reference to Exhibit (10)(iii)(A)(8)
to the registrant's Annual Report on Form 10-K for Transition Period
ended September 30, 1996).
10.20* Employment Agreement of Mr. Verwaayen dated June 12, 1997 (incorporated
by reference to Exhibit (10)(iii)(A)(1) to the registrant's Annual
Report on Form 10-K for the period ended September 30, 1997).
</TABLE>
II-7
<PAGE> 187
<TABLE>
<S> <C>
10.21* Employment Agreement of Mr. Peterson dated August 8, 1995 (incorporated
by reference to Exhibit (10)(iii)(A)(9) to the registrant's Annual
Report on Form 10-K for the period ended September 30, 1997).
10.22* Consulting Agreement of Mr. Schacht, effective March 1, 1998
(incorporated by reference to Exhibit (10)(iii)(A)(5) to the Quarterly
Report on Form 10-Q for the period ended March 31, 1998).
10.23* Description of the Lucent Technologies Inc. Supplemental Pension Plan.
(incorporated by reference to Exhibit (10)(iii)(A)(13) to the
registrant's Annual Report on Form 10-K for the period ended September
30, 1998).
10.24* Lucent Technologies Inc. 1999 Stock Compensation Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10(iii)(A)(14) to the
registrant's Annual Report on Form 10-K for the period ended September
30, 1998).
10.25* Lucent Technologies Inc. Voluntary Life Insurance Plan (incorporated by
reference to Exhibit 10(iii)(A)(15) to the registrant's Annual Report
on Form 10-K for the period ended September 30, 1998).
10.26* Voting Agreement dated as of January 19, 2000 by and between the
registrant, Chip Acquisition Inc. and certain stockholders of Agere,
Inc. (included as Annex C to the proxy statement/prospectus which is a
part of this registration statement on Form S-4).
23.1 Consent of Jean F. Rankin, Vice President--Law of the registrant
(included as part of Exhibit 5.1 to this registration statement).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
23.3 Consent of Ernst & Young LLP, Independent Auditors.
23.4 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP (included as part of Exhibit 8.1 to this registration statement).
24.1+ Powers of Attorney.
99.1 Form of Proxy to be mailed to holders of Agere stock.
</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.
+ Previously filed with initial Registration Statement on Form S-4 on March 3,
2000.
II-8
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Jean F. Rankin]
March 2, 2000
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 pursuant to the Securities Act of 1933
(the "Act"). The Registration Statement relates to the proposed issuance by
Lucent of up to 8,081,541 shares (the "Shares") of its common stock,
par value $0.01 per share pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") dated as of January 19, 2000, among Lucent, Chip
Acquisition Inc., a Delaware corporation and a wholly owned subsidiary of
Lucent ("Acquisition"), and Agere, Inc., a Delaware corporation ("Agere"). The
Merger Agreement provides for the merger of Acquisition with and into Agere,
with Agere 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 Acquisition, 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/ JEAN F. RANKIN
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP]
March 17, 2000
Agere, Inc.
11801 Stonehollow Drive, Suite 200
Austin, Texas 78758
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the
Securities and Exchange Commission Registration Statement on Form S-4 and
related Exhibits thereto (the "Registration Statement") relating to the
Agreement and Plan of Merger (the "Agreement") among Lucent Technologies Inc., a
Delaware corporation ("Lucent"), its wholly-owned subsidiary, Chip Acquisition
Inc., a Delaware corporation ("Acquisition"), and Agere, Inc., a Delaware
corporation ("Agere"), dated January 19, 2000. Pursuant to the Agreement,
Acquisition will merge with and into Agere (the "Merger"), and Agere will be the
surviving entity.
Except as otherwise provided, capitalized terms referred to
herein have the meanings set forth in the Agreement. All section references,
unless otherwise indicated, are to the Internal Revenue Code of 1986, as amended
(the "Code").
We have acted as legal counsel to Agere in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have examined
(or will examine on or prior to the Effective Time) and are relying (or will
rely) upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto):
1. The Agreement;
2. Representations made to us by Lucent and Acquisition in a
letter of even date herewith;
3. Representations made to us by Agere in a letter of even
date herewith;
4. Registration Statement; and
<PAGE> 2
5. Such other instruments and documents related to the
formation, organization and operation of Lucent, Acquisition and Agere or to the
consummation of the Merger and the transactions contemplated thereby as we have
deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or
obtained representations (and are relying thereon, without any independent
investigation or review thereof) that:
1. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents, and there
has been (or will be by the Effective Time of the Merger) due execution and
delivery of all documents where due execution and delivery are prerequisites to
effectiveness thereof;
2. Any representation or statement made "to the best knowledge
of" or otherwise similarly qualified is correct without such qualification and
all statements and representations, whether or not qualified, will remain true
through the Effective Time. As to all matters in which a person or entity making
a representation has represented that such person or entity either is not a
party to, does not have, or is not aware of any plan, intention, understanding
or agreement to take an action, there is in fact no plan, intention,
understanding or agreement and such action will not be taken. All covenants
contained in the Agreement (including exhibits thereto and the representation
letters) are performed without waiver or breach of any material provision
thereof;
3. The Merger will be consummated pursuant to the Agreement,
will be effective under the laws of the state of Delaware, and will be reported
by Lucent and Agere on their respective federal income tax returns in a manner
consistent with the opinion set forth below;
4. After the Merger, Agere will hold "substantially all" of
its and Acquisition's properties within the meaning of Section 368(a)(2)(E) of
the Code and the regulations promulgated thereunder and will continue its
historic business or use a significant portion of its historic assets in a
business;
5. To the extent any expenses relating to the Merger (or the
"plan of reorganization" within the meaning of Treas. Reg. Section1.368-1(c)
with respect to the Merger) are funded directly or indirectly by a party other
than the incurring party, such expenses will be within the guidelines
established in Revenue Ruling 73-54, 1973-1 C.B. 187; any expenses paid on
behalf of Agere shareholders will not exceed one percent (1%) of the total
consideration that will be issued in the Merger to Agere shareholders in
exchange for their shares of Agere stock; and
6. No Agere shareholder has guaranteed or will guarantee any
Agere indebtedness outstanding during the period immediately prior to the
Merger, and at all relevant times, (i) no outstanding indebtedness of Agere or
Acquisition has or will represent equity for tax purposes; (ii) no outstanding
equity of Agere or Acquisition has or will represent indebtedness for tax
purposes; and (iii) no outstanding security, instrument,
<PAGE> 3
agreement or arrangement that provides for, contains, or represents either a
right to acquire Agere stock or to share in the appreciation thereof constitutes
or will constitute "stock" for purposes of Section 368(c).
Based on our examination of the foregoing items and subject to
the assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that, if the Merger is consummated in accordance with the
provisions of the Agreement (and without any waiver, breach or amendment of any
provisions thereof), for federal income tax purposes, the Merger will be a
"reorganization" as defined in Section 368(a) of the Code.
In addition to the assumptions set forth above, this opinion
is subject to the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
2. This opinion addresses only the classification of the
Merger as a reorganization under Section 368(a) of the Code, and does not
address any other federal, state, local or foreign tax consequences that may
result from the Merger or any other transaction (including any transaction
undertaken in connection with the Merger).
3. No opinion is expressed as to any transaction other than
the Merger as described in the Agreement or to any transaction whatsoever,
including the Merger, if all the transactions described in the Agreement are not
consummated in accordance with the terms of such Agreement and without waiver or
breach of any material provision thereof or if all of the representations,
warranties, statements and assumptions upon which we relied are not true and
accurate through the Effective Time and at all relevant times thereafter. In the
event any one of the statements, representations, warranties or assumptions upon
which we have relied to issue this opinion is incorrect, our opinion might be
adversely affected and may not be relied upon.
4. This opinion has been delivered to you solely for the
purpose of being included as an exhibit to the Registration Statement; it may
not be relied upon for any other purpose (including, without limitation,
satisfying any conditions in the Agreement) or by any other person or entity,
and may not be made available to any other person or entity without our prior
written consent.
<PAGE> 4
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to our name under the
captions "Legal Matters" and "Certain Federal Income Tax Consequences." This
consent is required to be filed with the Registration Statement under the
provisions of the Securities Act of 1933.
Very truly yours,
/s/ GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN,
LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Amendment No. 1
to this Registration Statement on Form S-4 of Lucent Technologies Inc.
of our report, dated January 20, 2000, relating to the consolidated financial
statements and financial statement schedule, which appears in Exhibit 99.1 to
Lucent Technologies Inc. Current Report on Form 8-K dated February 10, 2000. 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
March 17, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 21, 2000, with respect to the financial
statements of Agere, Inc. included in Amendment No. 1 to this Registration
Statement (Form S-4) and related Prospectus of Lucent Technologies Inc., for
the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
Austin, Texas
March 14, 2000
<PAGE> 1
EXHIBIT 99.1
AGERE, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 20, 2000
The undersigned stockholder of Agere, Inc. revoking all prior proxies,
hereby appoints Ford Tamer and Craig Wright or either of them acting singly,
proxies, with full power of substitution, to vote all shares of capital stock of
Agere which the undersigned is entitled to vote at the special meeting of
stockholders to be held at the offices of Agere at 11801 Stonehollow Drive,
Suite 200, Austin, Texas, on April 20, 2000, beginning at 11 a.m., local time,
and at any adjournments of the meeting, upon matters set forth in the Notice of
Special Meeting dated March 17, 2000, 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 meeting by the Agere board of
directors. Attendance of the undersigned at the meeting or any adjourned
session of the meeting will not be deemed to revoke this proxy unless the
undersigned will 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 AGERE BOARD OF DIRECTORS. 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.
(Please fill in the appropriate boxes on the other side)
<PAGE> 2
A. /X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
1. To adopt the Agreement and Plan of Merger dated as of January
19, 2000, among Lucent Technologies Inc., Chip Acquisition
Inc., a wholly owned subsidiary of Lucent, and Agere.
FOR / /
AGAINST / /
ABSTAIN / /
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 THE PROPOSAL.
DATED: -, 2000
- --------------------------
Signature of Stockholder(s)
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 full
partnership name by an authorized partner or other persons. If shares are held
by joint tenants, both should sign. Attorneys-in-fact, executors,
administrators, trustees, guardians or others signing in a representative
capacity should indicate the capacity in which they are signing.
Mark here if you plan to attend the meeting / /
