<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
Lucent Technologies Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
Notice of 2001 Annual Meeting and
proxy statement
[Lucent business card graphic]
<PAGE>
HOW TO VOTE
YOUR VOTE IS IMPORTANT. MOST SHAREOWNERS HAVE A CHOICE OF VOTING OVER THE
INTERNET, BY TELEPHONE OR BY USING A TRADITIONAL PROXY CARD. PLEASE REFER TO
YOUR PROXY CARD OR THE INFORMATION FORWARDED BY YOUR BANK, BROKER OR OTHER
HOLDER OF RECORD TO SEE WHICH OPTIONS ARE AVAILABLE TO YOU.
ELECTRONIC ACCESS TO PROXY STATEMENT
MOST SHAREOWNERS CAN VIEW FUTURE PROXY STATEMENTS AND ANNUAL REPORTS OVER
THE INTERNET RATHER THAN RECEIVING PAPER COPIES IN THE MAIL. PLEASE REFER TO THE
PROXY STATEMENT AND YOUR PROXY CARD FOR FURTHER INFORMATION.
ANNUAL MEETING ADMISSION
YOU WILL NEED AN ADMISSION TICKET TO ATTEND THE MEETING. IF YOU ARE A
SHAREOWNER OF RECORD, OR OWN LUCENT STOCK THROUGH A LUCENT OR AVAYA BENEFIT
PLAN, AN ADMISSION TICKET IS INCLUDED WITH THIS MAILING. IF YOU OWN STOCK
THROUGH A BANK, BROKER OR OTHER HOLDER OF RECORD, YOU WILL NEED PROOF OF
OWNERSHIP TO ATTEND THE MEETING. A RECENT BROKERAGE STATEMENT OR LETTER FROM
YOUR BROKER ARE EXAMPLES OF PROOF OF OWNERSHIP.
<PAGE>
LUCENT TECHNOLOGIES INC.
600 Mountain Avenue
Murray Hill, New Jersey 07974
-----------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
-----------------------------------------------------
<TABLE>
<S> <C>
TIME........................ 9:00 a.m. E.S.T.
Wednesday, February 21, 2001
PLACE....................... Linda W. Chapin Auditorium
Orange County Convention Center
9800 International Drive
Orlando, Florida 32819
ITEMS OF BUSINESS........... (1) To elect a member of the Board of
Directors, whose term is described in
the proxy statement.
(2) To approve the Lucent Technologies
Inc. 2001 Employee Stock Purchase
Plan.
(3) To transact such other business,
including consideration of a
shareowner proposal, as may properly
come before the meeting and any
adjournment thereof.
RECORD DATE................. Holders of Lucent common stock of record
at the close of business on December 26,
2000, are entitled to vote at the
meeting.
ANNUAL REPORT............... The company's 2000 annual report, which
is not a part of the proxy soliciting
material, is enclosed.
PROXY VOTING................ It is important that your shares be
represented and voted at the meeting. You
can vote your shares by completing and
returning the proxy card sent to you.
Most shareowners can also vote their
shares over the Internet or by telephone.
If Internet or telephone voting is
available to you, voting instructions are
printed on the proxy card sent to you.
You can revoke a proxy at any time prior
to its exercise at the meeting by
following the instructions in the
accompanying proxy statement.
</TABLE>
RICHARD J. RAWSON
Senior Vice President, General Counsel
and Secretary
January 8, 2001
<PAGE>
TABLE OF CONTENTS
----------------------------------------------------------
<TABLE>
<CAPTION>
Page
--------
<S> <C>
PROXY STATEMENT............................................ 1
Proxies and Voting Procedures............................ 2
Shareowners Entitled to Vote............................. 3
Required Vote............................................ 4
Electronic Access to Proxy Materials and Annual Report... 4
Cost of Proxy Solicitation............................... 5
GOVERNANCE OF THE COMPANY.................................. 6
Committees of the Board of Directors..................... 6
Report of the Audit and Finance Committee................ 6
Corporate Governance and Compensation Committee.......... 8
Compensation of Directors................................ 8
Compensation Committee Interlocks and Insider
Participation.......................................... 10
Relationship with Independent Public Accountants......... 10
Section 16(a) Beneficial Ownership Reporting
Compliance............................................. 10
BOARD OF DIRECTORS......................................... 11
Nominee for Term Expiring in 2004........................ 11
Directors Whose Terms Will Expire in 2002................ 12
Directors Whose Terms Will Expire in 2003................ 13
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS................ 14
DIRECTORS' PROPOSAL........................................ 15
SHAREOWNER PROPOSAL........................................ 19
PERFORMANCE GRAPH.......................................... 21
EXECUTIVE COMPENSATION..................................... 22
Report of the Corporate Governance and Compensation
Committee on Executive Compensation.................... 22
Summary Compensation Table............................... 28
Option Grants in Last Fiscal Year........................ 30
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Values................................. 31
Pension Plans............................................ 32
Executive Agreements and Other Relationships............. 34
OTHER MATTERS.............................................. 38
APPENDIX A-- Audit Committee Charter of the Audit and
Finance Committee of the Board of Directors.... A-1
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Lucent Technologies Inc.
600 Mountain Avenue [LOGO]
Murray Hill, New Jersey 07974
</TABLE>
PROXY STATEMENT
----------------------------------------------------------
We are providing these proxy materials in connection with the solicitation
by the Board of Directors of Lucent Technologies Inc., of proxies to be voted at
the company's 2001 Annual Meeting of Shareowners and at any meeting following
adjournment thereof.
You are cordially invited to attend the annual meeting on February 21, 2001,
beginning at 9:00 a.m. E.S.T. The meeting will be held in the Linda W. Chapin
Auditorium of the Orange County Convention Center, 9800 International Drive,
Orlando, Florida 32819. Shareowners will be admitted beginning at 8:00 a.m.
E.S.T. The location is accessible to handicapped persons and we will provide
wireless headsets for hearing amplification upon request.
You will need an admission ticket to enter the meeting. If you are a
shareowner of record, you will find an admission ticket attached to the proxy
card sent to you. If you plan to attend the meeting in person, please retain the
admission ticket. A map and directions to the meeting are printed on the
admission ticket.
If your shares are held in the name of a bank, broker or other holder of
record and you plan to attend the meeting in person, you can obtain an admission
ticket in advance by sending a written request, along with proof of ownership,
such as a bank or brokerage account statement, to our transfer agent, The Bank
of New York, Church Street Station, P.O. Box 11009, New York, NY 10286. If you
arrive at the meeting without an admission ticket, we will admit you if we are
able to verify that you are a Lucent shareowner.
Lucent's fiscal year begins on October 1 and ends on September 30.
References in this proxy statement to the year 2000 or fiscal 2000 refer to the
12-month period from October 1, 1999, through September 30, 2000.
We are first mailing this proxy statement and accompanying forms of proxy
and voting instructions on January 8, 2001 to holders of the company's common
stock on December 26, 2000, the record date for the meeting.
<PAGE>
PROXIES AND VOTING PROCEDURES
YOUR VOTE IS IMPORTANT. Because many shareowners cannot attend the meeting
in person, it is necessary that a large number be represented by proxy. Most
shareowners have a choice of voting over the Internet, by using a toll-free
telephone number or by completing a proxy card and mailing it in the
postage-paid envelope provided. Please refer to your proxy card or the
information forwarded by your bank, broker or other holder of record to see
which options are available to you. Please be aware that if you vote over the
Internet, you may incur costs such as telephone and Internet access charges for
which you will be responsible. The Internet and telephone voting facilities for
shareowners of record will close at 12:01 a.m. E.S.T. on February 21, 2001.
You can revoke your proxy at any time before it is exercised by timely
delivery of a properly executed, later-dated proxy (including an Internet or
telephone vote) or by voting by ballot at the meeting. By providing your voting
instructions promptly, you may save the company the expense of a second mailing.
The Internet and telephone voting procedures are designed to authenticate
shareowners by use of a control number and to allow you to confirm that your
instructions have been properly recorded.
The method by which you vote will in no way limit your right to vote at the
meeting if you later decide to attend in person. If your shares are held in the
name of a bank, broker or other holder of record, you must obtain a proxy,
executed in your favor, from the holder of record, to be able to vote at the
meeting.
All shares entitled to vote and represented by properly completed proxies
received prior to the meeting and not revoked will be voted at the meeting in
accordance with your instructions. IF YOU DO NOT INDICATE HOW YOUR SHARES SHOULD
BE VOTED ON A MATTER, THE SHARES REPRESENTED BY YOUR PROPERLY COMPLETED PROXY
WILL BE VOTED AS THE BOARD OF DIRECTORS RECOMMENDS.
If any other matters are properly presented at the annual meeting for
consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time or place, the persons named as proxies and
acting thereunder will have discretion to vote on those matters according to
their best judgment to the same extent as the person delivering the proxy would
be entitled to vote. At the date this proxy statement went to press, we did not
anticipate that any other matters would be raised at the meeting.
2
<PAGE>
SHAREOWNERS ENTITLED TO VOTE
Shareowners at the close of business on the record date are entitled to
notice of and to vote at the annual meeting. Each share is entitled to one vote
on each matter properly brought before the meeting. Shareowners at the close of
business on the record date are entitled to notice of and to vote at the annual
meeting. Each share is entitled to one vote on each matter properly brought
before the meeting.
On October 1, 2000, there were 3,384,332,104 shares of common stock
outstanding.
FOR BUYDIRECT-SM- PARTICIPANTS: If you are a participant in the BuyDIRECT
dividend reinvestment and stock purchase plan, shares held in your BuyDIRECT
account are included on, and may be voted using, the proxy card sent to you. The
plan's administrator is the shareowner of record of your plan shares and will
not vote those shares unless you provide it with instructions, which you can do
over the Internet, by telephone or by mail using the proxy card sent to you.
FOR LUCENT PLAN PARTICIPANTS: If you are a participant in the Lucent
Savings Plan, Lucent Long Term Savings and Security Plan, Lucent INS 401(k)
Plan, Ortel Saving Plan, Lucent Employee Stock Purchase Plan, Lucent Long Term
Savings and Security Employee Stock Ownership Trust, or Lucent Employee Stock
Ownership Plan, you will receive one proxy card for all shares you own through
those plans or in an Employee Stock Purchase Plan account. That proxy card will
serve as a voting instruction card for the trustees or administrators of those
plans where all accounts are registered in the same name. If you own shares
through these plans or in an Employee Stock Purchase Plan account and do not
vote, the plan trustees will vote the plan shares in the same proportion as
shares for which instructions were received under each plan, and shares held in
an Employee Stock Purchase Plan account will be voted in accordance with normal
brokerage industry practices.
FOR AVAYA PLAN PARTICIPANTS: If you are a participant in the Avaya Inc.
Savings Plan or the Avaya Inc. Savings Plan for Salaried Employees or hold
Lucent stock in an Avaya Employee Stock Purchase Plan account, you will receive
one proxy card for all shares you own through those plans or in an Avaya
Employee Stock Purchase Plan account. That proxy card will serve as a voting
instruction card for the trustees or administrators of those plans where all
accounts are registered in the same name.
If you hold Lucent stock through any other company's
-SM- BuyDIRECT is a service mark of
The Bank of New York
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<PAGE>
stock purchase or savings plan, you will receive voting instructions from that
plan's administrator. Please sign and return those instructions promptly to
assure that your shares are represented at the meeting.
In accordance with Delaware law, a list of shareowners entitled to vote at
the meeting will be available at the location of the annual meeting on
February 21, 2001, and for 10 days prior to the meeting at 600 Mountain Avenue,
Murray Hill, New Jersey, between the hours of 9 a.m. and 4 p.m. E.S.T.
REQUIRED VOTE
The presence, in person or by proxy, of the holders of a majority of the
shares entitled to vote generally for the election of Directors is necessary to
constitute a quorum at the meeting. Abstentions and broker "non-votes" are
counted as present and entitled to vote for purposes of determining a quorum. A
broker "non-vote" occurs when a nominee holding shares for a beneficial owner
does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner.
A plurality of the votes duly cast is required for the election of a
Director (i.e., the nominee receiving the greatest number of votes will be
elected). Abstentions and broker "non-votes" are not counted for purposes of the
election of a Director.
The affirmative vote of the holders of a majority of the common shares
present in person or represented by proxy and entitled to vote is required to
approve the Lucent Technologies Inc. 2001 Employee Stock Purchase Plan and the
shareowner proposal. An abstention is counted as a vote against the Employee
Stock Purchase Plan and the shareowner proposal. A broker "non-vote" is not
counted for purposes of approving the Employee Stock Purchase Plan and the
shareowner proposal.
ELECTRONIC ACCESS TO PROXY MATERIALS AND ANNUAL REPORT
This proxy statement and the 2000 annual report are available on Lucent's
Internet site at http:// www.lucent.com/investor. Most shareowners can elect to
view future proxy statements and annual reports over the Internet instead of
receiving paper copies in the mail.
If you are a shareowner of record, you can choose this option and save the
company the cost of producing and mailing these documents by marking the
appropriate box on your proxy card or by following the instructions
4
<PAGE>
provided if you vote over the Internet or by telephone. You can also choose
between paper documents and electronic access by calling the Lucent Shareowner
Services toll-free number, 1-888-LUCENT6.
If you choose to view future proxy statements and annual reports over the
Internet, you will receive a proxy card in the mail next year with instructions
containing the Internet address of those materials. Your choice will remain in
effect until you call the Lucent Shareowner Services toll-free number and tell
us otherwise. You do not have to elect Internet access each year.
If you hold your Lucent stock through a bank, broker or other holder of
record, please refer to the information provided by that entity for instructions
on how to elect to view future proxy statements and annual reports over the
Internet.
Most shareowners who hold their Lucent stock through a bank, broker or other
holder of record and who elect electronic access will receive an e-mail message
next year containing the Internet address to use to access Lucent's proxy
statement and annual report.
COST OF PROXY SOLICITATION
Lucent will pay the cost of soliciting proxies. Proxies may be solicited on
behalf of the company by Directors, officers or employees of the company in
person or by telephone, facsimile or other electronic means. We have engaged the
firm of Morrow & Co., Inc. to assist us in the distribution and solicitation of
proxies. We have agreed to pay Morrow & Co., Inc. a fee of $17,000 plus expenses
for these services.
In accordance with the regulations of the Securities and Exchange Commission
and the New York Stock Exchange, we will also reimburse brokerage firms and
other custodians, nominees and fiduciaries for their expenses incurred in
sending proxies and proxy materials to beneficial owners of Lucent stock.
5
<PAGE>
GOVERNANCE OF THE COMPANY
----------------------------------------------------------
Pursuant to the Delaware General Corporation Law and the company's by-laws,
Lucent's business, property and affairs are managed under the direction of the
Board of Directors. Members of the Board are kept informed of the company's
business through discussions with the Chairman and officers, by reviewing
materials provided to them and by participating in meetings of the Board and its
committees.
During fiscal 2000, the Board held 11 meetings and the committees held a
total of 11 meetings. The average attendance at the Board and committee meetings
was 94%.
COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 2000, the Board of Directors had two ongoing committees: the
Audit and Finance Committee and the Corporate Governance and Compensation
Committee. Paul Allaire is the Chairman of our Audit and Finance Committee.
Franklin Thomas is the Chairman of our Corporate Governance and Compensation
Committee. During fiscal 2000, the Audit and Finance Committee met 6 times and
the Corporate Governance and Compensation Committee met 5 times.
In November 2000, the Board reconstituted the Technology Committee to focus
on the company's research and development and product development efforts and on
the company's use of its intellectual property portfolio. John Young is the
Chairman of this committee.
----------------------------------------------------------
REPORT OF THE AUDIT AND FINANCE COMMITTEE
----------------------------------------------------------
The audit functions of the Audit and Finance Committee are focused on three
areas:
- the adequacy of the company's internal controls and financial reporting
process and the reliability of the company's financial statements.
- the independence and performance of the company's internal auditors and
independent auditors.
- the company's compliance with legal and regulatory requirements.
We meet with management periodically to consider the adequacy of the
company's internal controls and the objectivity of its financial reporting. We
discuss these matters with the
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<PAGE>
company's independent auditors and with appropriate company financial personnel
and internal auditors.
We regularly meet privately with both the independent auditors and the
internal auditors, each of whom has unrestricted access to the committee.
We also recommend to the Board the appointment of the independent auditors
and review periodically their performance and independence from management.
In addition, the committee reviews the company's financing plans and reports
recommendations to the full Board for approval and to authorize action.
The Directors who serve on the committee are all "Independent" for purposes
of the New York Stock Exchange listing standards. That is, the Board of
Directors has determined that none of us has a relationship to Lucent that may
interfere with our independence from Lucent and its management.
The Board has adopted a written charter setting out the audit related
functions the committee is to perform. You can find a copy of that charter
attached to this proxy statement as Appendix A.
Management has primary responsibility for the company's financial statements
and the overall reporting process, including the company's system of internal
controls.
The independent auditors audit the annual financial statements prepared by
management, express an opinion as to whether those financial statements fairly
present the financial position, results of operations and cash flows of the
company in conformity with generally accepted accounting principles and discuss
with us any issues they believe should be raised with us.
This year, we reviewed the company's audited financial statements and met
with both management and PricewaterhouseCoopers, the company's independent
auditors, to discuss those financial statements. Management has represented to
us that the financial statements were prepared in accordance with generally
accepted accounting principles.
We have received from and discussed with Price-waterhouseCoopers the written
disclosure and the letter required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees). These items relate to
that firm's independence from the company. We also discussed with
PricewaterhouseCoopers any matters required to be
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<PAGE>
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
Based on these reviews and discussions, we recommended to the Board that the
company's audited financial statements be included in the company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2000.
Paul A. Allaire (Chairman)
Betsy S. Atkins
Franklin A. Thomas
CORPORATE GOVERNANCE AND COMPENSATION COMMITTEE
The functions of the Corporate Governance and Compensation Committee
include: recommending to the full Board nominees for election as Directors of
the company, making recommendations to the Board from time to time as to matters
of corporate governance, administering management incentive compensation plans,
establishing the compensation of officers and reviewing the compensation of
Directors. The committee will consider qualified candidates for Director
suggested by shareowners in written submissions to Lucent's Corporate Secretary.
Under Lucent's by-laws, nominations for Director may be made only by the
Board or a Board committee, or by a shareowner entitled to vote who delivers
notice along with the additional information and materials required by the by-
laws to the Corporate Secretary of the company not less than 45 days nor more
than 75 days prior to the first anniversary of the record date for the preceding
year's annual meeting. For Lucent's annual meeting in the year 2002, we must
receive this notice on or after October 12, 2001, and on or before November 11,
2001. You can obtain a copy of the full text of the by-law provision by writing
to the Corporate Secretary, 600 Mountain Avenue, Room 3C-515, Murray Hill, New
Jersey 07974.
COMPENSATION OF DIRECTORS
Each non-employee Director receives annually a retainer of $100,000 and an
option to purchase 5,000 shares of Lucent stock. The Chairman of each of the
Audit and Finance Committee, the Corporate Governance and Compensation Committee
and the Technology Committee receives an additional retainer of $10,000.
Directors may elect to receive between 50% and 100% of their retainer in Lucent
stock or an option to purchase Lucent stock or a combination of stock and an
option. Any remainder will be paid in cash. Any option elected will enable the
Director
8
<PAGE>
to purchase the number of shares resulting from the following formula:
<TABLE>
<S> <C> <C>
Dollar value of
retainer taken as
Number an option
of = 3 X ------------------
shares Fair market value
of a share of
common stock on
date of grant
</TABLE>
The exercise price per share under the option will be the fair market value of a
share on the date of grant. Options will generally become exercisable on the
six-month anniversary of the date of grant and have a 10-year term.
In October 2000, when Mr. Schacht became Chairman and Chief Executive
Officer, the Board appointed Mr. Thomas Senior Director. In that capacity,
Mr. Thomas has day-to-day contact with company management, advising Mr. Schacht
and others on a broad range of matters. He has also taken on additional
corporate governance activities for the Board. For his services as Senior
Director, Mr. Thomas will receive twice the regular annual compensation received
by Directors.
Under the company's Deferred Compensation Plan, non-employee Directors
may defer all or a portion of their cash and stock compensation to a deferred
compensation account. Deferred compensation plan accounts have two components.
The first is a Lucent stock portion. The second is a cash portion. Directors can
defer receipt of cash retainers to either portion of their accounts. The stock
portion of a retainer can be deferred only to the Lucent stock portion of an
account. The value of the Lucent stock portion of an account fluctuates based on
changes in the price of Lucent stock. Dividend equivalents are credited on the
Lucent stock portion of accounts. The cash portion of an account earns interest,
compounded quarterly, at an annual rate equal (a) to 120% of the average
interest rate for 10-year U.S. Treasury notes for the previous quarter, in the
case of deferrals after October 1, 1997, and (b) to the average interest rate
for 10-year U.S. Treasury notes for the previous quarter plus 5%, in the case of
deferrals on or before that date. Interest rates for deferrals to the cash
account may be revised by the Board.
All distributions from the Lucent stock portion of an account will be made
in Lucent stock, unless the company decides otherwise. In the event of a
Potential Change in Control, as defined in the plan, the plan will be supported
by a benefits protection grantor trust, the assets of which will be subject to
the claims of the company's creditors.
Lucent also maintains a general insurance policy that provides non-employee
Directors with travel accident insurance
9
<PAGE>
when on company business. An individual who became a non-employee director
before 1999 may purchase life insurance under a company program pursuant to
which the company will pay a portion of the premium. The amount paid by the
company is to be returned to the company no later than following the death of
the individual.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 2000, all of our independent Directors served on the Corporate
Governance and Compensation Committee. Franklin A. Thomas was the Chairman of
the committee. The other committee members were: Paul A. Allaire, Betsy S.
Atkins, Carla A. Hills, Paul H. O'Neill and John A. Young. During fiscal 2000,
Patricia F. Russo, formerly Executive Vice President and CEO, Service Provider
Networks, was a director of Xerox Corporation, of which Mr. Allaire is Chairman
of the Board and Chief Executive Officer. During a portion of fiscal 2000,
Mrs. Russo was also a member of the Executive Compensation and Benefits
Committee of Xerox.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit and Finance Committee, the Board
has reappointed Pricewater-
houseCoopers LLP as the independent public accounting firm to audit our
financial statements for the fiscal year beginning October 1, 2000.
Representatives of PricewaterhouseCoopers will be present at the meeting.
They will be given the opportunity to make a statement if they desire to do so,
and they will be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our Directors
and executive officers to file reports of holdings and transactions in Lucent
stock with the Securities and Exchange Commission and the New York Stock
Exchange. Based on our records and other information, we believe that all
Securities and Exchange Commission filing requirements applicable to our
Directors and executive officers with respect to fiscal 2000 were met, except
that Richard A. McGinn filed his Form 5 late. That filing reported a total of
four transactions: three option grants and a gift.
10
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BOARD OF DIRECTORS
----------------------------------------------------------
The Board of Directors is divided into three classes, whose terms expire at
successive annual meetings. In late December 2000, Paul H. O'Neill was nominated
as the next Secretary of the Treasury of the United States. Following his
nomination, Mr. O'Neill resigned from the Board of Directors. We congratulate
Mr. O'Neill and thank him for his valued contributions as a Director since 1996.
One Director will be elected at the annual meeting to serve for a three-year
term expiring at the company's annual meeting in 2004. We have nominated
Franklin A. Thomas for this position. You can find the principal occupation and
other information about Mr. Thomas below.
The persons named in the proxy card will vote such proxy for the election of
Mr. Thomas, unless you indicate that your vote should be withheld. They will not
vote for additional Directors. If elected, Mr. Thomas will continue in office
until his successor has been duly elected and qualified, or until the earlier of
his death, resignation or retirement. We expect Mr. Thomas to be able to serve
if elected.
Beginning on page 12, you can find the principal occupation and other
information about the Directors whose terms of office will continue after the
annual meeting. You can find information about the Lucent stock ownership of
Mr. Thomas and those other Directors on page 14.
The Board of Directors recommends a vote FOR the election of Mr. Thomas as
Director.
----------------------------------------------------------
NOMINEE FOR TERM EXPIRING IN 2004
----------------------------------------------------------
<TABLE>
<S> <C>
Franklin A. Thomas, Director of Lucent since
[PHOTO] 1996. Consultant to the TFF Study Group since
1996 (a non-profit initiative assisting
development in southern Africa). Retired
President of The Ford Foundation (1979 -1996).
Director of Alcoa Inc., Avaya Inc.,
Citigroup N.A., Conoco Inc., Cummins Engine
Company, Inc.; and PepsiCo, Inc. Committees:
Chairman of the Corporate Governance and
Compensation Committee and Member of the Audit
and Finance Committee. Age: 66.
</TABLE>
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DIRECTORS WHOSE TERMS WILL EXPIRE IN 2002
----------------------------------------------------------
<TABLE>
<S> <C>
Paul A. Allaire, Director of Lucent since
[PHOTO] 1996. Chairman (since 1991) and Chief
Executive Officer (since May 2000 and
1990-1999) of Xerox Corporation (document
processing services and products). Director of
GlaxoSmithKline plc; priceline.com
Incorporated; and Sara Lee Corp. Committees:
Chairman of the Audit and Finance and member
of the Corporate Governance and Compensation
Committees. Age: 62.
----------------------------
Henry B. Schacht, Director of Lucent since
[PHOTO] 1996. Chairman and Chief Executive Officer of
Lucent since October 2000. Chairman of the
Board (1996-1998) and Chief Executive Officer
(1996-1997) of Lucent. Director and Senior
Advisor, E.M. Warburg, Pincus & Co., LLC.
Chairman (1977-1995) and Chief Executive
Officer (1973-1994) of Cummins Engine Company,
Inc. Director of Alcoa Inc.; Avaya Inc.; The
Chase Manhattan Corporation; The Chase
Manhattan Bank, N.A.; Johnson & Johnson;
Knoll, Inc.; and The New York Times Co.
Age: 66.
----------------------------
John A. Young, Director of Lucent since 1996.
[PHOTO] Chairman-designate of Agere Systems Inc., the
microelectronics business that Lucent proposes
to spin off. Vice Chairman of Novell, Inc.
since 1997. Retired President and Chief
Executive Officer of Hewlett-Packard Company
(manufacturer of measurement and computation
products) (1978-1992). Director of Affymetrix,
Inc.; Chevron Corp.; Ciphergen Biosystems,
Inc.; GlaxoSmithKline plc and
Novell, Inc. Committees: Chairman of the
Technology Committee and member of the
Corporate Governance and Compensation
Committee. Age: 68.
</TABLE>
12
<PAGE>
----------------------------------------------------------
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2003
----------------------------------------------------------
<TABLE>
<S> <C>
Betsy S. Atkins, Director of Lucent since
[PHOTO] April 2000. Chief Executive Officer of Baja
Corporation (investor in early stage,
high-tech companies). Director of Advance
Switching Communications Inc.; Polycom, Inc.
and Selectica Inc. Helped found Ascend
Communications, Inc., and was a member of its
board prior to its acquisition by Lucent in
1999. Committees: Member of the Audit and
Finance, Corporate Governance and Compensa-
tion and Technology Committees. Age: 45.
----------------------------
Carla A. Hills, Director of Lucent since 1996.
[PHOTO] Chairman and Chief Executive Officer of Hills
& Company (international consultants) since
1993. United States Trade Representative
(1989 -1993). Director of American
International Group, Inc.; Chevron Corp.; and
Time Warner Inc. Committees: Member of the
Corporate Governance and Compensation
Committee. Age: 66.
</TABLE>
13
<PAGE>
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS
----------------------------------------------------------
The following table sets forth information concerning the beneficial
ownership of the company's common stock as of October 1, 2000, for: (a) each
Director, (b) our Chief Executive Officer during fiscal 2000 and the four other
most highly compensated executive officers and (c) the Directors and executive
officers as a group. Except as otherwise noted, the named individual or family
members had sole voting and investment power with respect to such securities.
All share amounts and totals reflect anti-dilution adjustments made to stock
options and restricted stock unit awards following the spin-off of Avaya.
<TABLE>
<CAPTION>
Common Stock Other
Beneficially Common Stock
Name Owned(1)(2) Equivalents(3) Total
--------------------------------- -------------- -------------- ---------------
<S> <C> <C> <C>
(a)
Paul A. Allaire.................. 33,728 -- 33,728
Betsy S. Atkins.................. 11,975 -- 11,975
Carla A. Hills................... 23,675 52,539 76,214
Henry B. Schacht................. 1,183,520 12,767 1,196,287
Franklin A. Thomas............... 18,318 45,132 63,450
John A. Young.................... 10,072 14,969 25,041
(b)
Richard A. McGinn................ 2,914,050(4) 1,052,446 3,966,496
Deborah C. Hopkins............... 1,500 120,876 122,376
John T. Dickson.................. 194,351 309,845 504,196
Ben Verwaayen.................... 721,229 475,445 1,196,674
Donald K. Peterson............... 789,375 5,952 795,327
(c)
Directors and Executive
Officers as a Group (14
persons)....................... 8,698,597 2,946,062 11,644,659
</TABLE>
Footnotes
(1) No individual Director or officer identified above beneficially owns 1% or
more of Lucent's outstanding common stock, nor do the Directors and
executive officers as a group. The company does not know of any person who
beneficially owns more than 5% of the outstanding common stock.
(2) Includes beneficial ownership of the following numbers of shares that may be
acquired within 60 days of October 1, 2000 pursuant to stock options awarded
under company stock plans:
- Paul A. Allaire--10,072 shares
- Betsy S. Atkins--10,375 shares
- Carla A. Hills--13,048 shares
- Henry B. Schacht--1,179,808 shares
- Franklin A. Thomas--16,850 shares
- John A. Young--10,072 shares
- Richard A. McGinn--2,692,090 shares
- John T. Dickson--183,062 shares
- Ben Verwaayen--721,227 shares
- Donald K. Peterson--711,757 shares
- Directors and Executive Officers as a Group--8,085,312 shares
Also includes 5,237 shares subject to a restricted stock unit award held by
Mr. Dickson that vested in October 2000. Of these shares, 110 were withheld
to pay applicable withholding taxes. Mr. Dickson deferred receipt of the
remaining shares under the company's Deferred Compensation Plan.
(3) Includes restricted stock units and amounts held in Lucent stock accounts
under the company's Deferred Compensation Plan. The value of these accounts
depends directly on the market price of shares.
(4) Includes 27,734 shares held by a charitable foundation over which
Mr. McGinn has shared voting and investment power.
14
<PAGE>
DIRECTORS' PROPOSAL TO APPROVE
THE LUCENT TECHNOLOGIES INC. 2001 EMPLOYEE
STOCK PURCHASE PLAN
----------------------------------------------------------
We are asking shareowners to approve a new employee stock purchase plan.
This plan will replace our existing employee stock purchase plan, which is
scheduled to expire this year. The plan allows employees to purchase Lucent
stock using payroll deductions. We are asking shareowners to approve the plan so
that employees may receive the special tax treatment provided by section 423 of
the Internal Revenue Code. The new plan is an important element in our efforts
to recruit and retain the talent we need to maintain and improve the company's
competitive position.
If approved by shareowners, the new plan will become effective on July 1,
2001, or sooner if the Board of Directors determines, at which time the existing
plan will terminate. The new plan, which has been approved by the Board of
Directors, provides for the issuance of up to 250 million shares. As of
November 1, 2000, approximately 163 million shares remained available for
purchase under the existing plan. Any shares that remain available under the
existing plan when the new plan becomes effective and the existing plan
terminates will not be added to the shares available for purchase under the new
plan.
SUMMARY OF THE NEW PLAN
PURPOSE. The purpose of the new plan is to provide employees of Lucent and
designated subsidiaries with an opportunity to purchase Lucent common stock and,
therefore, to have an additional incentive to contribute to the success of the
company.
ADMINISTRATION. The new plan will be administered by the Corporate
Governance and Compensation Committee of Lucent's Board of Directors. The
committee has full power to interpret the plan, and its decisions will be final
and binding upon all participants.
ELIGIBILITY. Any employee of Lucent or any of the subsidiaries designated
by the committee will be eligible to participate in the new plan. However, no
employee will be eligible to participate in the new plan if, immediately after
the grant of an option to purchase stock under the plan, that employee would own
5% of either the voting power or the value of Lucent's common stock. No
employee's rights to purchase Lucent common stock pursuant to the plan may
accrue at a rate that exceeds $25,000 per calendar year. As of October 31, 2000,
approximately 139,100 Lucent employees, including 7 executive officers, would
have been eligible to participate in the plan.
PARTICIPATION. Under the new plan a participant must authorize payroll
deductions, which may not exceed 10% of their eligible compensation. An
employee's
15
<PAGE>
right to participate in the plan terminates when the employee's employment with
the company terminates.
The new plan provides for offering periods of 24 months each. The committee
may make a particular offering period shorter or longer, but not longer than
27 months. A participant in the plan would purchase stock at approximately
six-month intervals, although the committee has the authority to provide for
purchase periods of different lengths. The first business day of each offering
period is referred to as the entry date, except that for people who elect to
participate after that date, the entry date is the first business day of the
first purchase period beginning after their election.
Each participant is automatically granted an option to purchase shares of
common stock on his or her entry date. The option generally expires at the end
of the offering period or upon termination of employment, whichever is earlier,
but is exercised at the end of each purchase period to the extent of the payroll
deductions accumulated during that purchase period. In addition to the
limitation described above, no participant may purchase more than 500 shares of
common stock during any purchase period, unless the committee determines
otherwise.
PURCHASES. Shares of common stock will be purchased under the new plan at a
price equal to 85% of the fair market value of a share of Lucent common stock on
(1) the relevant entry date or (2) the last trading day of the purchase period,
whichever is less. Under the existing plan, shares are purchased monthly at a
price equal to 85% of the fair market value of a share of Lucent common stock on
the last trading day of the month.
On December 22, 2000, the reported last sale price per share of Lucent
common stock was $13.625. The number of shares of Lucent common stock a
participant purchases in each purchase period is determined by dividing the
total amount of payroll deductions withheld from the participant's compensation
during that purchase period by the purchase price.
TERMINATION OF EMPLOYMENT. Termination of a participant's employment other
than by reason of death, disability or retirement immediately cancels his or her
option and participation in the new plan. If this occurs, the payroll deductions
credited to the participant's account will be returned without interest to him
or her. If a participant dies, retires or terminates employment due to
disability, his or her accumulated payroll deductions will be used to purchase
shares on the applicable purchase date, unless the purchase date occurs more
than three months after the event.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR SALE OF ASSETS. In the
event of any stock split, stock dividend, spin-off, reclassification,
recapitalization
16
<PAGE>
or other similar event affecting Lucent's common stock, adjustments may be made
in the number of shares of stock subject to the new plan, the number and kind of
shares of stock to be purchased pursuant to each option and the price per share
of common stock covered by each option. Any such adjustment will be made by the
committee, whose determination shall be final. In the event of a proposed sale
of all or substantially all of the assets of Lucent or the merger or
consolidation of Lucent with another company, the Board may determine that each
option will be assumed by, or an equivalent option substituted by the successor
company or an affiliate, that the purchase date will be accelerated, or that all
outstanding options will terminate and accumulated payroll deductions will be
refunded.
AMENDMENT AND TERMINATION. The Board of Directors may terminate or amend
the new plan at any time, except that it may not increase the number of shares
subject to the plan other than as described in the above. The new plan will
continue until all of the shares authorized for the plan are sold unless
terminated by the Board sooner.
WITHDRAWAL. A participant may withdraw from a purchase period and have any
payroll deductions returned to the participant under conditions established by
the committee. The committee may also establish rules limiting the frequency
with which participants may withdraw and may establish a waiting period for
participants wishing to re-authorize payroll deductions.
NEW PLAN BENEFITS. Because benefits under the new plan will depend on
employees' elections to participate and the fair market value of Lucent common
stock at various future dates, it is not possible to determine the benefits that
will be received by executive officers and other employees if the new plan is
approved by the shareowners. Non-employee directors are not eligible to
participate in the new plan.
U.S. FEDERAL INCOME TAX CONSEQUENCES
If shareowners approve this proposal, the new plan, and the right of
participants to make purchases thereunder, should qualify for treatment under
the provisions of sections 421 and 423 of the Internal Revenue Code. Under these
provisions, no income will be taxable to a participant until the shares
purchased under the plan are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will generally
be subject to tax and the amount of the tax will depend upon the holding period.
If the shares are sold or otherwise disposed of more than two years from the
applicable entry date and more than one year from the date of transfer of the
shares to the participant,
17
<PAGE>
then the participant generally will recognize ordinary income measured as the
lesser of
(i) the excess of the fair market value of the shares at the time of
such sale or disposition over the purchase price, or
(ii) an amount equal to 15% of the fair market value of the shares as of
the applicable entry date.
Any additional gain should be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of
this holding period, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period.
Lucent is not entitled to a deduction for amounts taxed as ordinary income
or capital gain to a participant except to the extent ordinary income is
recognized by participants upon a sale or disposition of shares prior to the
expiration of the holding period(s) described above. In all other cases, no
deduction is allowed to Lucent.
The foregoing discussion is not intended to cover all tax consequences of
participation in the new plan. The tax consequences outlined above apply only
with respect to an employee whose income is subject to United States federal
income tax during the period beginning with the grant of an option and ending
with the disposition of the Lucent shares acquired through the exercise of the
option. Different or additional rules may apply to individuals who are subject
to income tax in a foreign jurisdiction and/or are subject to state/local income
tax in the United States.
OTHER MATTERS
The Board has not determined what action it will take if the new plan is not
approved by shareowners, although it does have the power to extend the term of
the existing plan.
A copy of the new plan was filed electronically with the Securities and
Exchange Commission with this proxy statement.
The Board of Directors recommends that shareowners vote FOR this proposal.
Proxies solicited by the Board of Directors will be so voted unless shareowners
specify otherwise in their proxies.
18
<PAGE>
SHAREOWNER PROPOSAL
----------------------------------------------------------
Any shareowner who intends to present a proposal at the annual meeting in
the year 2002 must deliver the proposal to the Corporate Secretary at 600
Mountain Avenue, Murray Hill, New Jersey 07974:
- not later than September 10, 2001, if the proposal is submitted for
inclusion in our proxy materials for that meeting pursuant to Rule 14a-8
under the Securities Exchange Act of 1934
- On or after October 12, 2001, and on or before November 11, 2001, if the
proposal is submitted pursuant to Lucent's by-laws, in which case we are
not required to include the proposal in our proxy materials.
SHAREOWNER PROPOSAL
----------------------------------------------------------------
MRS. EVELYN Y. DAVIS, HAVING AN OFFICE AT THE WATERGATE OFFICE BUILDING,
SUITE 215, 2600 VIRGINIA AVENUE, N.W., WASHINGTON, D.C. 20037, OWNER OF 400
SHARES, HAS PROPOSED THE ADOPTION OF THE FOLLOWING RESOLUTION AND HAS FURNISHED
THE FOLLOWING STATEMENT IN SUPPORT OF HER PROPOSAL:
RESOLVED: "That the stockholders of Lucent Technologies recommend that the Board
of Directors take the necessary steps to instate the election of directors
ANNUALLY, instead of the stagger system which was recently adopted."
REASONS:
"The great majority of New York Stock Exchange listed corporations elect all
their directors each year."
"This insures that ALL directors will be more accountable to ALL
shareholders each year and to a certain extent prevents the self-perpetuation of
the Board."
"Last year the owners of 840,639,048 shares, representing approximately
42.8% of shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this resolution."
19
<PAGE>
COMPANY RESPONSE
----------------------------------------------------------------
YOUR DIRECTORS RECOMMEND A VOTE AGAINST THIS PROPOSAL.
The Board of Directors continues to believe that this proposal is not in the
best interests of Lucent or its shareowners.
The Board continues to believe that Directors who are elected to three-year
terms are just as accountable to shareowners as Directors who are elected on an
annual basis. We have fiduciary duties that do not depend on how often we are
elected. We also have in place policies that further the accountability of the
Board to the shareowners:
- We have a performance evaluation process, through which Directors candidly
assess the effectiveness of the Board and identify areas requiring improvement
or change.
- We have a compensation program that directly aligns the Directors' interests
with those of the shareowners by requiring that a substantial portion of each
Director's retainer be paid in Lucent stock or an option to purchase Lucent
stock. In fiscal 2000, the majority of the eligible Directors elected to take
their entire retainer in stock or an option to purchase stock.
The Board also continues to believe that having a staggered Board assures
continuity and stability of the company's business strategies and policies. This
is especially important in light of the fast-paced, competitive industry in
which Lucent operates. Because at least two shareowner meetings would be
required to effect a change in control of the Board, a majority of the Directors
at any given time will be familiar with the company's business strategy through
service as a Director. In addition, in the event of an unfriendly or unsolicited
takeover proposal, the staggered system gives the Board the greatest opportunity
to negotiate with a third party or to consider other alternatives that would
maximize shareowner value.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
SHAREOWNER PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED UNLESS SHAREOWNERS SPECIFY OTHERWISE IN THEIR PROXIES.
20
<PAGE>
PERFORMANCE GRAPH
----------------------------------------------------------
The graph below provides an indicator of cumulative total shareowner returns
for Lucent as compared with the S&P Technology Sector Index and the S&P 500
Stock Index weighted by market value at each measurement point.
This graph covers the period of time from September 30, 1996, through
September 30, 2000.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Returns
<TABLE>
<CAPTION>
30-SEP-96 30-SEP-97 30-SEP-98 30-SEP-99 30-SEP-00
<S> <C> <C> <C> <C> <C>
Lucent Technologies $100.00 $178.03 $303.84 $570.13 $268.02
S&P Technology Index $100.00 $162.41 $183.86 $321.32 $383.95
S&P 500 Index $100.00 $140.44 $153.15 $195.73 $221.72
</TABLE>
<TABLE>
<CAPTION>
September 30, September 30, September 30, September 30, September 30,
1996 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Lucent
Technologies....... $100.00 $178.03 $303.84 $570.13 $268.02
S&P Technology
Index.............. $100.00 $162.41 $183.86 $321.32 $383.95
S&P 500 Stock
Index.............. $100.00 $140.44 $153.15 $195.73 $221.72
</TABLE>
21
<PAGE>
EXECUTIVE COMPENSATION
----------------------------------------------------------
REPORT OF THE CORPORATE GOVERNANCE
AND COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
----------------------------------------------------------------
Our report covers the following topics:
- Role of the Corporate Governance and Compensation Committee
- Executive Compensation Guiding Principles
- Components of Our Compensation Program
- Compensation of the Chief Executive Officer
- Broader Employee Compensation
ROLE OF THE CORPORATE GOVERNANCE AND COMPENSATION COMMITTEE
As a committee, we set the overall compensation principles for the company
and review the entire compensation program every year. We also review and
establish the individual compensation levels for the members of the senior
leadership team and have considered the advice of independent, outside
consultants in determining whether the amounts and types of compensation the
company pays its officers are appropriate. None of the members of the committee
is a current or former employee of the Company.
EXECUTIVE COMPENSATION GUIDING PRINCIPLES
The goal of our compensation program is to attract, motivate and retain the
highly talented individuals Lucent needs to be a market leader in a highly
competitive industry. The following principles guided the development of the
program:
- COMPENSATION SHOULD BE RELATED TO PERFORMANCE
We believe that the better an individual performs, the higher the
individual's compensation should be. We believe that individual compensation
should also be tied to how well the company performs financially so that when
the company's performance is better than our objectives, individuals should be
paid more and when the company's performance does not meet our objectives, any
incentive award payment will be at the committee's discretion.
22
<PAGE>
- LUCENT EMPLOYEES SHOULD OWN LUCENT STOCK
We provide Lucent employees at all levels with a number of ways to become
shareowners. We have made stock option grants to broad segments of the employee
population and have programs that are intended to increase stock ownership among
employees. These programs include stock option plans under which we make
discretionary stock option grants to employees worldwide, an employee stock
purchase plan which enables employees to purchase Lucent stock at a discount
through payroll deductions and 401(k) savings plans that allow U.S. employees to
invest in company stock. Our goal is to have market competitive stock programs
that encourage each employee to act like an owner of the business.
- INCENTIVE COMPENSATION SHOULD BE A GREATER PART OF TOTAL COMPENSATION FOR MORE
SENIOR POSITIONS
The proportion of an individual's total compensation that varies with
individual and company performance objectives should increase as the
individual's business responsibilities increase. For fiscal 2000, approximately
90% of the total target pay opportunity of our former Chief Executive Officer,
Richard A. McGinn, was at risk against short and long term performance goals.
- OTHER GOALS
As described below, our compensation program is designed to balance short
and long term financial objectives, build shareowner value and reward
individual, team and corporate performance.
We review compensation survey data from several independent sources to
ensure that our total compensation program is competitive. Companies selected
for the survey are those with whom we compete for executive talent. We target
executive compensation levels between the 50th and the 75th percentile of our
comparison group. The company's competitors for executive talent are not
necessarily the same companies that are included in the S&P Technology Sector
Index used to compare shareowner returns (see Performance Graph, page 21)
because the company generally requires skills from a more varied set of
backgrounds.
It is our goal to have most of the compensation paid to the company's five
most highly compensated executive officers qualify as performance based and
deductible for federal
23
<PAGE>
income tax purposes under Section 162(m) of the Internal Revenue Code. We have
structured most of our compensation plans so that amounts paid under those plans
will be fully deductible. However, some of the compensation we pay cannot be
deducted. The compensation paid to those officers that cannot be deducted
includes salary, the value of perquisites and restricted stock unit awards, to
the extent that the aggregate value of these amounts exceeds $1 million. Based
on the complexity of managing an enterprise as large and diverse as Lucent, the
rapidly changing nature of our business and the amount at stake for our
shareowners, we believe it is appropriate to pay that compensation, even though
it is not tax-deductible.
COMPONENTS OF OUR COMPENSATION PROGRAM
The four components of our compensation program are:
- Base Salary
- Short Term Bonus
- Long Term Incentives
- Special Equity Grants
1. Base Salary
We set base salaries for all officers at levels that are comparable to
similar positions at companies with whom we compare for compensation purposes.
While we conduct surveys annually, we usually adjust salaries only when our
market surveys show a significant deviation. This is in line with our philosophy
that compensation above competitive levels should come primarily from the
variable portion of the compensation package.
2. Short Term Incentives
We designed the annual bonus component of incentive compensation to align
officer pay with the short term (annual) performance of the company. In 2000,
one half of the annual bonus opportunity was based on corporate earnings per
share objectives. The other half of the annual bonus opportunity was tied to
individual and team performance, as determined by the committee at the end of
the year. This year we did not award any bonuses based on company performance
and awarded bonuses based on individual performance only when the individual's
business unit met our performance expectations for the year. When we evaluate
individual performance, we consider factors such as leadership, customer focus,
business knowledge, innovation, social responsibility, and execution of Lucent's
business strategy.
24
<PAGE>
3. Long Term Incentives: Stock Options and Three-Year Performance Awards
We generally make grants of stock options to officers once a year. These
annual options have an exercise price equal to the fair market value of a share
the day we grant the options. These options generally vest within four years and
expire ten years from the date of the grant. We base target grants on a
comparison to our selected sample group; however, grants to individuals are
adjusted based on individual performance, retention and other special
circumstances.
In the past, we also granted long term performance awards to officers. Under
these awards, officers can receive cash payments based on the company's
performance over a three-year period. We no longer grant long term performance
awards, having replaced them as part of our compensation program with stock
options.
Three years ago, we granted long term performance awards that would have
paid out in the fall of 2000. Based on the company's financial performance over
the three year performance period, we decided not to make any payments on these
awards.
4. Special Equity Grants: Stock Options and Restricted Stock Units
We believe that ownership of Lucent stock is a key element of our
compensation program and that retention of our officer team is essential to
Lucent's success. From time to time, we make special equity grants to help
accomplish one or both of these objectives. Depending on the circumstances, a
special equity grant may take the form of a stock option, restricted stock units
or a combination of the two. These awards typically have longer vesting periods
than annual awards.
Following the spin-off of Avaya, all stock options and restricted stock unit
awards for Lucent employees were adjusted so that holders of these awards will
receive only Lucent stock, and not Avaya stock, when they exercise their stock
options or when their restricted stock units vest. As part of these adjustments,
for each stock option both the number of shares covered by the option and the
exercise price were adjusted, and for each restricted stock unit award the
number of shares covered by the award was adjusted, in each case, to preserve
the value of these
25
<PAGE>
awards after the spin-off. Throughout this proxy statement, information about
stock options and restricted stock unit awards granted before the spin-off has
been restated to reflect these adjustments.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In fiscal 2000, the company's most highly compensated officer was Richard A.
McGinn, our former Chairman of the Board and Chief Executive Officer. Below you
will find a description of Mr. McGinn's compensation for fiscal 2000.
At our compensation targets, approximately 10% of Mr. McGinn's total annual
compensation would have been base salary, 12% would have been short term
incentive compensation and 78% would have been long term incentive compensation.
BASE SALARY:
In fiscal 2000, we did not change Mr. McGinn's base salary of $1,100,000.
This base salary had not been adjusted since October 1997.
SHORT TERM INCENTIVES:
Based on the company's financial performance in fiscal year 2000, we decided
not to award Mr. McGinn any short-term bonus.
LONG TERM INCENTIVES:
In fiscal 2000, we granted Mr. McGinn three stock options, covering a total
of 3,424,820 shares. One option, covering 402,920 shares, was part of our annual
grant program. The other two options were special grants that we made to address
significant changes in market compensation levels. One of these grants covered
1,007,300 shares. The remaining option covered 2,014,600 shares.
PERFORMANCE AWARDS:
Based on the company's financial performance over the three year period
ending in fiscal 2000, we decided not to make any payment to Mr. McGinn under a
performance award granted in fiscal 1998.
At the time this proxy statement went to press, we were in discussions with
Mr. McGinn concerning the financial and other terms of his departure from the
company, although no agreement had been reached.
BROADER EMPLOYEE COMPENSATION
We operate in an extremely competitive industry. We compete not only with
respect to the products we sell, but also for the increasingly
26
<PAGE>
scarce, talented people who conceive, design, build, sell and service these
products.
Our competitors for talent include both large, established equipment
manufacturers, and start-up companies focused on new technologies. Start-up
companies are able to offer their employees stock option grants with very
substantial upside potential if their products are successful.
Unless our compensation policies are competitive, we will lose our most
vital asset: our people. Without the right people, we will not be able to
compete effectively.
In this environment, we have found it necessary to become more aggressive in
our policies concerning stock options. We have increased our guidelines as to
how many stock options employees receive and have significantly increased the
percentage of our management and technical population that receive stock option
grants.
In addition, following a very significant decline in our stock price that
threatened the ability of recently granted options to encourage employees to
stay with the company, we made a special stock option grant in August to
employees other than officers who had received grants earlier in the calendar
year. Unlike our regular stock options, these stock options will expire in two
years. They also require one year of service before they vest. We granted
options of this type to about 60,000 employees worldwide (including Avaya
employees), covering a total of approximately 100 million shares.
We carefully considered these compensation actions, taking into account
shareowners' concerns, and felt that these actions were vital to our continuing
efforts to retain our people, and to improve our competitive position.
Franklin A. Thomas (Chairman)
Paul A. Allaire
Betsy S. Atkins
Carla A. Hills
John A. Young
27
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation(2) Long Term Compensation(2)
Awards
<S> <C> <C> <C> <C> <C> <C>
Other
Annual Restricted Securities
Compen- Stock Underlying
Name and Salary Bonus sation Award(s) Options
Principal Position(1) Year ($) (3)($) (4)($) (5)($) (#)
<S> <C> <C> <C> <C> <C> <C>
Richard A. McGinn(6) 2000 1,100,000 -- 137,384 -- 3,424,820
Chairman of the Board 1999 1,100,000 5,129,636 157,323 -- 1,410,220
and Chief Executive Officer 1998 1,100,000 11,861,652(8) 120,914 8,606,260 1,108,030
Deborah C. Hopkins(9) 2000 287,083 4,650,000(10) 228,215 3,667,499 1,057,664
Executive Vice President 1999 -- -- -- -- --
and Chief Financial Officer 1998 -- -- -- -- --
John Dickson 2000 436,667 350,000 22,745 -- 1,551,242
President and CEO, 1999 365,000 821,343 20,898 -- 110,803
Microelectronics and 1998 331,000 631,061 20,511 6,317,190 100,730
Communications Technologies
Ben Verwaayen(11) 2000 700,000 -- 25,902 -- 564,088
Vice Chairman 1999 700,000 1,936,570 23,126 -- 201,460
1998 691,667 2,729,554 90,698 2,840,066 443,212
Donald K. Peterson 2000 700,000 -- 27,400 4,584,373 1,108,030
President and CEO, 1999 600,000 1,625,329 61,050 -- 141,022
Enterprise Networks Business 1998 584,583 1,473,000 28,674 2,840,066 402,920
(now Avaya Inc.)
<S> <C> <C>
Payouts
All
Other
LTIP Compen-
Name and Payouts sation
Principal Position(1) ($) (7)($)
Richard A. McGinn(6) -- 35,781
Chairman of the Board 2,165,680 23,077
and Chief Executive Officer -- 23,153
Deborah C. Hopkins(9) -- 694,719
Executive Vice President -- --
and Chief Financial Officer -- --
John Dickson -- 28,773
President and CEO, 263,960 32,863
Microelectronics and -- 44,353
Communications Technologies
Ben Verwaayen(11) -- 19,519
Vice Chairman 900,000 53,814
-- 420,296
Donald K. Peterson -- 56,925
President and CEO, 675,540 108,015
Enterprise Networks Business -- 61,134
(now Avaya Inc.)
</TABLE>
(1) Includes those who in fiscal 2000 were the Chief Executive Officer or one of
the four other most highly compensated executive officers as measured by
salary and bonus. The positions shown are the principal positions held
during fiscal 2000.
Explanatory footnotes continue on page 29
28
<PAGE>
FOOTNOTES
(2) Compensation deferred at the election of a named officer is included in the
category (e.g., bonus or LTIP payouts) and year in which it would have
otherwise been reported had it not been deferred. All share amounts have
been adjusted to reflect Lucent's 2-for-1 stock splits in 1999 and 1998.
Following the spin-off of Avaya, all stock options and restricted stock unit
awards held by Lucent employees were adjusted so that holders of these
awards will receive only Lucent stock, and not Avaya stock, when they
exercise their stock options or when their restricted stock units vest. As
part of these adjustments, for each option both the number of shares covered
by the option and the exercise price were adjusted, and for each restricted
stock unit award the number of shares covered by the award was adjusted, in
each case, to preserve the value of these awards after the spin-off.
Information in this table reflects these adjustments.
(3) The bonus amounts shown for 1999 include the regular annual bonus as well as
additional amounts paid as short term awards and which were earned with
respect to the 1996-1998 cycle long term incentive plan awards. The
1996-1998 awards were granted by AT&T before Lucent was spun off from AT&T,
did not have performance criteria and were reported as restricted stock
grants in 1996. The additional amounts resulted from a supplemental award
made by Lucent in fiscal 1998 to provide the recipients with an incentive to
improve the company's financial performance.
(4) Includes (a) payments of above-market interest on deferred compensation,
(b) tax reimbursement payments and (c) certain fringe benefits. In 2000,
Mr. McGinn had personal use of company aircraft valued at $40,290 and
received financial counseling services valued at $24,507. In 1999, Mr.
McGinn had personal use of company aircraft valued at $44,463 and received
financial counseling services valued at $39,871. In 1998, Mr. McGinn had
personal use of company aircraft valued at $37,063 and received a $16,800
car allowance. In 2000, Ms. Hopkins received home security equipment valued
at $88,956. In 1998, Mr. Verwaayen had personal use of company aircraft
valued at $26,934 and received a $16,800 car allowance. In 1999, Mr.
Peterson received a $16,800 car allowance.
(5) Dividend equivalents relating to cash dividends paid by Lucent are paid in
cash on restricted stock units granted before fiscal 2000. Based on the
closing price of Lucent stock on the New York Stock Exchange on
September 30, 2000, the aggregate number and value of all restricted stock
unit holdings on such date were 1,018,312 shares and $30,896,604 for
Mr. McGinn; 120,876 shares and $3,667,498 for Ms. Hopkins; 262,029 shares
and $7,950,222 for Mr. Dickson; 475,445 shares and $14,425,477 for
Mr. Verwaayen; and 530,107 shares and $16,083,976 for Mr. Peterson.
(6) Mr. McGinn ceased being Chairman of the Board and Chief Executive Officer on
October 22, 2000.
(7) The amounts shown for 2000 include (a) company contributions to savings
plans ($7,208 for Mr. Dickson; $6,324 for Mr. Peterson); (b) the dollar
value of the benefit or premiums paid for split-dollar life insurance
policies (unrelated to term life insurance coverage) projected on an
actuarial basis ($35,781 for Mr. McGinn, $27,876 for Ms. Hopkins, $8,802 for
Mr. Dickson, $19,519 for Mr. Verwaayen, $24,885 for Mr. Peterson); and (c)
payments equal to lost company savings plan matching contributions resulting
from tax code limitations ($12,763 for Mr. Dickson and $25,716 for
Mr. Peterson); and (d) payment of $666,843 of relocation expenses for
Ms. Hopkins.
(8) Mr. McGinn's 1998 bonus includes a regular annual bonus of $4,417,652, and a
special one-time bonus payment of $7,444,000.
(9) Ms. Hopkins became Executive Vice President and Chief Financial Officer on
April 21, 2000.
(10) The amounts shown under "Bonus" for Ms. Hopkins include a hiring bonus of
$4,000,000, and a bonus of $650,000 that was paid pursuant to her employment
agreement.
(11) The amounts shown under "Bonus" for Mr. Verwaayen for 1998 include $667,354
from a hiring bonus.
29
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants(1)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of % of Total
Shares Options Grant
Underlying Granted to Date
Options Employees Exercise Present
Granted in Fiscal Price Expiration Value (2)
Name (#) Year ($/Sh) Date ($)
------------------------------------------------------------ --------- ---- ------- ---------- -------------
Richard A. McGinn 2,014,600 0.76% 62.6986 4/18/2010 56,449,092(3)
1,007,300 0.38% 58.1071 10/24/2009 27,690,677(4)
402,920 0.15% 58.1071 10/24/2009 10,040,766(5)
Deborah C. Hopkins 327,372 0.12% 62.0781 4/20/2010 9,061,657(6)
327,372 0.12% 54.6635 5/21/2010 8,141,742(7)
402,920 0.15% 42.1610 8/23/2010 7,525,337(8)
John Dickson 402,920 0.15% 58.1071 10/24/2009 10,040,766(4)
141,022 0.05% 58.1071 10/24/2009 3,514,268(5)
1,007,300 0.38% 52.3367 2/15/2010 22,916,075(9)
Ben Verwaayen 161,168 0.06% 58.1071 10/24/2009 4,016,306(5)
402,920 0.15% 52.3367 2/15/2010 9,166,430(9)
Donald K. Peterson 100,730 0.04% 58.1071 10/24/2009 2,510,191(5)
1,007,300 0.38% 58.7896 2/28/2010 25,726,442(10)
</TABLE>
Footnotes
(1) All share amounts and exercise prices reflect adjustments made following the
spin-off of Avaya.
(2) In accordance with Securities and Exchange Commission rules, we have used
the Black-Scholes option pricing model to estimate the grant date present
value of the options set forth in this table. Our use of this model should
not be construed as an endorsement of its accuracy at valuing options. All
stock option valuation models, including the Black-Scholes model, require a
prediction about the future movement of the stock price. The real value of
the options in this table depends upon the actual changes in the market
price of Lucent's common stock during the applicable period.
(3) This option vests 4 years from the grant date. We made the following
assumptions when calculating the grant date present value: the option will
be exercised after five years, volatility of 40%, annual dividend yield of
.002% and an interest rate of 6.27%. This option was transferable to family
members or entities in which family members have significant interests.
Mr. McGinn transferred this option to a family member.
(4) This option vests 5 years from the grant date. We made the following
assumptions when calculating the grant date present value: the option will
be exercised after six years, volatility of 37%, annual dividend yield of
.001% and an interest rate of 6.4%.
(5) This option vests 3 years from the grant date. We made the following
assumptions when calculating the grant date present value: the option will
be exercised after five years, volatility of 37%, annual dividend yield of
.001% and an interest rate of 6.36%.
30
<PAGE>
(6) This option vests 3 years from the grant date. We made the following
assumptions when calculating the grant date present value: the option will
be exercised after five years, volatility of 40%, annual dividend yield of
.002% and an interest rate of 6.2%.
(7) This option vests 3 years from the grant date. We made the following
assumptions when calculating the grant date present value: the option will
be exercised after five years, volatility of 40%, annual dividend yield of
.002% and an interest rate of 6.78%.
(8) This option vests 3 years from the grant date. We made the following
assumptions when calculating the grant date present value: the option will
be exercised after five years, volatility of 40%, annual dividend yield of
.002% and an interest rate of 6.02%.
(9) This option vests 4 years from the grant date. We made the following
assumptions when calculating the grant date present value: the option will
be exercised after five years, volatility of 37%, annual dividend yield of
.001% and an interest rate of 6.71%.
(10) This option vests 3 years from the grant date. We made the following
assumptions when calculating the grant date present value: the option will
be exercised after five years, volatility of 37%, annual dividend yield of
.001% and an interest rate of 6.70%.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END VALUES(1)
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year End (#) Year End ($)
Shares ----------------- -----------------
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Richard A. McGinn -- -- 2,692,090 49,516,890
5,640,880(2) 9,765,512
Deborah C. Hopkins -- -- -- --
1,057,664 --
John Dickson 138,289 6,507,007 183,062 2,482,387
1,723,826 1,398,496
Ben Verwaayen -- -- 721,227 7,895,016
1,521,022 8,275,734
Donald K. Peterson 448,115 23,992,181 711,757 12,789,769
1,551,242 3,030,440
</TABLE>
(1) All share amounts reflect adjustments made following the spin-off of Avaya.
(2) Includes an option covering 2,014,600 shares that Mr. McGinn transferred to
a family member.
31
<PAGE>
PENSION PLANS
Lucent has a non-contributory pension plan, the Lucent Retirement Income
Plan, which covers most management employees, including its executive officers.
Two programs are available under this plan: the Service Based Program and the
Account Balance Program.
The Service Based Program generally covers most management employees hired
prior to January 1, 1999. Pensions provided under this program are computed on
an adjusted career average pay basis. A participant's adjusted career average
pay is equal to 1.4% of the sum of the individual's (a) average annual pay for
the five years ending December 31, 1998 (excluding the annual bonus award paid
in December 1997), times the number of years of service prior to January 1,
1999, (b) pay subsequent to December 31, 1998, and (c) annual bonus award paid
in December 1997. Average annual pay used in the Service Based Program includes
base salary and annual bonus awards.
The Account Balance Program generally covers management employees hired on
or after January 1, 1999, including Ms. Hopkins. Under this program, the company
establishes an account for each participating employee and makes annual
contributions to that account based on the employee's age, salary and bonus, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Contributions
as a percent
of salary and
Age bonus
----------------- -------------
<S> <C>
21 - less than 30 3.00%
30 - less than 35 3.75%
35 - less than 40 4.50%
40 - less than 45 5.50%
45 - less than 50 6.75%
50 - less than 55 8.25%
55+ 10.00%
</TABLE>
In addition, interest is credited on the last day of the year.
Federal laws place limitations on compensation amounts that may be included
under the pension plan. In 2000, up to $170,000 in eligible base salary and
annual bonus could be included in the calculation under this plan. For
Mr. McGinn, Ms. Hopkins and Messrs. Dickson and Peterson, as well as other
executive officers, only base salary is taken into account in the formula used
to compute pensions under this plan.
The normal retirement age under the plan is 65; however, employees who are
at least age 50 with at least 15 years of service can retire with reduced
benefits under the Service Based Program. If an employee's age (which must be at
least 50) plus service, when
32
<PAGE>
added together, is equal to or greater than 75 years the employee may retire
with unreduced pension benefits. A reduction equal to 3% is made for each year
age plus service is less than 75. Once vested, normally after five years of
service, an employee participating in the Account Balance Program is entitled to
the amounts in his or her account when he or she leaves the company.
Compensation and benefit amounts which exceed the applicable federal
limitations, as well as pension amounts related to annual bonus awards payable
to executive officers, are paid under the company's supplemental pension plan,
the Lucent Supplemental Pension Plan. This plan is a noncontributory plan and
has the same two programs and uses the same adjusted career average pay formula
and eligibility rules as the Retirement Income Plan. The company pays all
benefits under this plan from its general assets.
The supplemental pension plan also provides executive officers with minimum
pensions. Eligible retired executive officers and surviving spouses may receive
an annual minimum pension equal to 15% of the sum of final base salary plus
annual bonus awards. This minimum pension will be offset by pensions under the
management and supplemental pension plans.
In addition to the benefits described above, Mr. Dickson is entitled to a
supplemental pension benefit under the supplemental pension plan. This benefit
is available to certain management employees who were hired at age 35 or over at
specified levels and who terminate with at least five years service at such
level. The plan provides additional pension credits equal to the difference
between age 35 and the maximum possible years of service attainable at age 65,
but not to exceed actual net credited service, at one-half the rate in the
management pension plan. Pensions under the management and supplemental pension
plans are not subject to reductions for social security benefits or other offset
amounts.
When he left the company, Mr. McGinn became entitled to an annual pension of
approximately $1 million. If Mr. Dickson continues in his current position and
retires at the normal retirement age of 65, the estimated total annual pension
payable to him under the Service Based Program of the management and
supplemental pension plans would be $635,000.
33
<PAGE>
The amounts given for Messrs. McGinn and Dickson are straight-life annuity
amounts. Other optional forms of payment, which provide for actuarially reduced
pensions, are available.
Ms. Hopkins' estimated balance in the Account Balance Program at age 65
would be $715,000. This represents a lump sum payment; other optional forms of
payment are available.
Mr. Peterson is now the Chief Executive Officer of Avaya. Avaya will be
responsible for all pension benefits payable to Mr. Peterson based on his
service at Lucent.
Mr. Verwaayen is entitled to a pension benefit intended to provide him,
after taking into account all other pension benefits, with an annual pension
equal to one half of his average salary and annual bonus for the three years
preceding his leaving the company. If Mr. Verwaayen leaves the company before
reaching age 60, payments under this arrangement will not begin until
Mr. Verwaayen reaches age 60 and the amount of the payments will generally be
reduced unless the reason is his death or disability or a company-initiated
termination other than for cause. Assuming retirement at age 60, Mr. Verwaayen
would receive an estimated annual pension (before reduction for any other
pension to which he may be entitled) of $1,550,000 under this arrangement.
Certain of the company's non-qualified executive benefit plans will be
supported by a benefits protection grantor trust, the assets of which are
subject to the claims of the company's creditors. In the event of a Change in
Control or Potential Change in Control of the company (as such terms are defined
in the applicable plans), certain additional funds might be required to be
contributed to such trust to support benefits under such plans.
EXECUTIVE AGREEMENTS AND OTHER RELATIONSHIPS
MS. HOPKINS. In April, we appointed Deborah Hopkins as our new Chief
Financial Officer after Donald Peterson was named Chief Executive Officer of
Avaya. Ms. Hopkins is a dynamic leader who came to Lucent with a proven record
of success, having most recently been the Chief Financial Officer of Boeing.
When Ms. Hopkins joined us, we entered into an agreement that set out our
understanding with her on a number of subjects.
The agreement provides that Lucent will pay
34
<PAGE>
Ms. Hopkins a salary that will be no less than $650,000 per year and a target
bonus equal to 100% of her base salary. For 2000, we agreed to pay Ms. Hopkins a
bonus of at least $650,000.
In order to encourage Ms. Hopkins to join Lucent and to address compensation
that she would forfeit when she left Boeing, we provided Ms. Hopkins with a
hiring bonus that included:
- Stock options covering 654,744 shares that vest over three years.
- 120,876 restricted stock units that vest over four years.
- A cash bonus of $4 million.
- Relocation benefits that included moving expenses and an agreement to make
up any loss on the sale of her old residence and boat.
If Ms. Hopkins chooses to leave Lucent other than for Good Reason or is
terminated for cause, she will have to repay the $4 million cash bonus if she
leaves within two years and will have to repay the relocation benefits if she
leaves within one year. "Good Reason" means that there has been a material
diminution in her salary or job responsibilities or that she is required to move
more than 50 miles.
The agreement also provides Ms. Hopkins with severance benefits that would
be payable to Ms. Hopkins in the event Lucent terminates her employment for any
reason other than for cause or if she chooses to leave the company within three
months of an event constituting Good Reason. If either of these events occurs
before April 2005, she would be entitled to a severance payment equal to two
times her base salary plus target bonus in effect at the time she left Lucent.
If Lucent terminates her employment after April 2005, she will be entitled to
severance benefits consistent with those provided to other executive officers.
If Lucent terminates her employment for any reason other than for cause or
if she chooses to leave the company within three months of an event constituting
Good Reason, Ms. Hopkins will be entitled to the following, regardless of when
the event occurs:
- All unvested stock options that were granted before April 2005 will vest
and these options, to the extent not previously exercised, will remain
exercisable for up to 90 days following termination of employment.
35
<PAGE>
- All restricted stock units that were granted before April 2005 that are
not yet vested will become vested.
In order to receive any of these severance benefits, Ms. Hopkins will have
to sign a release and an agreement not to sue the company.
MR. VERWAAYEN. Lucent hired Mr. Verwaayen in 1997 to lead the company's
efforts to expand its business outside the United States. Before coming to
Lucent, Mr. Verwaayen was president of PTT Telecom, the national
telecommunications carrier of the Netherlands, and chairman of Unisource, a
pan-European telecommunications company providing services to businesses and
consumers. In order to persuade Mr. Verwaayen to leave those positions and join
Lucent, we entered into an employment agreement with Mr. Verwaayen.
In order to encourage Mr. Verwaayen to join Lucent and to compensate him for
certain forfeitures he would experience by joining Lucent, the company provided
Mr. Verwaayen with a hiring bonus that included, among other things, the
following awards:
- An option to purchase 906,570 shares. One half of the option vested in 2000;
an additional 25% of the option vests in each of 2001 and 2002.
- 342,482 restricted stock units that will vest in 2002.
The company also guaranteed a portion of a loan provided by EAB Mortgage
Company, Inc. to Mr. Verwaayen. The principal amount of the loan is due in 2027
or, if sooner, no later than 180 days after Mr. Verwaayen's employment with the
company terminates. The largest amount guaranteed by the company since
October 1, 1999 under this arrangement was approximately $1.0 million.
Mr. Verwaayen and Lucent have entered into an indemnity agreement under which
Mr. Verwaayen has agreed to reimburse the company for any amounts it pays
pursuant to the guarantee.
The agreement also provides Mr. Verwaayen with a customized pension
described above under "Pension Plans" and a gross-up payment if he is subject to
taxes outside the U.S. at a higher rate than in the U.S.
The agreement also provides for Mr. Verwaayen to receive severance benefits
in the event that, before September 2007, the company terminates his employment
other than for cause or if Mr. Verwaayen resigns following certain adverse
changes in the terms of his
36
<PAGE>
compensation or job responsibilities. These benefits would be calculated based
on Mr. Verwaayen's then annual base salary and target annual incentive bonus or,
if greater, 80% of his annual base salary, and would be an amount equal to twice
Mr. Verwaayen's base salary and annual incentive bonus.
In addition, if Mr. Verwaayen's employment with the company terminates
because of his death or disability, or if the company terminates his employment
other than for cause, prior to the tenth anniversary of the agreement, then all
unexercised stock options and unvested restricted stock units included in his
hiring bonus and unvested stock options granted pursuant to regular annual
grants will vest, and all undistributed performance awards that are at least six
months old (and all undistributed performance awards in the event of
Mr. Verwaayen's death or disability) will be paid out at the end of the
performance period without proration. Similar provisions apply in the event
Mr. Verwaayen resigns following certain adverse changes in the terms of his
compensation or job responsibilities.
The agreement contains a non-competition provision under which Mr. Verwaayen
agrees not to engage in certain activities on behalf of named competitors of the
company while he is employed by the company and for a period of one year
following his termination of employment for any reason.
MR. PETERSON. The employment agreement entered into by Mr. Peterson and AT&T
in 1995 required the company to establish a special deferred compensation
account in the amount of $190,000. Interest is compounded as of the end of each
calendar quarter for as long as any sums remain in the account, and the
quarterly rate of interest applied at the end of any calendar quarter is one-
quarter of the average 30-year Treasury Note rate for the previous quarter. The
amounts credited to the account vested in October 1999 and will be paid out by
Avaya following Mr. Peterson's termination of employment with that company.
MR. SCHACHT. During fiscal 2000, a privately held business, of which
Mr. Schacht holds 80% of the equity interest and of which his son is the
controlling shareholder, purchased and paid for call center equipment and
consulting services for a total of approximately $800,000 in a transaction
negotiated at arm's-length on terms typically offered to unaffiliated customers.
37
<PAGE>
Transition Arrangements. We have asked Mr. Schacht to serve as our Chief
Executive Officer and he has announced his intention to remain in that position
until we appoint a successor. While he is leading the company, we are searching
for his successor. In light of the uncertainty that new leadership would bring
for members of senior management and our desire to maintain continuity of our
senior leadership during this rebuilding and transition period, we are
developing additional retention arrangements and severance arrangements for
selected officers including Ms. Hopkins and Messrs. Dickson and Verwaayen. We
expect that these arrangements will provide for cash payments and accelerated
vesting of equity awards in the event of an involuntary termination. We are also
developing arrangements with each of Ms. Hopkins and Mr. Verwaayen that would
apply if they choose to leave Lucent after a new Chief Executive Officer is
appointed and in addition, in the case of Mr. Verwaayen, if he remains with the
company for a year and a half and then chooses to leave Lucent.
OTHER MATTERS
Whether or not you plan to attend the meeting, please vote over the Internet
or by telephone or mark, sign, date and promptly return the proxy card sent to
you in the envelope provided. No postage is required for mailing in the United
States.
You can obtain a transcript of the meeting by writing to Shareowner Meeting
Transcript Requests, 600 Mountain Avenue, Room 3C-515, Murray Hill, New Jersey
07974.
Henry B. Schacht
Chairman of the Board and
Chief Executive Officer
January 8, 2001
38
<PAGE>
Appendix A
AUDIT COMMITTEE CHARTER
OF THE AUDIT AND FINANCE COMMITTEE
OF THE BOARD OF DIRECTORS
----------------------------------------------------------
PURPOSE
1.1 The Audit and Finance Committee is appointed by the Board of Directors
of the Company to assist the Board in fulfilling its oversight responsibilities.
1.2 The Committee's primary audit committee duties and responsibilities are
to assist the Board with respect to:
- The adequacy of the Company's internal controls and financial reporting
process and the reliability of the Company's financial reports to the
public.
- The independence and performance of the Company's internal auditors and
external independent auditor ("Independent Auditor").
- The Company's compliance with legal and regulatory requirements.
1.3 The Committee shall have the authority, in its discretion, to conduct
investigations and retain, at the Company's expense, special legal, accounting
or other consultants or experts to advise the Committee.
MEMBERSHIP
2.1 The Committee shall be comprised of not less than three members of the
Board.
2.2 All members of the Committee shall meet the independence requirements of
the New York Stock Exchange as interpreted by the Board in its business
judgment.
2.3 Each Committee member shall be financially literate as such
qualification is interpreted by the Board in its business judgment, or shall
become financially literate within a reasonable period of time after appointment
to the Committee.
2.4 At least one member of the Committee shall have accounting or related
financial management expertise as the Board interprets such qualification in its
business judgment.
A-1
<PAGE>
COMMITTEE MEETINGS
3.1 The Committee shall hold meetings at least quarterly each fiscal year,
and at any additional time as either the Board or Committee deems necessary.
3.2 The Committee may request that members of management and/or the
Company's Independent Auditor be present as needed.
3.3 Annually, the Committee shall meet, in separate private sessions, with
each of (i) the Company's chief financial officer, (ii) the Company's senior
internal auditing executive, and (iii) the Independent Auditor.
3.4 Minutes of each meeting will be kept and distributed to the entire
Board.
GENERAL PRINCIPLES AS TO INDEPENDENT AUDITOR
4.1 The Committee adopts the following principles with respect to the
Company's Independent Auditor:
a. The Committee shall recommend to the Board the appointment of the
Independent Auditor which is ultimately accountable to the Board and the
Committee.
b. The Committee shall evaluate the performance of the Independent
Auditor and, if so determined by the Committee, recommend that the Board
replace the Independent Auditor. The Committee and the Board have the
ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the Company's Independent Auditor.
c. The Committee shall review and approve the fees to be paid to the
Independent Auditor.
d. If the Company's Independent Auditor identifies a significant
problem which is not being adequately addressed by management, it should be
communicated to the Committee.
4.2 The Committee shall undertake the following with respect to the
Independent Auditor's independence:
a. Ensure that the Independent Auditor submits annually, a formal
written statement including the written disclosures required by Independence
Standards Board Standard No. 1 delineating all relationships between the
Independent Auditor and the Company.
A-2
<PAGE>
b. Actively engage in a dialogue with the Independent Auditor with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the Independent Auditor.
c. Recommend, if determined by the Committee to be called for, that the
Board take appropriate action in response to the Independent Auditor's
report to satisfy itself of the Independent Auditor's independence.
PRIMARY RESPONSIBILITIES--AUDIT
AUDITS
5.1 The Committee shall review and discuss with management the audited
financial statements of the Company and the results of the year-end audit by the
Company's Independent Auditor and internal auditing.
5.2 The Committee shall discuss with the Independent Auditor the matters the
Independent Auditor determines are required to be discussed by Statement on
Auditing Standards No. 61.
5.3 Based on the review and discussions with management and the Independent
Auditor referred to in paragraphs 4.2, 5.1 and 5.2 above, the Committee will
advise the Board of Directors whether it recommends that the audited financial
statements be included in the Company's annual report on Form 10-K (or
incorporated from the Annual Report to Shareowners).
5.4 The Committee or the Chairman of the Committee shall discuss with
management and the Company's Independent Auditor the matters the Independent
Auditor determines are required to be discussed by Statement on Auditing
Standards No. 71 regarding the interim quarterly financial statements prior to
filing the Form 10-Q with the Securities and Exchange Commission.
INTERNAL CONTROLS
5.5 The Committee shall discuss with management and the Independent Auditor:
a. The adequacy of the Company's internal accounting controls and the
financial reporting process.
b. The status of internal control recommendations made by the
Independent Auditor and internal auditing.
A-3
<PAGE>
5.6 The Committee shall periodically receive reports from and discuss with
the Company's General Counsel the adequacy of the policies and practices of the
Company related to compliance with key regulatory requirements, conflicts of
interest and ethical conduct.
OTHER
5.7 The Committee shall periodically receive reports from and discuss with
the Company's General Counsel any material government investigations, litigation
or legal matters.
SCOPE OF RESPONSIBILITIES
6.1 The Committee shall:
a. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval.
b. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy statement.
6.2 While the Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the Independent Auditor. Nor is it the duty of
the Committee to conduct investigations, to resolve disagreements, if any,
between management and the Independent Auditor or to assure compliance with laws
and regulations and the Company's Code of Conduct.
A-4
<PAGE>
[LOGO]
<PAGE>
LUCENT TECHNOLOGIES INC.
2001 EMPLOYEE STOCK PURCHASE PLAN
The Lucent Technologies Inc. 2001 Employee Stock Purchase Plan (the "Plan")
shall become effective as of the Effective Date if approved by the shareowners
of the Company. The purpose of the Plan is to provide an opportunity for
Eligible Employees to purchase Stock pursuant to a plan which is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended, and, therefore, to have an additional
incentive to contribute to the success of the Company.
It is intended that:
- the Plan be implemented by consecutive offering periods with the
first offering period expected to begin on July 1, 2001 and to end on April 30,
2003, and with subsequent offering periods generally running for 24 months
beginning May 1 of every other year.
- each offering period will consist of four purchase periods, with the
first purchase period expected to begin on July 1, 2001 and subsequent purchase
periods generally beginning on either May 1 or November 1 and lasting six
months.
1. DEFINITIONS
Whenever any of the following terms is used in the Plan with the first
letter or letters capitalized, it shall have the following meaning unless the
context clearly indicates to the contrary (such definitions to be equally
applicable to both the singular and plural forms of the terms defined).
(a) "Code" means the Internal Revenue Code of 1986, as amended.
(b) "Committee" means the committee appointed to administer the Plan
pursuant to Section 13.
(c) "Company" means Lucent Technologies Inc., a Delaware corporation.
(d) "Disability" means termination of employment under circumstances where
the Participant qualifies for and receives payments under a long-term disability
pay plan maintained by the Company or any Subsidiary or as required by or
available under applicable local law.
(e) "Effective Date" means July 1, 2001.
(f) "Eligible Compensation" means total cash compensation received from the
Company or a Participating Subsidiary as regular compensation during a Purchase
Period. By way of illustration, and not by way of limitation, Eligible
Compensation includes regular compensation such as salary, wages, overtime,
shift differentials, bonuses, commissions and incentive compensation, but
excludes relocation expense reimbursements, foreign service premiums, tuition
and other reimbursements and income realized as a result of participation in
<PAGE>
any stock option, stock purchase, or similar plan of the Company, any
Participating Subsidiary or any Parent.
(g) "Eligible Employee" means an individual classified as an employee
(within the meaning of Code Section 3401(c) and the regulations thereunder) by
the Company or a Participating Subsidiary on the Company's or Participating
Subsidiary's payroll records during the relevant participation period. In no
event shall an Eligible Employee include an employee who, immediately after the
Option is granted, owns (within the meaning of Code Sections 423(b)(3) and
424(d)) stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of a Parent or
Subsidiary.
(h) "Entry Date" means, with respect to any Offering Period, the first
Trading Day of the Offering Period or, for an Eligible Employee who becomes a
Participant after the first Trading Day of the Offering Period (including a
Participant who withdraws from the Plan under Section 5 and subsequently
re-enrolls), the first Trading Day of the first Purchase Period that begins
after he or she elects to enroll (or re-enroll) in the Plan.
(i) "Fair Market Value" means the average of the high and low price of a
share of Stock on the New York Stock Exchange on the relevant date.
(j) "Initial Offering Period" means the Offering Period commencing on the
Effective Date.
(k) "Initial Purchase Period" means the Purchase Period commencing on the
Effective Date.
(l) "Offering Period" means, in the case of the Initial Offering Period,
the period beginning on the Effective Date and ending on April 30, 2003, and in
the case of subsequent Offering Periods, the period of approximately twenty-four
(24) months beginning on the first Trading Day on or after the May 1 immediately
following the end of the preceding Offering Period and ending on the last
Trading Day in April in the second succeeding calendar year. No Offering Period
may be longer than twenty-seven (27) months. The duration and timing of Offering
Periods may be changed or modified by the Committee.
(m) "Option" means an option granted under the Plan to an Eligible Employee
to purchase shares of Stock.
(n) "Parent" means a "parent corporation" with respect to the Company, as
defined in Code Section 424(e).
(o) "Participant" means an Eligible Employee who has complied with the
provisions of Section 3.
(p) "Participating Subsidiary" means any present or future Subsidiary that
the Committee designates to be eligible to participate in the Plan, and that
elects to participate in the Plan.
2
<PAGE>
(q) "Periodic Deposit Account" means the bookkeeping account established
and maintained by the Company to which shall be credited, pursuant to Section 4,
amounts received from Participants for the purchase of Stock under the Plan.
(r) "Plan" means this Lucent Technologies Inc. 2001 Employee Stock Purchase
Plan.
(s) "Purchase Date" means the last Trading Day of each Purchase Period.
(t) "Purchase Limit" means 500. The Purchase Limit may be changed from time
to time by the Committee, effective with the first Offering Period beginning
after the change.
(u) "Purchase Period" means, in the case of the Initial Purchase Period,
the period beginning on the Effective Date and ending on October 31, 2001,
and thereafter, the period beginning on the first day of the month following
the preceding Purchase Date and ending on the last day of the fifth calendar
month following the month in which the Purchase Period begins. The duration
and timing of Purchase Periods may be changed or modified by the Committee.
(v) "Retirement" means termination of the employment of a Participant with
the Company or any Subsidiary under circumstances where: (i) the Participant is
entitled to a Service Pension under the Lucent Retirement Income Plan or the
Lucent Technologies Inc. Pension Plan; (ii) the Participant is eligible to
receive a similar benefit under a comparable plan or arrangement with the
Company or a Subsidiary; or (iii) the sum of the Participant's years of service
with the Company and attained age at termination equals or exceeds seventy five
(75). Any determination with respect to these matters shall be made by the
Committee in its sole discretion.
(w) "Stock" means shares of common stock, par value $0.01 per share, of the
Company.
(x) "Stock Purchase Account" means the account established with a broker
designated by the Company to which shall be credited, pursuant to Section 7,
Stock purchased upon exercise of an Option under the Plan.
(y) "Subsidiary" means any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company, if at the time of the
granting of the Option, each of the corporations, other than the last
corporation, in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
(z) "Trading Day" means a day on which the New York Stock Exchange is open
for trading.
2. STOCK SUBJECT TO PLAN
Subject to the provisions of Section 11, up to 250 million shares of Stock
may be sold under the Plan, and such Stock may be newly issued shares, treasury
shares or shares acquired in the market or otherwise.
3
<PAGE>
3. PARTICIPATION
(a) Any Eligible Employee may elect to become a Participant by following
procedures adopted by the Committee. Elections to become a Participant shall be
effective as of the beginning of the first Purchase Period beginning after the
election is made. Eligible Employees who had in effect elections to participate
in the Company's 1996 Employee Stock Purchase Plan when it terminated shall be
deemed to be Participants on the Effective Date.
(b) At the time he or she elects to become a Participant, each Participant
must authorize payroll deductions in a whole percentage amount equaling at least
1%, and not exceeding 10%, of his or her Eligible Compensation to be deposited
periodically in his or her Periodic Deposit Account under Section 4.
(c) Payroll deduction elections may be changed from time to time within the
limits described above. Any change in election will become effective at the
earliest practicable time, as determined by the Committee, but not before the
beginning of the month following the month in which the change is made or, if
later, the beginning of the Participant's first pay period after making the
change.
(d) Except as provided elsewhere in the Plan, a Participant's election to
participate in the Plan and payroll deduction election shall continue in effect
until the Participant withdraws from the Plan or terminates employment.
(e) All Participants shall have the same rights and privileges under the
Plan, except for differences that may be mandated by local law and that are
consistent with Code Section 423(b)(5); provided, however, that Participants
participating in a sub-plan adopted pursuant to Section 15 which is not designed
to qualify under Code Section 423 need not have the same rights and privileges
as Participants participating in the Plan but not that sub-plan.
(f) To comply with Code Section 423(b)(8), the Committee may reduce a
Participant's payroll deductions to zero percent (0%) at any time during a
Purchase Period.
4. PERIODIC DEPOSIT ACCOUNTS
The Company shall maintain a Periodic Deposit Account for each Participant
and shall credit to that account in U.S. dollars all amounts received under the
Plan from the Participant. No interest will be paid to any Participant or
credited to his or her Periodic Deposit Account under the Plan with respect to
such funds. Except as otherwise set forth herein, all amounts credited to a
Participant's Periodic Deposit Account shall be used to exercise under Section 7
the Participant's Option. Any balance remaining in a Participant's Periodic
Deposit Account at the end of a Purchase Period, after the exercise of the
Participant's Option, will be refunded to the Participant.
5. WITHDRAWAL
A Participant may withdraw all but not less than all amounts credited to
his or her Periodic Deposit Account and not yet used to exercise his or her
Option under the Plan by following procedures established by the Committee.
All amounts credited to such Participant's Periodic Deposit Account shall be
paid to such Participant thereafter. Upon any such withdrawal, the
Participant shall be deemed to have elected to make no further
4
<PAGE>
contributions to purchase Stock under the Plan (i.e., his or her contribution
designation will become zero) and to have withdrawn from the Plan. The
Committee may establish rules limiting the frequency with which Participants
may withdraw and re-enroll in the Plan and may impose a waiting period on
Participants wishing to re-enroll following withdrawal.
6. GRANT OF OPTION
(a) Each Participant shall be granted on each Entry Date for such
Participant an Option to purchase on each subsequent Purchase Date in the
relevant Offering Period a number of shares of Stock equal to the Purchase
Limit.
(b) Notwithstanding Section 6(a), no Participant shall be granted an Option
which permits his or her rights to purchase stock under the Plan or under any
other employee stock purchase plan of the Company or of any Parent or Subsidiary
which is intended to qualify under Code Section 423, to accrue at a rate which
exceeds $25,000 in fair market value of such stock (determined at the time the
Option is granted) for each calendar year in which the Option is outstanding at
any time. The foregoing sentence shall be interpreted so as to comply with Code
Section 423(b)(8). In addition, no Participant may purchase in any Purchase
Period a number of shares of Stock greater than the Purchase Limit, unless
otherwise determined by the Committee.
(c) The purchase price to be paid on each Purchase Date under an Option
shall be the lower of
(1) a percentage (not less than eighty-five percent (85%)) established by
the Committee ("Designated Percentage") of the Fair Market Value of a
share of Stock on the Entry Date on which an Option is granted, or
(2) the Designated Percentage of the Fair Market Value of a share of Stock
on the Purchase Date.
(d) The Committee may change the Designated Percentage with respect to any
future Offering Period, but not below eighty-five percent (85%), and the
Committee may determine with respect to any prospective Offering Period that the
purchase price shall be the Designated Percentage of the Fair Market Value of a
share of Stock on the Purchase Date. Unless and until changed by the Committee,
the Designated Percentage shall be 85%.
7. PURCHASE OF STOCK; STOCK PURCHASE ACCOUNTS
(a) On each Purchase Date, a Participant's Option shall be exercised
automatically for the purchase of that number of shares of Stock which the
accumulated payroll deductions credited to the Participant's Periodic Deposit
Account at that time shall purchase at the applicable price specified in Section
6. Notwithstanding the foregoing, the Company or its designee may make such
provisions and take such action as it deems necessary or appropriate for the
withholding of taxes and/or social insurance which the Company or any Subsidiary
is required by law or regulation of any governmental authority to withhold. Each
Participant, however, shall be responsible for payment of all individual tax
liabilities arising under the Plan.
5
<PAGE>
(b) Following exercise of an Option by a Participant pursuant to this
Section 7, the Company shall deliver to the Participant's Stock Purchase Account
the whole and fractional shares of Stock purchased at that time. If necessary to
comply with transaction requirements outside the United States, the Company may
issue a certificate for the number of full shares purchased under the Plan by a
Participant and return any remaining payroll deductions rather than delivering
shares to a Stock Purchase Account. Prior to the commencement of any Offering
Period, the Committee may require that Stock purchased during that Offering
Period be retained for a designated period of time in the Stock Purchase Account
of the Participant purchasing the Stock.
(c) Notwithstanding the foregoing, if the Committee determines that, on a
given Purchase Date, the number of shares of Stock with respect to which Options
are to be exercised may exceed (1) the number of shares that were available for
sale under the Plan on the earliest Entry Date of the applicable Offering
Period, or (2) the number of shares available for sale under the Plan on such
Purchase Date, the Committee may, in its sole discretion, provide (x) that the
Company shall make a pro rata allocation of the shares of Stock available for
purchase on such Entry Date or Purchase Date, as applicable, in as uniform a
manner as shall be practicable and as it shall determine in its sole discretion
to be equitable among all Participants exercising Options on such Purchase Date,
and continue the Plan as then in effect, or (y) that the Company shall make a
pro rata allocation of the shares available for purchase on such Entry Date or
Purchase Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
Participants, and terminate the Plan. The Company may make one of the
allocations described in the preceding sentence notwithstanding the
authorization of additional shares for issuance under the Plan by the Company's
stockholders subsequent to the applicable Entry Date.
8. RIGHTS ON DEATH, RETIREMENT, TERMINATION OF EMPLOYMENT
(a) Except as provided in Section 8(c), if a Participant dies or terminates
employment under circumstances constituting Retirement or Disability, all
amounts credited to that Participant's Periodic Deposit Account shall be used on
the next Purchase Date to purchase Stock under Section 7.
(b) If a Participant terminates employment for any reason other than death,
Retirement or Disability, or if the corporation that employs a Participant
ceases to be a Participating Subsidiary, then to the extent practicable, no
further amounts shall be credited to the Participant's Periodic Deposit Account
after such event, and all amounts credited to the Participant's Periodic Deposit
Account shall be returned to the individual.
(c) Notwithstanding anything in this Plan to the contrary and except to the
extent permitted under Code Section 423(a), a Participant's Option shall not be
exercisable more than three months after the Participant retires or otherwise
ceases to be employed by the Company or a Subsidiary including without
limitation as a result of the corporation that employs the Participant ceasing
to be a Subsidiary.
6
<PAGE>
9. RESTRICTION UPON ASSIGNMENT
An Option granted under the Plan shall not be transferable otherwise than
by will or the laws of descent and distribution, and shall be exercisable during
the Participant's lifetime only by the Participant. The Company will not
recognize and shall be under no duty to recognize any assignment or purported
assignment by a Participant, other than by will or the laws of descent and
distribution, of the Participant's interest in the Plan or of his or her Option
or of any rights under his or her Option.
10. NO RIGHTS OF STOCKHOLDER UNTIL EXERCISE OF OPTION AND ISSUANCE OF STOCK
A Participant shall not be deemed to be a stockholder of the Company, nor
have any rights or privileges of a stockholder, with respect to the number of
shares of Stock subject to an Option. A Participant shall have the rights and
privileges of a stockholder of the Company when, but not until, the
Participant's Option is exercised pursuant to Section 7 and the Stock purchased
by the Participant at that time has been credited to the Participant's Stock
Purchase Account.
11. ADJUSTMENTS FOLLOWING CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS
(a) If, while any Options are outstanding, the outstanding shares of Stock
have increased or decreased, or have changed into or been exchanged for a
different number or kind of shares or securities of the Company, or there has
been any other change in the capitalization of the Company, in each case as a
result of a reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, spin-off or similar transaction, appropriate
and proportionate adjustments may be made by the Committee in the number and/or
kind of shares of Stock that may be purchased under the Plan, in the number
and/or kind of shares which are subject to purchase under outstanding Options
and to the purchase price or prices applicable to such outstanding Options.
(b) In the event of the proposed liquidation or dissolution of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed transaction, unless otherwise provided by the Committee in its sole
discretion, and all outstanding Options shall automatically terminate and the
amounts of all payroll deductions will be refunded without interest to the
Participants.
(c) In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger or consolidation of the Company with or
into another corporation, then in the sole discretion of the Committee, (1) each
Option shall be assumed or an equivalent option shall be substituted by the
successor corporation or parent or subsidiary of such successor corporation, (2)
a date established by the Committee on or before the date of consummation of
such merger, consolidation or sale shall be treated as a Purchase Date, and all
outstanding Options shall be exercised on such date, or (3) all outstanding
Options shall terminate and the accumulated payroll deductions will be refunded
without interest to the Participants.
12. USE OF FUNDS; REPURCHASE OF STOCK
All funds received or held by the Company under the Plan will be included
in the general funds of the Company free of any trust or other restriction and
may be used for any corporate
7
<PAGE>
purpose. The Company shall not be required to repurchase from any person
shares of Stock which such person has acquired under the Plan.
13. ADMINISTRATION BY COMMITTEE
(a) The board of directors of the Company, or its delegate, shall appoint a
Committee, which shall be composed of one or more members, to administer the
Plan on behalf of the Company. Each member of the Committee shall serve for a
term commencing on the date specified by the board of directors of the Company,
or its delegate, and continuing until he or she dies or resigns or is removed
from office by such board of directors, or its delegate. Unless and until the
board of directors shall make a different appointment, the Corporate Governance
and Compensation Committee of the board of directors shall be the Committee.
(b) It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to:
(i) determine when the initial and subsequent Offering Periods and
Purchase Periods will commence;
(ii) interpret the Plan and the Options;
(iii) adopt such rules for the administration, interpretation, and
application of the Plan as are consistent with the Plan and Code Section
423; and
(iv) interpret, amend, or revoke any such rules.
(c) In its absolute discretion, the board of directors of the Company may
at any time and from time to time exercise any and all rights and duties of the
Committee under the Plan. The Committee may delegate any of its responsibilities
under the Plan by designating in writing other persons to carry out any or all
of such responsibilities.
(d) All actions taken and all interpretations and determinations made by
the Committee shall be final and binding upon all Participants, the Company and
all other interested persons.
14. NO RIGHTS AS AN EMPLOYEE
Nothing in this Plan nor any Option shall be construed to give any person
(including any Eligible Employee or Participant) the right to remain in the
employ of the Company or a Subsidiary or to affect the right of the Company and
Subsidiaries to terminate the employment of any person (including any Eligible
Employee or Participant) at any time with or without cause, to the extent
otherwise permitted under law.
15. FOREIGN JURISDICTIONS
The Committee may adopt rules or procedures relating to the operation and
administration of the Plan to accommodate the specific requirements of local
laws and procedures. Without limiting the generality of the foregoing, the
Committee is specifically
8
<PAGE>
authorized to adopt rules and procedures regarding handling of payroll
deductions, payment of interest, conversion of local currency, payroll tax,
withholding procedures and handling of stock certificates which vary with
local requirements.
The Committee may also adopt sub-plans applicable to particular
Subsidiaries or locations, which sub-plans may be designed to be outside the
scope of Code Section 423. The rules of such sub-plans may take precedence over
other provisions of this Plan, with the exception of Section 2, but unless
otherwise superseded by the terms of such sub-plan, the provisions of this Plan
shall govern the operation of such sub-plan.
16. SECURITIES LAWS REQUIREMENTS
The Company shall not be under any obligation to issue Stock upon the
exercise of any Option unless and until the Company has determined that: (i) it
has taken all actions required to register the Stock under the Securities Act of
1933; (ii) any applicable listing requirement of any stock exchange on which the
Stock is listed has been satisfied; and (iii) all other applicable provisions of
state, federal and applicable foreign law have been satisfied.
17. AMENDMENT OF THE PLAN
The board of directors of the Company, or its delegate, may amend, suspend,
or terminate the Plan at any time; provided that approval by the vote of the
holders of more than 50% of the shares of the Stock present or represented by
proxy and entitled to vote shall be required to increase the number of shares of
Stock reserved for the Options under the Plan.
18. TERM OF PLAN
Unless earlier terminated by the board of directors of the Company, the
Plan shall continue until no further shares of Stock are available for purchase
hereunder, at which time the Plan and any outstanding Options shall terminate.
19. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary, except to
the extent required by Section 6(b) or applicable law. Nothing in the Plan shall
be construed to limit the right of the Company or any Subsidiary (a) to
establish any other forms of incentives or compensation for employees of the
Company or any Subsidiary or (b) to grant or assume options otherwise than under
this Plan in connection with any proper corporate purpose, including, but not by
way of limitation, the grant or assumption of options in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.
20. GOVERNING LAW.
The Plan shall be governed by Delaware law, without regard to that State's
conflicts of law rules.
9
<PAGE>
21. TITLES
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
10
<PAGE>
ADMISSION TICKET
ANNUAL MEETING OF SHAREOWNERS
FEBRUARY 21, 2001 9:00 a.m. E.S.T.
LINDA W. CHAPIN AUDITORIUM
ORANGE COUNTY CONVENTION CENTER
9800 INTERNATIONAL DRIVE, ORLANDO, FLORIDA
THIS ADMISSION TICKET ADMITS THE NAMED SHAREOWNER(S) AND ONE GUEST
DIRECTIONS:
1) FROM SOUTHWEST: Take
Interstate 4 East to Exit 28
(Beeline Expressway). Go east on
Beeline Expressway to Exit 1
(International Drive). Go north
on International Drive for
approximately one mile to
Convention Center.
2) FROM SOUTHEAST: Take I-95 [Map to Orange County Convention Center
North to the Beeline Expressway appears here]
(SR 528). Go west on Beeline
Expressway to Exit 1 NOTE: The Orange County Convention Center
(International Drive). Go north is located directly across the street from
on International Drive for the Peabody Orlando Hotel.
approximately one mile to
Convention Center.
3) FROM NORTHEAST: Take
Interstate 4 West to the Beeline
Expressway (SR 528). Go east on
Beeline Expressway to Exit 1
(International Drive). Go north
on International Drive for
approximately one mile to
Convention Center.
4) FROM NORTHWEST: Take
Interstate 75 South to Florida's
Turnpike. Go south on Florida's
Turnpike to Interstate 4 to
Beeline Expressway (SR 528). Go
east on Beeline Expressway to
Exit 1 (International Drive). Go
north on International Drive for
approximately one mile to
Convention Center.
NOTE: Parking will be available at the Convention Center for a cost of $7.00.
Free shuttle buses will transport shareowners from the parking lot to the front
of the Convention Center from 7:00 A.M. until approximately one hour after the
Annual Meeting concludes.
PROXY CARD [LOGO]
--------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert C. Holder, Deborah C. Hopkins and
Richard J. Rawson, or any of them as proxies, with full power of substitution,
to vote as directed all shares of common stock of Lucent Technologies Inc. the
undersigned is entitled to vote at the 2001 Annual Meeting of Shareowners of
Lucent Technologies Inc. to be held in the Linda W. Chapin Auditorium of the
Orange County Convention Center, 9800 International Drive, Orlando, Florida at
9:00 a.m., E.S.T. on February 21, 2001. This proxy card also provides voting
instructions for shares held in BUYDIRECT-SM- and, if registrations are
identical, shares held in the various employee stock purchase and benefit plans
as described in the proxy statement. THIS PROXY AUTHORIZE(S) EACH OF THE PERSONS
NAMED ABOVE TO VOTE AT HIS OR HER DISCRETION ON ANY OTHER MATTER THAT MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. IF THIS CARD
CONTAINS NO SPECIFIC VOTING INSTRUCTIONS, MY (OUR) SHARES WILL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
(Continued, and to be signed and dated on the reverse side.)
LUCENT TECHNOLOGIES INC.
P.O. BOX 1162
COMMENTS: _______________________ NEWARK, NJ 07101-9664
_________________________________
_________________________________
_________________________________
If you have written in the above space, please
mark the comments notification box on the
reverse side.
<PAGE>
YOUR VOTE IS IMPORTANT
VOTE BY INTERNET/TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
[GRAPHIC]
<TABLE>
<CAPTION>
INTERNET TELEPHONE MAIL
-------- --------- ----
<S> <C> <C>
HTTP://PROXY.SHAREHOLDER.COM/LU 1-800-480-0407
- Go to the website address - Use any touch-tone telephone. - Mark, sign and date your proxy
listed above. card.
- Have your proxy card ready. - Have your proxy card ready. - Detach your proxy card.
- Enter your control number OR - Enter your control number OR - Return your proxy card in the
located in the box below. -- located in the box below. -- postage-paid envelope
provided.
- Follow the simple instructions - Follow the simple recorded
that appear on your computer instructions.
screen.
</TABLE>
<TABLE>
<S> <C>
Your Internet or telephone vote
authorizes the named proxies to
vote your shares in the same manner
as if you marked, signed and
returned your proxy card.
1-800-480-0407
CALL TOLL-FREE TO VOTE
THERE IS NO CHARGE FOR THIS CALL!!
--------------------------------
/ /
/ /
/ /
/ CONTROL NUMBER /
/ FOR INTERNET/TELEPHONE VOTING /
--------------------------------
THE INTERNET AND TELEPHONE VOTING FACILITIES WILL CLOSE AT 12:01 A.M. E.S.T. ON FEBRUARY 21, 2001.
</TABLE>
PLEASE DETACH PROXY CARD HERE.
/ / PROXY CARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND
2 AND A VOTE "AGAINST" ITEM 3.
1. ELECTION OF A DIRECTOR--The Board of Directors recommends a vote "FOR" the
following nominee:
Franklin A.Thomas
/ / FOR / / WITHHOLD
2. DIRECTORS' PROPOSAL--Approve the Lucent Technologies Inc. 2001 Employee
Stock Purchase Plan
/ / FOR / / AGAINST / / ABSTAIN
3. SHAREOWNER PROPOSAL--Evelyn Y. Davis--
Repeal Classified Board
/ / FOR / / AGAINST / / ABSTAIN
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<S> <C>
/ / I have included comments, or
a change of address.
/ / I plan to attend the annual
meeting.
/ / I agree to access future
proxy statements and annual
reports over the Internet.
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Please sign exactly as name or names
appear on this proxy. When signing as
attorney, executor, administrator,
trustee, custodian, guardian or
corporate officer, give full title. If
more than one trustee, all should sign.
Dated:____________________________________
__________________________________________
Signature of Shareowner
__________________________________________
Signature of Shareowner
_________________________________________________
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK.
MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
