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	Sincerely,
	Patricia F. Russo
	Chairman of the Board of Directors and
	Chief Executive Officer
	Lucent Technologies Inc.

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Alcatel		Lucent Technologies Inc.
54, rue La Boétie		600 Mountain Avenue
75008 Paris, France		Murray Hill, New Jersey 07974
011 33(1) 40 76 10 10		(908) 582-3000
Attention: Investor Relations		Attention: Investor Relations
www.alcatel.com		www.lucent.com

	•	“$” and “U.S. dollar” each refer to the United States dollar; and
	•	“€ ” and “euro” each refer to the euro, the single currency established for members of the European Economic and Monetary Union since January 1, 1999.

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	1. to consider and vote on the proposal to approve and adopt the Agreement and Plan of Merger, dated as of April 2, 2006 (which we refer to as the merger agreement), by and among Lucent, Alcatel, and Aura Merger Sub, Inc., and the transactions contemplated by the merger agreement; and
	2. to transact any other business as may properly come before the special meeting or any adjournment or postponement of the special meeting.

	By Order of the Board of Directors,
	Lucent Technologies Inc.
	William R. Carapezzi, Jr.
	Senior Vice President,
	General Counsel and Secretary

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			Page
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE LUCENT SPECIAL SHAREOWNERS MEETING				Q-1
SUMMARY				1
	The Companies			1
	The Merger			1
	Merger Consideration			2
	Treatment of Stock Options			2
	Recommendation of the Lucent Board of Directors			2
	Shareowners Entitled to Vote; Vote Required			2
	Opinions of Financial Advisors			3
	Directors and Management of the Combined Company After the Merger			3
	Name and Executive Offices of the Combined Company After the Merger			4
	Ownership of the Combined Company After the Merger			5
	Share Ownership of Directors and Executive Officers			5
	Interests of the Directors and Executive Officers of Lucent in the Merger			5
	Listing of Alcatel ADSs; Delisting and Deregistration of Lucent Common Stock			5
	Dissenters’ Rights in the Merger			6
	Conditions to Completion of the Merger			6
	Regulatory Approvals Required for the Merger			7
	Other Offers			7
	Termination of the Merger Agreement			7
	Termination Fee			8
	Material U.S. Federal Income Tax Consequences of the Merger			8
	Accounting Treatment			9
	Payment of Dividends			9
	Comparison of Rights of Lucent Shareowners and Alcatel Shareholders			9
SELECTED HISTORICAL FINANCIAL DATA OF ALCATEL				10
SELECTED HISTORICAL FINANCIAL DATA OF LUCENT				13
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION				15
UNAUDITED COMPARATIVE PER SHARE DATA				18
COMPARATIVE MARKET PRICE DATA AND DIVIDEND INFORMATION				19
CAPITALIZATION AND INDEBTEDNESS				20
EXCHANGE RATE INFORMATION				22
RISK FACTORS				23
	Risk Factors Relating to the Merger			23
	Risk Factors Relating to the Combined Company Following the Merger			25
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS				34
ALCATEL RECENT DEVELOPMENTS				35
	Thales Transaction			35
	Alcatel Second Quarter Announcement			38

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			Page
LUCENT RECENT DEVELOPMENTS				39
	Lucent Shareowner Litigation			39
	Reallocation of U.S. Pension Plan Assets			39
	Lucent Third Quarter Announcement			39
THE LUCENT SPECIAL MEETING				40
	Date, Time, Place and Purpose of the Lucent Special Meeting			40
	Who Can Vote at the Lucent Special Meeting			40
	Vote Required for Approval			40
	Adjournments			41
	Manner of Voting			41
	Revoking a Proxy			42
	Shares Held in “Street Name”			42
	Tabulation of the Votes			42
	Dissenters Rights of Appraisal			42
	Solicitation			42
THE MERGER				43
	General			43
	Background of the Merger			43
	Alcatel’s Reasons for the Merger			48
	Financial Analysis of the Exchange Ratio by the Alcatel Board of Directors			51
	Financial Opinion of BNP Paribas			56
	Recommendation of the Lucent Board of Directors and Its Reasons for the Merger			57
	Opinion of Goldman Sachs, Financial Advisor to Alcatel			61
	Opinion of JPMorgan, Financial Advisor to Lucent			66
	Opinion of Morgan Stanley, Financial Advisor to Lucent			74
	Interests of the Directors and Executive Officers of Lucent in the Merger			80
	Regulatory Approvals Required for the Merger			83
	Material U.S. Federal Income Tax Consequences			85
	Certain French Income Tax Consequences of the Merger			88
	Accounting Treatment			88
	Listing of Alcatel ADSs			89
	Delisting and Deregistration of Lucent Common Stock			89
	Dissenters’ Rights of Appraisal			89
	Restrictions on Sales of Alcatel ADSs Received in the Merger			89
THE MERGER AGREEMENT				91
	Structure of the Merger			91
	Completion and Effectiveness of the Merger			91
	Merger Consideration			91
	Corporate Governance Matters			93
	Representations and Warranties			95
	Covenants and Agreements			96
	Conditions to Completion of the Merger			102
	Termination			105
	Effect of Termination			106

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			Page
	Termination Fee			106
	Amendment and Waiver			108
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION				109
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS				119
DIRECTORS AND MANAGEMENT OF THE COMBINED COMPANY AFTER THE MERGER				151
	Board of Directors of the Combined Company Following the Effective Time of the Merger			151
	Executive Positions			151
CONTRACTS BETWEEN LUCENT AND ALCATEL PRIOR TO THE MERGER				153
COMPARISON OF RIGHTS OF LUCENT SHAREOWNERS AND ALCATEL SHAREHOLDERS				154
	Size and Qualification of the Board of Directors; Committees			154
	Removal of Directors and Vacancies			155
	Duties of the Board of Directors and Liability of Directors			156
	Transactions With Interested Parties			157
	Indemnification			158
	Shareholders Meetings, Voting and Quorum			159
	Shareholder Proposals			161
	Approval of Extraordinary Actions			162
	Certain Rights of Preferred Shareholders			163
	Shareholder Action By Written Consent			163
	Disclosures of Interests			163
	Payment of Dividends			165
	Preferential Subscription Rights			166
	Anti-Takeover Provisions			166
	Shareholder Suits			168
	Inspection of Books and Records			168
	Reporting Requirements			169
ADDITIONAL INFORMATION				171
	Shareowner Proposals			171
	Legal Matters			171
	Experts			171
	Where You Can Find More Information			171

Annexes
Annex A		Agreement and Plan of Merger
Annex B		English Translation of the Proposed Articles of Association and Bylaws (statuts) of Alcatel
Annex C		Opinion of Goldman Sachs International
Annex D		Opinion of J.P. Morgan Securities Inc.
Annex E		Opinion of Morgan Stanley & Co. Incorporated
Annex F		Opinion of BNP Paribas

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Q:		What is the proposed transaction?
A:		Alcatel and Lucent have entered into a merger agreement, pursuant to which Merger Sub will merge with and into Lucent with Lucent surviving the merger and continuing its existence as a wholly owned subsidiary of Alcatel (referred to in this proxy statement/ prospectus as the merger). The combined company will be renamed “Alcatel Lucent,” with effect upon completion of the merger. For a more complete description of the merger, see “The Merger.”
Q:		Why am I receiving this proxy statement/ prospectus?
A:		In order to complete the merger, Lucent shareowners must approve and adopt the merger agreement and the transactions contemplated by the merger agreement. The proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement requires the affirmative vote of the holders of at least a majority of the shares of Lucent common stock outstanding on the record date.
		This proxy statement/ prospectus contains important information about the proposed merger, the merger agreement and the Lucent special meeting, which you should read carefully. The enclosed voting materials allow you to vote your shares without attending the Lucent special meeting.
		Your vote is very important. You are encouraged to vote as soon as possible.
Q:		Why are Alcatel and Lucent proposing the merger?
A:		The boards of directors of Alcatel and Lucent believe that the combination of Alcatel and Lucent will provide substantial strategic and financial benefits to the shareholders of both companies and will allow shareholders of both companies the opportunity to participate in a larger, more diversified company that is capable of creating greater shareholder value than either Alcatel or Lucent could create on its own. To review the reasons for the merger in greater detail, see “The Merger — Alcatel’s Reasons for the Merger” and “The Merger — Recommendation of the Lucent Board of Directors and Its Reasons for the Merger.”
Q:		What will Lucent shareowners receive in the merger?
A:		If the proposed merger is completed, at the effective time of the merger, Lucent shareowners will be entitled to receive 0.1952 of an Alcatel ADS for each share of Lucent common stock that they own. Each Alcatel ADS represents one Alcatel ordinary share. However, no fraction of an Alcatel ADS will be issued in the merger. Instead, each holder of shares of Lucent common stock who would otherwise be entitled in the merger to receive a fraction of an Alcatel ADS will be entitled to receive a cash payment in lieu of such fraction. For example, a holder of 100 shares of Lucent common stock would ordinarily be entitled to receive 19.52 Alcatel ADSs (which is equal to the product of 100 multiplied by the exchange ratio of 0.1952). However, because no fraction of an Alcatel ADS will be issued, such holder instead will receive 19 Alcatel ADSs and a cash payment in lieu of the remaining 0.52 of an Alcatel ADS.

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		For a more complete description of what Lucent shareowners will receive in the merger, see “The Merger Agreement — Merger Consideration.”
Q:		What is an Alcatel ADS?
A:		An American Depositary Share, or ADS, is a security that allows shareholders in the United States to more easily hold and trade interests in foreign-based companies. ADSs are often evidenced by certificates known as American Depositary Receipts, or ADRs. Alcatel is a French company that issues ordinary shares that are equivalent in many respects to common stock of a U.S. company. Each Alcatel ADS represents one Alcatel ordinary share. Alcatel ordinary shares are quoted in euros on the Euronext Paris SA, which is the French national stock exchange. Alcatel ADSs are similar to the underlying Alcatel ordinary shares and carry substantially the same rights; however, they are not identical. See “Description of ADSs” in Alcatel’s annual report on Form 20-F for the fiscal year ended December 31, 2005, as amended on August 4, 2006, which is referred to as Alcatel’s 2005 Form 20-F and is incorporated by reference into this proxy statement/ prospectus.
Q:		Are Alcatel ADSs publicly traded in the United States?
A:		Yes. Alcatel ADSs are publicly traded in the United States and are listed on the NYSE under the trading symbol “ALA.”
Q:		What are the implications of Alcatel being a “foreign private issuer”?
A:		Alcatel is subject to the reporting requirements under the Exchange Act applicable to foreign private issuers. Alcatel is required to file its annual report on Form 20-F with the SEC within six months after the end of each fiscal year. In addition, Alcatel must furnish reports on Form 6-K to the SEC regarding certain information required to be publicly disclosed by Alcatel in France or is filed with Euronext Paris SA, or regarding information distributed or required to be distributed by Alcatel to its shareholders. Alcatel is exempt from certain rules under the Exchange Act, including the proxy rules which impose certain disclosure and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. Moreover, Alcatel is not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act; is not required to file financial statements prepared in accordance with U.S. GAAP (although it is required to reconcile its financial statements to U.S. GAAP); and is not required to comply with Regulation FD, which addresses certain restrictions on the selective disclosure of material information. In addition, among other matters, Alcatel’s officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of Alcatel ordinary shares. If Alcatel or the combined company loses its status as a foreign private issuer, it will no longer be exempt from such rules and, among other things, will be required to file periodic reports and financial statements as if it were a company incorporated in the United States.
Q:		What will happen in the proposed merger to options to purchase Lucent common stock and other stock-based awards?
A:		Each option to purchase shares of Lucent common stock (excluding any option granted under the Lucent 2001 Employee Stock Purchase Plan, which will be wound-up prior to or as of the effective time of the merger), whether or not vested, will be converted into a right to acquire Alcatel ordinary shares, on the same terms and conditions as were applicable to such Lucent stock option prior to the effective time of the merger, except that the number of Alcatel ordinary shares receivable and the exercise price of the option shall be adjusted to reflect the exchange ratio and will be expressed in euros instead of U.S. dollars.
		Other equity-based awards under Lucent employee benefit plans will be converted in the proposed merger into an award with respect to Alcatel ordinary shares for individuals domiciled outside of the United States, and Alcatel ADSs with respect to individuals domiciled in the United States, in each case determined by multiplying the number of shares of Lucent common stock subject to such stock-based awards immediately prior to the effective time of the merger by the exchange ratio of 0.1952.

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		Lucent will use its reasonable efforts to provide that the then-outstanding options under the Lucent 2001 Employee Stock Purchase Plan are exercised no later than the earlier of the closing date of the merger and October 31, 2006, which is the final date of the six-month Employee Stock Purchase Plan cycle commencing after the date of the merger agreement. No new options will be granted under the Lucent 2001 Employee Stock Purchase Plan after such date.
Q:		What will happen in the proposed merger to the convertible debt and warrants issued by Lucent that could convert into Lucent common stock at the option of the holder?
A:		After the merger, Lucent convertible debt and warrants issued by Lucent will be convertible or exercisable into Alcatel ADSs pursuant to their existing terms. The number of Alcatel ADSs receivable upon conversion or exercise, and, in the case of warrants, the exercise price to be paid, shall be adjusted to reflect the exchange ratio.
Q:		Should Lucent shareowners send in their Lucent common stock certificates now?
A:		No. After the merger is completed, you will receive written instructions from the exchange agent on how to exchange your Lucent common stock certificates for the merger consideration. Please do not send in your Lucent common stock certificates with your proxy.
Q:		What conditions are required to be fulfilled to complete the merger?
A:		Alcatel and Lucent are not required to complete the merger unless certain specified conditions are satisfied or waived. These conditions include approval of the merger agreement by the Lucent shareowners, approval of the issuance of Alcatel ordinary shares to be issued in the merger and related matters by the Alcatel shareholders, approval and/or clearance from U.S. and European regulatory agencies, and the maintenance of certain of Lucent’s pension plan assets at specified levels. On June 7, 2006, the Antitrust Division of the U.S. Department of Justice, which is referred to as the Antitrust Division, granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which is referred to as the HSR Act, and on July 24, 2006, the European Commission declared the merger compatible with the Common Market. On August 4, 2006, Alcatel requested the approval (visa) of the Autorité des Marchés Financiers, or AMF, for the French prospectus (comprised of a note d’opération and Alcatel’s document de référence for 2005) relating to the admission to trading on Euronext Paris of the new Alcatel ordinary shares to be issued in connection with the merger. For a more complete summary of the conditions that must be satisfied or waived prior to completion of the merger, see “The Merger Agreement — Conditions to Completion of the Merger.”
Q:		When do Alcatel and Lucent expect the merger to be completed?
A:		Alcatel and Lucent are working to complete the merger as quickly as practicable. They currently expect the merger to be completed by the end of the calendar year 2006. However, they cannot predict the exact timing of the completion of the merger because it is subject to governmental approvals and other conditions. See “The Merger Agreement — Conditions to Completion of the Merger.”
Q:		Are Lucent shareowners entitled to dissenters’ rights?
A:		No. Under the Delaware General Corporation Law, holders of Lucent common stock are not entitled to dissenters’ appraisal rights in connection with the merger.
Q:		How does the Lucent board of directors recommend that Lucent shareowners vote?
A:		The Lucent board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of the Lucent shareowners and unanimously recommends that Lucent shareowners vote “FOR” the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement. For a more complete description of the recommendation of the Lucent board of directors, see “The Merger — Recommendation of the Lucent Board of Directors and Its Reasons for the Merger.”

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Q:		When and where will the Lucent special meeting be held?
A:		The Lucent special meeting will be held on September 7, 2006, at 11:00 a.m., Eastern time, at the DuPont Theatre located at 10th and Market Streets, Wilmington, Delaware 19801.
Q:		Who can attend and vote at the Lucent special meeting?
A:		All Lucent shareowners of record as of the close of business on July 17, 2006, the record date for the Lucent special meeting, are entitled to receive notice of and to vote at the Lucent special meeting. Lucent shareowners will be admitted to the Lucent special meeting beginning at 10 a.m., Eastern time, on September 7, 2006. The location is accessible to handicapped persons and, upon request, we will provide wireless headsets for hearing amplification. A map and directions to the Lucent special meeting are on the admission ticket.
		You will need your admission ticket as well as a form of personal identification to enter the Lucent special meeting. If you are a Lucent shareowner of record, you will find an admission ticket in the proxy materials that were sent to you. This admission ticket will admit you, as the named shareowner(s), to the Lucent special meeting. If you plan to attend the Lucent special meeting, please retain the admission ticket. If you arrive at the Lucent special meeting without an admission ticket, Lucent will admit you if it is able to verify that you are a Lucent shareowner. Please note that seating is on a first-come-first-serve basis.
		If your shares of Lucent common stock are held in the name of a bank, broker or other nominee and you plan to attend the Lucent special meeting, you can obtain an admission ticket in advance by sending a written request, along with proof of ownership, such as a recent bank or brokerage account statement, to Lucent’s transfer agent, The Bank of New York, Church Street Station, P.O. Box 11009, New York, New York 10286.
		You may listen to a live audio webcast of the Lucent special meeting through the link on Lucent’s website at www.lucent.com/investor. Information on the audio webcast, other than this proxy statement/ prospectus and the form of proxy, is not part of the proxy solicitation materials.
Q:		What should Lucent shareowners do now in order to vote on the proposal being considered at the special meeting?
		If you are a Lucent shareowner, you may submit your vote for or against the proposals submitted at the Lucent special meeting in person or by proxy. You may vote by proxy in any of the following ways:
		• Internet. You may vote by proxy over the Internet by going to the website listed on your proxy card. Once at the website, follow the instructions to vote your proxy.
		• Telephone. You may vote by proxy using the toll-free number listed on your proxy card. Voice prompts will help you and confirm that your voting instructions have been followed.
		• Mail. You may vote by proxy by signing, dating and returning your proxy card in the pre-addressed postage-paid envelope provided.
		Please refer to your proxy card or the information forwarded by your bank, broker or other nominee to see which options are available to you.
		The Internet and telephone voting procedures are designed to authenticate shareowners and to allow you to confirm that your instructions have been properly recorded. The Internet and telephone voting facilities for eligible shareowners will close at 11:59 p.m., Eastern time, on September 6, 2006.
		The method by which you vote by proxy will in no way limit your right to vote at the Lucent special meeting if you later decide to attend the meeting in person. If your shares of Lucent common stock are held in the name of a bank, broker or other nominee, you must obtain a proxy, executed in your favor, from the holder of record, to be able to vote at our annual meeting.

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		If you are a participant in the BuyDIRECTsm stock purchase plan, shares held in your BuyDIRECTsm account may be voted using the proxy card sent to you or, if you receive electronic delivery, in accordance with instructions you receive by e-mail. 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 may do over the Internet, by telephone or by mail using the proxy card sent to you.
		If you are a participant in the Lucent Savings Plan, the Lucent Technologies Inc. Long Term Savings and Security Plan, the Lucent Technologies Inc. Employee Stock Purchase Plan or a Lucent long-term incentive plan, you will receive one proxy card for all shares you own through these plans. If you receive a proxy card, it will serve as a voting instruction card for the trustee or administrator of these plans for all accounts that are registered in the same name. To allow sufficient time for the respective trustee or administrator to vote your shares, the trustee or administrator must receive your voting instructions by August 30, 2006. If the trustee does not receive your instructions by that date, the trustee will vote the unvoted plan shares in the same proportion as shares for which instructions were received under each plan. If the administrator for the Lucent Technologies Inc. Employee Stock Purchase Plan or the Lucent Technologies Long-Term Incentive Plan does not receive your instructions by that date, the administrator will vote shares held in such accounts in accordance with normal brokerage industry practices.
		If you hold Lucent common stock through any other stock purchase or savings plan, you will receive voting instructions from that plan’s administrator. Please follow and complete those instructions promptly to assure that your shares are represented at the meeting.
		All shares entitled to vote and represented by properly completed proxies received prior to the Lucent special meeting, and not revoked, will be voted at the Lucent special meeting as instructed on the proxies. 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 Lucent board of directors recommends and therefore FOR the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement.
Q:		Can I change my vote after I have delivered my proxy?
A:		Yes. You may revoke your proxy at any time before it is exercised by timely delivering a properly executed, later-dated proxy (including over the Internet or telephone) or by voting by ballot at the Lucent special meeting. Simply attending the Lucent special meeting without voting will not revoke your proxy.
Q:		What should I do if I receive more than one set of voting materials for the Lucent special meeting?
A:		You may receive more than one set of voting materials for the Lucent special meeting, including multiple copies of this proxy statement/ prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive.
Q:		Who can help answer my questions?
A:		If you have any questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement/ prospectus, the enclosed proxy card, voting instructions or the election form, you should contact either of the below firms:

		Morrow & Co., Inc.
105 Madison Avenue		470 West Avenue — 3rd Floor
New York, New York 10010		Stamford, CT 06902
proxy@mackenziepartners.com		E-mail: lucent.info@morrowco.com
Call Collect: (212) 929-5500 or		Shareowners, call toll-free: (800) 573-4370
Toll-Free: (800) 322-2885		Banks and Brokerage Firms, call (203) 658-9400

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	Because the market price of Alcatel ADSs will fluctuate, the value of Alcatel ADSs to be issued in the merger will fluctuate.

	The merger is subject to the receipt of consents and approvals from government entities that may impose conditions that could have an adverse effect on Lucent or Alcatel or could cause abandonment of the merger.

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	Any delay in completing the merger may significantly reduce the benefits expected to be obtained from the merger.

	The pendency of the merger could materially adversely affect the future business and operations of Lucent and Alcatel.

	Directors and executive officers of Lucent may be deemed to have potential conflicts of interest in recommending that you vote in favor of the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement.

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	The merger agreement restricts Lucent’s and Alcatel’s ability to pursue alternatives to the merger and requires Lucent or Alcatel to pay a termination fee under certain circumstances.

	The combined company may fail to realize the anticipated cost savings, revenue enhancements and other benefits expected from the merger, which could adversely affect the value of Alcatel ADSs after the merger.

	Uncertainties associated with the merger may cause a loss of employees and may otherwise materially adversely affect the future business and operations of Alcatel and Lucent.

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	The trading price of Alcatel ADSs may be affected by factors different from those affecting the price of Lucent common stock.

	Because some existing holders of Alcatel ordinary shares and Alcatel ADSs are entitled to two votes for every share they hold, the percentage of the voting rights of the combined company that you will own immediately after the merger will be less than the percentage of the outstanding share capital of the combined company that you will own.

	Alcatel is a foreign private issuer under the rules and regulations of the SEC and, thus, is exempt from a number of rules under the Exchange Act and is permitted to file less information with the SEC than a company incorporated in the United States.

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	The combined company will operate in a highly competitive industry with many participants. Its failure to compete effectively will harm its business.

	Technology will drive the combined company’s products and services. If the combined company fails to keep pace with technological advances in the industry, or if it pursues technologies that do not become commercially accepted, customers may not buy its products or use its services.

	A small number of the combined company’s customers will account for a substantial portion of its revenues, and most of its revenues will come from telecommunications service providers. The loss of one or more key customers or reduced spending of these service providers could significantly reduce the combined company’s revenues, profitability and cash flow.

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	The telecommunications industry fluctuates and is affected by many factors, including decisions by service providers regarding their deployment of technology and their timing of purchases, as well as demand and spending for communications services by businesses and consumers.

	The combined company will have long-term sales agreements with a number of its large customers. Some of these agreements may prove unprofitable as the combined company’s costs and product mix shift over the lives of the agreements.

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	Lucent’s pension and postretirement benefit plans are large and have funding requirements that fluctuate based on the performance of the financial markets and the level of interest rates and may be affected by changes in legal requirements. These plans are also costly, and the combined company’s efforts to fund or control those costs may be ineffective.

	•	management pension plan;
	•	occupational pension plan;
	•	postretirement health care benefit plan for former management employees; and/or
	•	postretirement health care benefit plan for former represented employees.

	Many of Alcatel’s and Lucent’s current and planned products are highly complex and may contain defects or errors that are detected only after deployment in telecommunications networks. If that occurs, the reputation of the combined company may be harmed.

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	Rapid changes to existing regulations or technical standards or the implementation of new ones for products and services not previously regulated could be disruptive, time-consuming and costly to the combined company.

	Lucent and Alcatel are involved in lawsuits, which, if determined against either of them, could require the combined company to pay substantial damages.

	If the combined company fails to protect its intellectual property rights, the business and prospects of the combined company may be harmed.

	The combined company will be subject to intellectual property litigation and infringement claims, which could cause it to incur significant expenses or prevent it from selling certain products.

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	The combined company will be subject to environmental, health and safety laws that restrict its operations.

	The business of the combined company will require a significant amount of cash, and the combined company may require additional sources of funds if its sources of liquidity are unavailable or insufficient to fund its operations.

	•	the level of sales;
	•	the collection of receivables;
	•	the timing and size of capital expenditures; and
	•	customer financing obligations.

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	Credit and commercial risks and exposures could increase if the financial condition of the combined company’s customers declines.

	The combined company will have significant international operations and a significant amount of the combined company’s sales will be made in emerging markets and regions.

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	The combined company’s financial condition and results of operations may be harmed if it does not successfully reduce market risks through the use of derivative financial instruments.

	The combined company will be involved in several significant joint ventures and will be exposed to problems inherent to companies under joint management.

	An impairment of goodwill or other intangible assets would adversely affect the combined company’s financial condition or results of operations.

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	•	the ability to consummate the merger;
	•	difficulties and delays in obtaining regulatory approvals for the merger;
	•	difficulties and delays in achieving synergies and cost savings;
	•	potential difficulties in meeting conditions set forth in the merger agreement;
	•	fluctuations in the telecommunications industry;
	•	the pricing, cost and other risks inherent in long-term sales agreements;
	•	exposure to the credit risk of customers;
	•	reliance on a limited number of contract manufacturers to supply products sold by Alcatel and Lucent;
	•	the social, political and economic risks of the global operations of Alcatel and Lucent;
	•	the costs and risks associated with pension and post-retirement benefit obligations;
	•	the complexity of products sold;
	•	changes to existing regulations or technical standards;
	•	existing and future litigation;
	•	difficulties and costs in protecting intellectual property rights and exposure to infringement claims by others; and
	•	compliance with environmental, health and safety laws.

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	Overview

	•	Alcatel’s 67% interest in the capital of Alcatel Alenia Space, a joint venture between Alcatel and Finmeccanica S.p.A. Alcatel Alenia Space constructs satellites for both civil and military use, particularly for communications satellite operators, the armed forces and institutional European bodies such as the European Space Agency, the Centre National d’Etudes Spatiales, France’s national space agency, and the Agenzia Spaziale Italiana, Italy’s national space agency. Finmeccanica would retain its 33% stake in the joint venture.
	•	Alcatel’s 33% interest in the capital of Telespazio Holdings, a joint venture between Alcatel and Finmeccanica. Telespazio provides services related to satellite activities. Finmeccanica would retain its 67% interest in Telespazio.
	•	Alcatel’s Transport Solutions division, which provides control and signaling system products and services for trains and subways worldwide.
	•	Alcatel’s operations relating to non-telecommunications related integrated services activities for security systems, a part of Alcatel’s Systems Integration division.

	•	approximately 26.7 million newly issued Thales ordinary shares;
	•	approximately €673 million in cash, subject to adjustment; and
	•	the potential for an earn-out payment in 2009 based on a valuation of the contributed equity of Alcatel Alenia Space.

	•	negotiation of definitive documentation;
	•	the approval of Finmeccanica, which has the right to approve any disposition of Alcatel’s equity interests in Alcatel Alenia Space or Telespazio pursuant to the shareholders agreements governing these joint ventures;
	•	receipt of a notice of conformity from the French Holdings and Transfers Committee (Commission des Participations et des Transferts);

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	•	publication of the ministerial decree as described in Article 3 of French Law 86-912 on the Modalities of Privatization;
	•	confirmation by the AMF of the absence of an obligation to make a public offering of the securities of Thales;
	•	completion of information/consultation procedures with the Thales employee representative bodies;
	•	completion of the contributions of Alcatel and the correlated approval of the capital increase in Thales by the shareholders of Thales;
	•	receipt of a visa from the AMF; and
	•	receipt of the approval of the European Commission and other competition authorities.

	Cooperation Agreement

	Shareholders Agreement

	•	the total number of directors (excluding employee representatives and independent directors), multiplied by a fraction, the numerator of which is the percentage of shares held by the French state or the Industrial Partners, as the case may be, and the denominator of which is the total shares held by the Industrial Partners and the French state; and
	•	the number of employee representatives and representatives of employee shareholders on the Thales board of directors.

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	•	the election and dismissal of the chairman/chief executive officer of Thales (or of the chairman and of the chief executive officer, if the functions are split) and the splitting of the functions of the chairman/chief executive officer;
	•	the adoption of the annual budget and strategic plan of Thales;
	•	any decision threatening the cooperation between the Industrial Partners and Thales; and
	•	significant acquisitions and sales of shares or assets (with any transaction representing €150 million in revenues or commitments deemed significant).

	•	The party whose ownership decreases below 15% of Thales’ share capital will no longer have rights under the shareholders agreement for a period of one year following the date such shareholding falls below 15%, unless the party acquires Thales shares so that it again owns in excess of 15% of the Thales share capital. If a party’s ownership decreases below 15%, the party will take the necessary actions to cause the resignation of the board members it has appointed so that their number reflects the proportion of Thales’ share capital and voting rights that such party maintains.
	•	The party whose shareholding has not decreased below the 15% threshold will have a right of first refusal to acquire any shares the other party offers for sale to a third party in excess of 1% of the then outstanding share capital of Thales.

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	•	terminate the shareholders agreement immediately;
	•	if the French state deems necessary, require Alcatel to immediately suspend the exercise of its voting rights that exceed 10% of the total voting rights in Thales; or
	•	if the French state deems necessary, require Alcatel to reduce its shareholding in Thales below 10% of the total share capital of Thales by selling its shares of Thales in the marketplace. If, after a period of six months, Alcatel has not reduced its shareholding, the French state may force Alcatel to sell all of its Thales shares to the French state or a third party of the French state’s choice, at a price equal to the average closing price of Thales ordinary shares for the period of 60 days preceding the French state’s notice to Thales of its intention to exercise this right.

	Agreement Respecting the Strategic Interests of the French State

	•	Alcatel will maintain its executive offices in France;
	•	Thales board members appointed by the Industrial Partners must be citizens of the European Union, unless otherwise agreed by the French state, and an Alcatel executive or board member who is a French citizen will be the principal liaison between Alcatel and Thales;
	•	access to classified or sensitive information with respect to Thales will be limited to Alcatel executives who are citizens of the European Union, and Alcatel will be required to maintain procedures (including the maintenance of a list of all individuals having access to such information) to ensure appropriate limitations to such access;
	•	normal business and financial information with respect to Thales will be available to executives and directors of Alcatel (regardless of nationality);
	•	the French state will continue to hold a golden share in Thales, giving it veto rights over certain transactions that might otherwise be approved by the Thales board of directors, including permitting a third party to own more than a specified percentage of the shares of certain subsidiaries or affiliates holding certain sensitive assets of Thales, and preventing Thales from disposing of certain sensitive assets; and
	•	the French state will have the ability to restrict access to the research and development operations of Thales, and to other sensitive information.

	Consent of Lucent

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	•	to consider and vote on the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement; and
	•	to transact any other business as may properly come before the Lucent special meeting or any adjournment or postponement of the Lucent special meeting.

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	•	Internet. You may vote by proxy over the Internet by going to the website listed on your proxy card. Once at the website, follow the instructions to vote your proxy.
	•	Telephone. You may vote by proxy using the toll-free number listed on your proxy card. Easy-to-follow voice prompts will help you and confirm that your voting instructions have been followed.
	•	Mail. You may vote by proxy by signing, dating and returning your proxy card in the pre-addressed postage-paid envelope provided.

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	•	a transaction structured as a merger of equals, with Lucent shareowners receiving U.S.-listed American Depositary Shares of Alcatel in exchange for their shares of Lucent common stock;
	•	an exchange ratio reflecting that the merger would be an “at market” transaction;
	•	Lucent would merge with a subsidiary of Alcatel, resulting in Lucent surviving as a U.S. subsidiary of a parent company organized in France;
	•	the executive offices of the combined company would be located in Paris, France, and the global research and development headquarters and North American operating headquarters would be located in New Jersey;
	•	the combined company would be renamed prior to closing of the transaction, and the name would not consist solely of “Lucent” or “Alcatel”;
	•	Mr. Tchuruk would be non-executive chairman of the board of directors of the combined company, and Ms. Russo would be the chief executive officer of the combined company;
	•	the board of directors of the combined company would be comprised of 14 directors, including: (i) six directors designated by Alcatel (including Mr. Tchuruk), (ii) six directors designated by Lucent (including Ms. Russo) and (iii) two persons (one French and one European) who would qualify as independent directors and who would be mutually agreed upon by Alcatel and Lucent;
	•	no director of the combined company would have a tie-breaking vote;
	•	the board of directors of the combined company would have four committees with equal representation from each of the Alcatel and Lucent board designees, and committee chairmen would be evenly split between Alcatel and Lucent;

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	•	for a three-year period following the completion of the merger, at least a 662/3 % vote of the entire board of directors of the combined company would be required to remove the chairman or the chief executive officer of the combined company and to decide on any replacement;
	•	for a one-year period following the close of the merger, at least a 662/3 % vote of the board of directors of the combined company and the nominating committee would be required to fill any vacancy on the board of directors;
	•	to the extent practicable, board meetings would be split evenly between France and the United States;
	•	when the roles of non-executive chairman and chief executive officer are held by separate persons, the age limit applicable to the non-executive chairman would be that applied to all of the directors;
	•	the parties would identify key members of the management team of the combined company prior to signing a definitive agreement; and
	•	the parties would discuss necessary and appropriate retention arrangements and force reductions.

	We can confirm that Lucent (NYSE: LU) and Alcatel (NYSE: ALA) are engaged in discussions about a potential merger of equals that is intended to be priced at market. There can be no assurances that any agreement will be reached or that a transaction will be consummated. We will have no further comment until an agreement is reached or the discussions are terminated.

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	Strategic Considerations

	•	the merger will create a leader in the fast-growing communications networks, applications and services industry, with leading positions in third-generation wireless, broadband access, optical networks, and applications;
	•	the increased scope and global scale of the combined company, including the fact that the combined company will employ one of the largest and most extensively deployed services and support organizations in the communications industry, will help the combined company to keep pace with the rapid changes and increased competition in the communications industry;
	•	the merger will create one of the largest research and development capabilities focused on communications;
	•	the combined company will have an experienced international management team, combining the skills of highly regarded business leaders from each of Lucent and Alcatel;
	•	the complementary aspects of the products and regions of Alcatel and Lucent will give the combined company greater geographical revenue balance and a strong position for expansion into emerging regions;
	•	the combined company will have a global customer base and strong relationships with the world’s largest providers of telecommunications services; and
	•	Alcatel’s customers will be better served by the combined company through an expanded scope of products, end-to-end solutions and services.

	Financial Considerations

	•	the merger is expected to result in annual pre-tax cost savings and expense synergies of $1.7 billion, achievable within three years following the completion of the merger, with the substantial majority of these savings expected to become available in the first two years following the completion of the merger;
	•	the merger is expected to have a positive impact on the combined company’s adjusted earnings per share (meaning earnings per share adjusted to exclude all merger integration costs, non-cash expenses for depreciation and amortization of assets resulting from the allocation of the purchase price, and other non-recurring items as described under the “Unaudited Pro Forma Condensed Combined Financial Information” and related notes included elsewhere in this proxy statement/prospectus) in the first year following the effective time; and
	•	Lucent’s leading position in the IP Multimedia Subsystems standard, combined with Alcatel’s portfolio of products and applications, will enhance opportunities for future revenue growth.

	Other Transaction Considerations

	•	the information concerning Alcatel’s and Lucent’s respective historic businesses and financial results and prospects, including the results of Alcatel’s due diligence investigation of Lucent;

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	•	Alcatel’s management’s assessment that it can, working with Lucent managers and employees, effectively and efficiently integrate the Lucent businesses with the similar Alcatel businesses;
	•	the fact that the board of directors of the combined company will include an equal number of designees from the Alcatel board of directors and designees from the Lucent board of directors, and that key members of senior management of Alcatel were expected to play a significant role in the management of the combined company;
	•	the fact that the executive offices of the combined company will be located in France;
	•	the fact that Alcatel’s employees will have the opportunity to work across a larger company and benefit from the better competitive position of the combined company;
	•	the opinion of Alcatel’s financial advisor, Goldman Sachs, that, as of April 2, 2006 and based upon and subject to the factors and assumptions set forth in the opinion, the exchange ratio was fair from a financial point of view to Alcatel;
	•	the fact that the exchange ratio is fixed and will not fluctuate based upon changes in Alcatel’s stock price between signing and closing; and
	•	the terms of the merger agreement that create a strong commitment on the part of Lucent to complete the merger.

	Risks

	•	the risks of integrating the operations of two businesses the size of Lucent and Alcatel, including the risks that integration costs may be greater, and synergy benefits lower, than anticipated by Alcatel management;
	•	the risk that the value of the Alcatel ADSs following completion of the merger may be adversely affected if the combined company fails to realize the anticipated cost savings, revenue enhancements and other benefits expected from the merger, or if there are delays in the integration process;
	•	the risk that regulatory agencies may not approve the merger or may impose terms and conditions on their approvals that adversely affect the projected financial results of the combined company;
	•	the fact that Lucent’s pension and other post-retirement benefits liabilities may be larger than currently anticipated;
	•	the terms of the merger agreement that create a strong commitment on Alcatel to complete the merger; and
	•	the risks of the type and nature described above under “Risk Factors.”

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	Offered Exchange Ratio

	Reference Aggregates

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	Description of the Criteria Used for the Comparison of the Companies

						Premium Implied by
Period (Through March 23, 2006)		Implied Ratio				the Proposed Ratio
Last price			0.1825	x			6.9	%
1 month			0.2001	x			(2.4	)%
3 months			0.2001	x			(2.5	)%
6 months			0.2170	x			(10.0	)%
12 months			0.2312	x			(15.6	)%
Highest over 12 months			0.2779	x			(29.8	)%
Lowest over 12 months			0.1825	x			6.9	%

Source:	Implied ratio calculated using the averages of the share price ratios provided by Datastream.

	•	a premium of 6.9% relating to the ratio resulting from the last share price;
	•	a discount of 2.4% relating to the average of the last month’s ratios; and
	•	a discount of 15.6% relating to the average of the ratios for the last 12 months.

														Premium Implied by
		Lucent				Alcatel				Implied Ratio				the Proposed Ratio
Median		$	2.70				€12.00				0.1878	x			3.8	%

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		Sales				EBITDA*				EBIT*				Net Income*
2006E			63.9%				67.8%				75.4%				92.3%
2007E			65.3%				67.3%				73.4%				84.3%
2008E			66.4%				67.6%				71.4%				77.7%
2009E			68.0%				71.1%				75.0%				83.5%

		Sales				EBITDA*				EBIT*				Net Income*
2006E			64.0%				57.2%				57.4%				57.7%
2007E			64.3%				58.2%				56.5%				57.4%
2008E			64.0%				58.8%				58.7%				54.9%

	Valuation Methods not Considered

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	Other Studied Financial Analyses

						Projections Prepared by Alcatel Management
						(Excluding the Impact of the Financial
						Earnings/Fees Relating to the Retirement
						Programs/Medical Coverage, and on a fully
		IBES				Diluted Basis)
2007E			28.3	%			3.6%
2008E			61.3	%			38.4%
2009E			NA				36.5%

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Lucent

Forecasted Data Prepared by Alcatel

Comparable Companies

Excluding

Including

Retirement Programs and

Retirement Programs and

2008

Range

Median

Medical Coverage

Medical Coverage

IBES

Enterprise Value/ Revenue Ratios

0.77x-3.32

x

1.21

x

1.49

1.49

1.34

Price/ Earnings Ratios

10.8-16.2

x

14.9

x

40.2

14.3

12.0

-	The forecasted data for the “Comparable Companies” and Lucent (IBES) are the medians of the IBES estimates.
-	Share price on March 23, 2006 Balance sheet data as of the latest company filings with the relevant market authorities.
-	“Range” represents the minimum and maximum of “Comparable Companies” multiples.

Alcatel

Comparable Companies

Alcatel

2008

Range

Median

Forecasted Data

IBES

Enterprise Value/ Revenue Ratios

0.77x-3.32

x

1.34

x

1.06

x

1.06x

Price/ Earnings Ratios

10.77x-16.2

x

13.3

x

18.6

x

15.8x

-	The forecasted data for the “Comparable Companies” and Alcatel (IBES) are the medians of the IBES estimates.
-	“Alcatel (Alcatel Forecasted Data)”: Forecasted data as prepared by Alcatel management during the Transaction’s valuation.
-	Share price on March 23, 2006 Balance sheet data as of the latest company filings with the relevant market authorities.
-	“Range” represents the minimum and maximum of “Comparable Companies” multiples.

	Share Price

						Premium Implied by the
Period (Until March 23, 2006)		Implied Ratio				Proposed Ratio
Last price			0.1825	x			6.9	%
1 month			0.2001	x			(2.4	)%
3 months			0.2001	x			(2.5	)%
6 months			0.2170	x			(10.0	)%
12 months			0.2312	x			(15.6	)%

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	Share Price Objective

														Implied
		Lucent				Alcatel				Implied Ratio				Premium
Median		$	2.70				€12.00				0.1878	x			3.9	%

	Contribution Analysis

		Sales				EBITDA				EBIT				Net Earnings*
Range (2006E-2009E)			63.9% — 68.0%				67.3% — 71.1%				71.4% — 75.4%				77.7% — 92.3%

		Sales				EBITDA				EBIT				Net Earnings*
Range (2006E-2008E)			64.0% — 64.3%				57.2% — 58.8%				56.5% — 58.7%				54.9% — 57.7%

	Accretion/ Dilution for the Alcatel Shareholders

						Forecasts Provided by Alcatel Management
						(Excluding the Retirement Programs, the Medical
						Coverage and Other Benefits, and on an Entirely
		IBES				Diluted Basis)
2007E			28.3	%			3.6	%
2008E			61.3	%			38.4	%
2009E			NA				36.5	%

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	Strategic Considerations

	•	its expectation that the combined company would be the world’s first truly global communications networking company, with:

	•	the scale to maintain leadership across major networking technologies;
	•	one of the largest research and development capabilities in the industry;
	•	deep relationships with the world’s largest service providers; and
	•	the most extensive globally deployed services and support capabilities;

	•	its expectation that the combined company would be a more effective and efficient provider of mobility, optical, access, data and voice networking technologies and services;
	•	its expectation that the combination would make it a first-mover in the consolidating global communications networking industry; and
	•	its view of the anticipated strategic fit between Lucent and Alcatel, which the Lucent board of directors believed will provide the combined company with significantly greater capabilities and competitiveness than either company has, or could develop, on its own, including:

	•	greater financial, technical, research and development, network and marketing resources to better serve its customers, and the acceleration of the introduction of new and improved products and services for those customers;
	•	greater ability to develop next generation products and services; and
	•	the expectation that the enhanced capabilities of the combined company would make it a more attractive strategic partner for companies with national or international business models.

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	Financial Considerations

	•	based upon the advice of Lucent management who had discussions with Alcatel management, the significant synergies that could result from the transaction, including:

	•	approximately $1.7 billion in annual pre-tax cost synergies within three years, with a substantial majority of these savings expected to become available in the first two years after the completion of the merger; and
	•	the mutual identification of multiple sources of synergies by Lucent’s and Alcatel’s management teams;

	•	the financial terms of the transaction, including:

	•	the fixed exchange ratio of 0.1952 of an Alcatel ADS for each share of Lucent common stock;
	•	the earnings, cash flow and balance sheet impact of the proposed merger, as well as the historical financial performance of Lucent and the historical trading price of its common stock; and
	•	the expectation that Lucent shareowners will hold approximately 40% of the outstanding ordinary shares of the combined company immediately after closing and will have the opportunity to share in the future growth and expected synergies of the combined company while retaining the flexibility of selling all or a portion of those shares for cash into a very liquid market at any time; and

	•	the financial analyses and opinions of each of JPMorgan and Morgan Stanley, Lucent’s financial advisors, that, as of April 1, 2006, and based upon and subject to the factors, assumptions, matters, procedures, qualifications and limitations set forth in each opinion, in the case of JPMorgan’s opinion, the exchange ratio was fair, from a financial point of view, to holders of shares of Lucent common stock and in the case of Morgan Stanley’s opinion, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to the holders of Lucent common stock (other than Alcatel or any of its subsidiaries or affiliates) (see “The Merger — Opinion of JPMorgan, Financial Advisor to Lucent” and “The Merger — Opinion of Morgan Stanley, Financial Advisor to Lucent”).

	Other Transaction Considerations

	•	its view after consultation with Lucent’s management and financial advisors that based upon information then available (including the fact that the existence of the merger discussions with Alcatel were publicly disclosed on March 23, 2006 and no other potential acquirer had contacted Lucent since such disclosure) it was unlikely that there would be available an alternative transaction, if one were to be pursued, that would provide greater value to the Lucent shareowners than the merger with Alcatel;
	•	the ability under the merger agreement of Lucent under certain circumstances to provide non-public information to, and engage in discussions with, third parties that propose an alternative transaction;
	•	its view that the terms of the merger agreement, including the termination fee, would not preclude a proposal for an alternative transaction involving Lucent;
	•	its view after consultation with Lucent’s financial and legal advisors that, as a percentage of the merger consideration at the time of the announcement of the transaction, the termination fee was within the range of termination fees provided for in recent large acquisition transactions;
	•	the proposed management arrangements of the combined company under which:

	•	the chief executive officer of Alcatel would be non-executive chairman of combined company, and the chief executive officer of Lucent would be the chief executive officer of the combined company;

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	•	the board of directors of the combined company would be comprised of 14 directors, including: (i) six directors designated by Alcatel (including the chief executive officer of Alcatel), (ii) six directors designated by Lucent (including the chief executive officer of Lucent) and (iii) two persons (one French and one European) who would qualify as independent directors and who would be mutually agreed upon by Alcatel and Lucent;
	•	no director of the combined company would have a tie-breaking vote;
	•	the board of directors of the combined company would have four committees with equal representation from each of the Alcatel and Lucent board designees, and committee chairmen would be evenly split between Alcatel and Lucent;
	•	for a three-year period following the close of the merger, at least a 662/3 % vote of the entire board of directors of the combined company would be required to remove the chairman and the chief executive officer of the combined company and to decide on any replacement;
	•	for a one-year period following the close of the merger, at least a 662/3 % vote of the board of directors of the combined company and the nominating committee would be required to fill any vacancy on the board of directors;
	•	to the extent practicable, board meetings would be split evenly between France and the United States;
	•	the revision of the bylaws and board rules of Alcatel to effect the foregoing;

	•	the executive offices of the combined company would be located in Paris, France, and the principal offices of the activities of Lucent currently known as “Bell Laboratories” (which shall be the Global Research and Development headquarters of the combined company) and the North American operating headquarters of the combined company shall be located in the State of New Jersey, United States; and
	•	the expectation that the merger would qualify as a reorganization for U.S. federal income tax purposes and that, as a result, the exchange by Lucent shareowners of their shares of Lucent common stock for Alcatel ADSs in the merger generally would be tax-free to Lucent shareowners.

	Risks

	•	the price of Alcatel ADSs at the time of closing could be lower than the price as of the time of signing, and accordingly, the value of the consideration received by Lucent shareowners in the merger could be materially less than the value as of the date of the merger agreement;
	•	the Lucent shareowners would receive ADSs issued by a foreign company instead of common stock of a domestic company;
	•	because some existing holders of Alcatel ordinary shares and Alcatel ADSs may be entitled to two votes for every share they hold if they held such shares for at least three years, the percentage of the voting rights of Lucent shareowners in the combined company following the merger could be less than the percentage of the outstanding share capital of the combined company received by Lucent shareowners in the merger;
	•	the difficulties and challenges inherent in completing a merger and integrating the businesses, especially since the businesses currently reside in different national jurisdictions;
	•	the risk that the expected synergies and other benefits of the merger might not be fully achieved or may not be achieved within the timeframes expected;
	•	given the size of the combined company and the mix of assets it will own, the challenges that it will face in continuing to grow its revenues profitably;
	•	the risks of the type and nature described above under “Risk Factors”;

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	•	the possibility that regulatory or governmental authorities might seek to impose conditions on or otherwise prevent or delay the merger (and that the merger ultimately may not be completed as a result of material adverse conditions imposed by regulatory authorities or otherwise);
	•	certain provisions of the merger agreement may have the effect of discouraging proposals for alternative transactions with Lucent, including:

	•	the restriction on Lucent’s ability to solicit proposals for alternative transactions;
	•	the requirement that Lucent provide Alcatel the right to obtain information with respect to proposals for alternative transactions;
	•	the requirement that the Lucent board of directors submit the merger agreement to the Lucent shareowners for approval in certain circumstances, even if the Lucent board of directors withdraws its recommendation for the Merger; and
	•	the requirement that Lucent pay a termination fee of $250 or $500 million to Alcatel in certain circumstances following the termination of the merger agreement, including if Alcatel terminates the merger agreement as a result of the Lucent board of directors’ withdrawal of its recommendation for the Merger or its recommendation of an alternative transaction or the Lucent shareowners failing to approve the merger in light of a publicly announced alternative transaction (See “The Merger Agreement — Termination Fee”);

	•	certain of Lucent’s directors and officers may have interests in the merger as individuals that are in addition to, or that may be different from, the interests of the Lucent shareowners (see “The Merger — Interests of Directors and Executive Officers of Lucent in the Merger”);
	•	the fees and expenses associated with completing the merger;
	•	the risk that certain members of Lucent senior management or Alcatel senior management might choose not to remain employed with the combined company;
	•	the risk that either the Lucent shareowners or the Alcatel shareholders may fail to approve the merger;
	•	the risk that a significant number of Lucent shareowners may cease to hold stock in the combined company because the combined company might be a foreign private issuer or a company whose executive offices are not in the United States and that is not incorporated in the United States; and
	•	the risk and costs that the merger might not be completed, the potential impact of the restrictions under the merger agreement on Lucent’s ability to take certain actions during the period prior to the closing of the merger agreement (which may delay or prevent Lucent from undertaking business opportunities that may arise pending completion of the merger), the potential for diversion of management and employee attention and for increased employee attrition during that period and the potential effect of these on Lucent’s business and relations with customers and service providers.

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	•	the merger agreement;
	•	annual reports to shareholders and annual reports on Forms 20-F and 10-K of Alcatel and Lucent, respectively, for the five fiscal years ended December 31, 2005 and September 30, 2005, respectively;
	•	certain interim reports to shareholders of Alcatel and certain interim reports and quarterly reports on Form 10-Q for Lucent;
	•	certain other communications from Alcatel and Lucent to their respective shareholders;
	•	the Document de Référence for Alcatel;
	•	certain internal financial analyses and forecasts for Lucent prepared by Lucent’s management; and
	•	certain internal financial analyses and forecasts for Alcatel and Lucent prepared by Alcatel’s management, which are referred to as the Forecasts, including certain cost savings and operating synergies projected by the managements of Alcatel and Lucent to result from the merger, which are referred to in this section as the Synergies.

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	•	Cisco Systems Inc.;
	•	L.M. Ericsson Telephone Co.;
	•	Nokia Corp.;
	•	Nortel Networks Corp.;
	•	Motorola Inc.; and
	•	Siemens AG.

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Lucent

Lucent

(Alcatel

(Alcatel

View

View

Selected Companies

Including

Excluding

Pension

Lucent

Pension

Range

Median

Credit)

(IBES)

Credit)

2008 Enterprise Value/Revenue Ratios

0.77x-3.32x

1.21x

1.49

1.34

1.49

2008 Price/ Earnings Ratios

10.8-16.2x

14.9x

14.3

12.0

40.2

-	Selected Companies includes, in addition to the companies listed above, Alcatel.
-	Selected Companies and Lucent (IBES) numbers based on median of IBES estimates.
-	Lucent (Alcatel View Excluding Pension Credit) numbers based on forecasts of Alcatel management, which exclude the gross pension credit; Lucent (Alcatel View Including Pension Credit) numbers based on forecasts of Alcatel management, which include the gross pension credit.
-	Based on market data as of market close of March 23, 2006.
-	Balance sheet data as of latest company filings and financial reports.
-	Range represents minimum and maximum of Selected Companies multiples.

Selected Companies

Alcatel

(Management

Range

Median

View)

Alcatel (IBES)

2008 Enterprise Value/Revenue Ratios

0.77x-3.32x

1.34x

1.06

x

1.06

x

2008 Price/ Earnings Ratios

10.77x-16.2x

13.3x

18.6

x

15.8

x

-	Selected Companies includes, in addition to the companies listed above, Lucent.
-	Selected Companies and Alcatel (IBES) numbers based on median of IBES estimates.
-	Alcatel (Management View) numbers based on Alcatel management plan dated March 27, 2006.
-	Based on market data as of market close of March 23, 2006.
-	Balance sheet data as of latest company filings and financial reports.
-	Range represents minimum and maximum of Selected Companies multiples.

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		Implied Exchange Ratio		Implied Ownership
Time Period (up to		of Alcatel ADSs to		Percentage of Alcatel in
March 23, 2006)		Lucent Common Stock		Combined Entity
Fixed		0.1952x		60.1%
March 23, 2006		0.1825x		61.6%
Last Month		0.2001x		59.5%
Last 3 Months		0.2001x		59.5%
Last 6 Months		0.2170x		57.6%
Last 12 Months		0.2312x		56.0%
Minimum		0.1825x		61.6%
Maximum		0.2779x		51.4%

		Alcatel Contribution (Alcatel View Excluding
		Pension Credit)
		Sales				EBITDA*				EBIT*				Net Income*
2006E			63.9	%			67.8	%			75.4	%			92.3	%
2007E			65.3	%			67.3	%			73.4	%			84.3	%
2008E			66.4	%			67.6	%			71.4	%			77.7	%
2009E			68.0	%			71.1	%			75.0	%			83.5	%

*	Post restructuring costs.

-	Excludes gross pension credits, includes pension and other benefits service costs.

		Alcatel Contribution (IBES)
		Sales				EBITDA				EBIT				Net Income
2006E			64.0	%			57.2	%			57.4	%			57.7	%
2007E			64.3	%			58.2	%			56.5	%			57.4	%
2008E			64.0	%			58.8	%			58.7	%			54.9	%

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Cash EPS Accretion/Dilution
						Alcatel View
						(Excluding
						Pension Income
						and Using Diluted
		IBES				Number of Shares)
2007E			28.3	%			3.6	%
2008E			61.3	%			38.4	%
2009E			N/A				36.5	%

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	•	reviewed a draft dated March 30, 2006 of the merger agreement;
	•	reviewed certain publicly available business and financial information concerning Lucent and Alcatel and the industries in which they operate;
	•	compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies JPMorgan deemed relevant and the consideration received for such companies;
	•	compared the financial and operating performance of Lucent and Alcatel with publicly available information concerning certain other companies JPMorgan deemed relevant and reviewed the current and historical market prices of Lucent common stock and Alcatel ADSs and certain publicly traded securities of such other companies;
	•	reviewed certain internal financial analyses and forecasts prepared by the managements of Lucent and Alcatel relating to their respective businesses, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the proposed merger (which are referred to in this section as the Synergies); and
	•	performed such other financial studies and analyses and considered such other information as JPMorgan deemed appropriate for the purposes of its opinion.

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	Summary of Certain Financial Analyses Conducted by JPMorgan

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		Percentage Implied Ownership of the
		Combined Company
										Implied Exchange
		Lucent Shareowners				Alcatel Shareholders				Ratio
Revenue
Calendar Year Ending December 31, 2005			32	%			68	%			0.142x
Calendar Year Ending December 31, 2006			33	%			67	%			0.152x
EBITDA
Calendar Year Ending December 31, 2005			42	%			58	%			0.204x
Calendar Year Ending December 31, 2006			44	%			56	%			0.220x
Net Income
Calendar Year Ending December 31, 2005			46	%			54	%			0.230x
Calendar Year Ending December 31, 2006			47	%			53	%			0.243x

		Percentage Implied Ownership of the
		Combined Company
										Implied Exchange
		Lucent Shareowners				Alcatel Shareholders				Ratio
Adjusted EBITDA
Calendar Year Ending December 31, 2005			21	%			79	%			0.088x
Calendar Year Ending December 31, 2006			31	%			69	%			0.136x
Adjusted Net Income
Calendar Year Ending December 31, 2005			17	%			83	%			0.068x
Calendar Year Ending December 31, 2006			30	%			70	%			0.133x

	•	Cisco Systems

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	•	Nokia
	•	Motorola
	•	Ericsson
	•	Nortel Networks Corp.
	•	Juniper Networks
	•	Tellabs

	•	Firm Value divided by the estimated EBITDA for calendar years ending December 31, 2006 and December 31, 2007, which we refer to as Firm Value/ EBITDA multiple; and
	•	Closing stock prices as of March 31, 2006/estimated earnings per share, or EPS, for calendar years ending December 31, 2006 and December 31, 2007, which is referred to as Price/ Earnings multiple.

Trading Multiples Analysis		Range				Median
Price/ Earnings (calendar 2006)			17.6x-27.1x				19.4x
Price/ Earnings (calendar 2007)			15.2x-22.7x				16.2x
Firm Value/ EBITDA (calendar 2006)			8.2x-17.2x				12.9x
Firm Value/ EBITDA (calendar 2007)			7.7x-12.3x				10.4x

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			Range of Implied
			Exchange Ratio
Historical Common Stock Performance (12/30/2005 to 3/31/2006)				0.183x-0.215x
	Publicly traded comparable company analysis:
	Firm value/ EBITDA			0.180x-0.270x
	Firm value/ Adjusted EBITDA			0.115x-0.175x
	Price/ Earnings			0.205x-0.285x
	Price/ Adjusted Earnings			0.110x-0.150x
Discounted cash flow analysis				0.145x-0.230x
Merger exchange ratio				0.1952x

		Accretion/(Dilution)
		CY2007E				CY2008E
IFRS EPS impact
No Synergies			(29	)%			(29	)%
With Synergies			(3	)%			15	%
Adjusted EPS impact
No Synergies			(2	)%			(7	)%
With Synergies			24	%			37	%

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	Miscellaneous

	•	reviewed certain publicly available financial statements and other business and financial information of Alcatel and Lucent, respectively;
	•	reviewed certain internal financial statements and other financial and operating data concerning Alcatel and Lucent, respectively;

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	•	reviewed certain financial projections prepared by the managements of Alcatel and Lucent, respectively;
	•	reviewed information relating to certain strategic, financial and operational benefits anticipated from the merger, prepared by the managements of Alcatel and Lucent, respectively;
	•	discussed the past and current operations and financial condition and the prospects of Alcatel, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with senior executives of Alcatel;
	•	discussed the past and current operations and financial condition and the prospects of Lucent, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with senior executives of Lucent;
	•	reviewed the pro forma impact of the merger on Lucent’s, Alcatel’s and the combined company’s earnings per share, cash flow, consolidated capitalization and other financial ratios;
	•	reviewed the reported prices and trading activity for Alcatel ordinary shares, the Alcatel ADSs and the Lucent common stock;
	•	compared the financial performance of Alcatel and Lucent and the prices and trading activity of Alcatel ordinary shares, the Alcatel ADSs and the Lucent common stock with that of certain other publicly-traded companies comparable with Alcatel and Lucent, respectively, and their securities;
	•	participated in discussions among representatives of Alcatel and Lucent and their financial and legal advisors;
	•	reviewed the merger agreement draft dated March 31, 2006, and certain related documents; and
	•	performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

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	Summary of Certain Financial Analyses Conducted by Morgan Stanley

						Merger Exchange Ratio (0.1952x)
		Period Average				Premium/(Discount) to Period
Period		Exchange Ratio				Average Exchange Ratio
Last 3 Months			0.198x				(1.6	)%
Last 6 Months			0.215x				(9.2	)%
Last 12 Months			0.231x				(15.3	)%
High Since March 31, 2005			0.278x				(29.8	)%
Low Since March 31, 2005			0.183x				7.0	%

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Percentage Implied

Ownership of the Combined

Company

Implied

Lucent

Alcatel

Exchange

Shareowners

Shareholders

Ratio

Revenue

Calendar Year Ending December 31, 2005

32%

68%

0.142x

Calendar Year Ending December 31, 2006

33%

67%

0.152x

EBITDA

Calendar Year Ending December 31, 2005

42%

58%

0.204x

Calendar Year Ending December 31, 2006

44%

56%

0.220x

Net Income

Calendar Year Ending December 31, 2005

46%

54%

0.230x

Calendar Year Ending December 31, 2006

47%

53%

0.243x

		Percentage Implied Ownership
		of the Combined Company								Implied
										Exchange
		Lucent Shareowners				Alcatel Shareholders				Ratio
Adjusted EBITDA
Calendar Year Ending December 31, 2005			21	%			79	%			0.088	x
Calendar Year Ending December 31, 2006			31	%			69	%			0.136	x
Adjusted Net Income
Calendar Year Ending December 31, 2005			17	%			83	%			0.068	x
Calendar Year Ending December 31, 2006			30	%			70	%			0.133	x

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										Aggregate Value/
		Price/ Earnings								EBITDA
Company		CY2006E				CY2007E				CY2006E				CY2007E
Cisco Systems Inc.			19.4				17.1				14.1				N.A.
Nokia Corp.			18.0				15.8				10.7				10.0
Motorola Inc.			17.6				15.5				8.2				7.7
L.M. Ericsson Telephone Co.			17.6				16.2				9.4				8.8
Nortel Networks Corp.			20.7				15.2				17.2				11.8
Juniper Networks Inc.			23.0				19.0				12.9				10.9
Tellabs Inc.			27.1				22.7				14.0				12.3

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		Accretion/(Dilution)
Equity Research Estimates		CY2007E				CY2008E
No Synergies			(2	)%			(7	)%
With Synergies			24	%			37	%
IFRS
No Synergies			(29	)%			(29	)%
With Synergies			(3	)%			15	%

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	Miscellaneous

	Employment Agreement with Patricia F. Russo

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	Severance Programs

Patricia F. Russo		$	6,000,000
Frank A. D’Amelio		$	3,400,000
Janet G. Davidson		$	2,420,000
James K. Brewington		$	2,420,000
Cynthia K. Christy-Langenfeld		$	2,600,000
All executive officers as a group (11 individuals)		$	24,100,000

	Incentive Compensation

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	•	upon shareowner and regulatory approval of the merger, all outstanding stock options granted under Lucent’s long-term incentive programs that were in use prior to the 2003 Long Term Incentive Program shall vest;
	•	if, within 24 months following the merger, the award holder’s employment is terminated without cause by Lucent or by the holder for good reason (as such terms are defined in the applicable award or severance policy), any stock options or restricted stock units that remain unvested shall vest upon the date of termination; and
	•	with respect to Lucent’s outstanding performance cycle awards, any amounts earned for fiscal years completed prior to the merger, and prorated amounts at target performance levels for the fiscal year in which the merger closes, will be payable to participants, subject to the original schedule and terms of these awards.

	•	the number of unvested stock options that would become vested upon shareowner and regulatory approval of the merger and their weighted average exercise price;
	•	the number of unvested restricted stock units that would become vested upon shareowner and regulatory approval of the merger;
	•	the number of unvested stock options that would vest upon a termination without cause or for good reason during the two-year period following the merger and their weighted average exercise price; and
	•	the unvested restricted stock units that would vest upon such a termination during the two-year period following the merger.

		Number of								Number of
		Stock Options								Restricted Stock												Number of
		That Would								Units That Would				Number of								Restricted
		Vest upon								Vest upon				Stock Options								Stock Units
		Shareowner				Weighted Average				Shareowner				That Would				Weighted Average				That Would
		and Regulatory				Exercise Price of				and Regulatory				Vest upon a				Exercise Price of				Vest upon a
		Approval of				Such Stock				Approval of				Qualifying				Such Stock				Qualifying
Name		the Merger				Options				the Merger				Termination				Options				Termination
Patricia F. Russo			1,658,921			$	4.44				396,936				5,187,500			$	3.28				1,170,135
Frank A. D’Amelio			437,500				1.42				0				2,718,750				3.22				329,068
Janet G. Davidson			162,500				1.42				0				1,544,375				3.32				223,035
James K. Brewington			162,500				1.42				0				1,544,375				3.32				223,035
Cynthia K. Christy- Langenfeld			50,000				1.42				0				1,681,250				3.22				343,693
All executive officers as a group (12 individuals)			2,683,921				3.32				396,936				17,431,875				3.27				2,764,285

	Deferred Compensation Plans and Trust

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	Designation as Directors of the Combined Company

	Continued Employment with the Combined Company

	Indemnification and Insurance

	U.S. Antitrust

	European Union Antitrust

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	Exon-Florio

	Foreign and Certain Other Regulatory Matters

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	General

	•	an individual citizen or resident of the United States;
	•	a corporation or other entity taxable as a corporation created in or organized under the laws of the United States or any political subdivision thereof;
	•	an estate the income of which is subject to U.S. federal income tax without regard to its source; or
	•	a trust if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of such trust.

	•	a foreign person or entity;
	•	a tax-exempt organization, a financial institution, a mutual fund, a dealer or broker in securities or an insurance company;
	•	a trader who elects to mark-to-market its securities;
	•	a person who holds Lucent common stock as part of an integrated investment such as a straddle, hedge, constructive sale, conversion transaction or other risk reduction transaction;
	•	a person who holds Lucent common stock in an individual retirement or other tax-deferred account;
	•	a person whose functional currency is not the U.S. dollar;
	•	an individual who received shares of Lucent common stock, or who acquires Alcatel ADSs or Alcatel ordinary shares, pursuant to the exercise of employee stock options or otherwise as compensation or in connection with the performance of services;

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	•	a partnership or other flow-through entity (including an S corporation or a limited liability company treated as a partnership for U.S. federal income tax purposes) and persons who hold an interest in such entities; or
	•	a person subject to the alternative minimum tax.

	Certain U.S. Federal Income Tax Consequences of the Merger

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	U.S. Information Reporting and Backup Withholding

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	Certain U.S. Federal Income Tax Consequences of Holding Alcatel ADSs

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	•	an effective registration statement under the Securities Act covering the resale of those shares;
	•	an exemption under paragraph (d) of Rule 145 under the Securities Act; or
	•	any other applicable exemption under the Securities Act.

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	New Corporate Name

	Executive Offices

	Board of Directors of the Combined Company Following the Merger

	•	five members designated by Alcatel from Alcatel’s current board of directors, currently expected to be Daniel Bernard, W. Frank Blount, Jozef Cornu, Jean-Pierre Halbron and Daniel Lebègue;
	•	five members designated by Lucent from Lucent’s current board of directors, currently expected to be Linnet F. Deily, Henry B. Schacht, Karl J. Krapek, Edward E. Hagenlocker and Robert E. Denham;
	•	Serge Tchuruk, the current chairman of the board of directors and chief executive officer of Alcatel, and Patricia F. Russo, the current chairman of the board of directors and chief executive officer of Lucent; and
	•	two persons (one French and one European) who will qualify as independent directors and who will be mutually agreed upon by Alcatel and Lucent.

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	Executive Positions

	•	a carrier business group, headed by Etienne Fouques, which will consist of wireless, wireline and convergence groups headed respectively by Mary Chan, Michel Rahier and Marc Rouanne;
	•	an enterprise business group headed by Hubert de Pesquidoux; and
	•	a service business group headed by John Meyer.

	•	Europe/North, to include the United Kingdom, all scandinavian countries, Belgium, the Netherlands, Luxembourg, Germany, Russia and all eastern European countries, headed by Vince Molinaro;
	•	Europe/South, to include France, Italy, Spain, other southern European countries, Africa, the Middle East, India, and Latin America, headed by Olivier Picard;
	•	North America, including the United States, Canada and the Caribbean, headed by Cindy Christy; and
	•	Asia-Pacific, including China, northeast Asia, southeast Asia and Australia, headed by Frédéric Rose.

	•	Jeong Kim will remain as president of Bell Labs;
	•	Olivier Baujard will become chief technology officer;
	•	Helle Kristoffersen, will become the vice president of corporate strategy;
	•	John Giere will become chief marketing officer; and
	•	Elizabeth Hackenson will be head of information technology.

	•	Etienne Fouques, senior executive vice president of the carrier group;
	•	Frank D’Amelio, senior executive vice president integration and chief administrative officer;
	•	Jean-Pascal Beaufret, chief financial officer;
	•	Claire Pedini, senior vice president, human resources and communication; and
	•	Mike Quigley, president, science, technology and strategy.

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	Governance of Certain Bell Laboratories Operations

	•	corporate organization (including, in the case of Lucent, its good standing under the laws of Delaware);
	•	corporate authority, approval and fairness matters;
	•	governmental filings and absence of violations;
	•	capital structure;
	•	subsidiaries;
	•	SEC filings and financial statements;
	•	absence of material adverse effect and specified changes;
	•	litigation and liabilities;
	•	tax matters;
	•	employee benefit plans, employees and labor matters;
	•	compliance with laws;
	•	environmental matters;
	•	intellectual property;
	•	vendor financing;
	•	takeover statutes;
	•	advisors and finders; and
	•	opinions of financial advisors.

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	•	changes or developments in the United States, European or global economic, regulatory or political conditions, or generally affecting the financial or securities markets in the United States, Europe or elsewhere in the world;
	•	changes or developments involving the communications systems, software and products industries in general, and not disproportionately affecting Alcatel or Lucent, as the case may be, relative to other participants in such industries generally;
	•	changes in applicable law or accounting standards; or
	•	changes or developments directly resulting from the execution, delivery, existence of, or compliance with, the merger agreement, or the announcement of the merger.

	•	adopt or propose a change in its organizational documents or take any action that would exempt any person or entity from any applicable antitakeover law;
	•	enter into any plan or agreement of liquidation, dissolution, merger, consolidation, spin-off, restructuring, recapitalization or other material reorganization;
	•	issue, sell, transfer, pledge, dispose of or encumber any shares of its capital stock or that of its subsidiaries, or issue, sell or transfer securities convertible into or exchangeable for any shares of its capital stock or that of its subsidiaries;
	•	split, combine, subdivide or reclassify any of its outstanding shares of capital stock, or declare or pay any dividend or distribution with respect to its capital stock (except that Alcatel may declare and pay its regular annual dividend approved by the Alcatel shareholders);
	•	redeem, purchase or otherwise acquire any of its own capital stock, unless such repurchases, redemptions or acquisitions are required under the terms of its capital stock, other outstanding securities, or its stock option or dividend reinvestment plans;
	•	amend the terms of any outstanding options to purchase its capital stock (or ADSs, in the case of Alcatel);
	•	make any capital expenditure;
	•	increase the compensation of any current or former director, officer or employee, other than in the ordinary course of business consistent with past practice or as required by law or by any existing commitments;

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	•	other than acquisitions in the ordinary course of business or under existing contracts or commitments, acquire assets or stock in excess of $500 million in the aggregate (Alcatel has further covenanted that no individual acquisition will exceed $300 million);
	•	transfer, lease, license, pledge, encumber or otherwise dispose of any material assets or stock, other than inventory, receivables and vendor financing loans in the ordinary course of business consistent with past practice or pursuant to existing contracts or commitments;
	•	change any accounting method or practice, except as required in order to remain in compliance with law or applicable accounting principles;
	•	enter into any material joint venture, partnership or other similar arrangement or materially amend or modify in an adverse manner the terms of any existing material joint venture, partnership or other similar arrangement;
	•	incur material indebtedness, other than pursuant to credit facilities in place as of the date of the merger agreement or refinancing, extending or renewing the maturity of existing indebtedness in an amount not greater than such existing indebtedness, provided that such refinancing is on terms not materially less favorable than the existing indebtedness refinanced or extended;
	•	enter into or commit to provide vendor financing;
	•	settle, pay, discharge or compromise any material claim or litigation, unless such claim or litigation is subject to reserves existing as of April 2, 2006, covered by insurance policies or otherwise less than $50 million in the aggregate;
	•	enter into, modify or amend any “material contract” (as that term is defined in Item 601(b)(10) of Regulation S-K of the SEC) other than in the ordinary course of business, or enter into any contract or agreement which expressly limits the ability of the party to compete in or conduct any line of business or compete with any person or in any geographic area, if such limitation is reasonably likely to be material to the business of the party and its subsidiaries or to the combined company and its subsidiaries;
	•	enter into any new line of business material to it and its subsidiaries, taken as a whole; or
	•	agree or commit to do any of the foregoing.

	•	solicit, initiate or knowingly encourage or facilitate the making of or inquiries regarding any proposal, or offer, which is referred to as an acquisition proposal, or engage in discussions or negotiations or enter into any agreement with respect to an acquisition proposal;
	•	disclose or provide any non-public information with respect to itself or its subsidiaries to any third party with respect to an acquisition proposal;
	•	afford access to its properties, books or records to any third party that has made or to its knowledge is considering making such an acquisition proposal;
	•	approve or recommend, or propose to approve or recommend, or enter into any agreement relating to such an acquisition proposal; or
	•	propose publicly or agree to any of the foregoing relating to an acquisition proposal.

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	•	direct or indirect acquisition or purchase of a business or assets that constitute 20% or more of the net revenues, net income or the assets of Lucent and its subsidiaries or Alcatel and its subsidiaries, in each case, taken as a whole;
	•	direct or indirect acquisition, purchase, tender offer or exchange offer that, if consummated, would result in any third party beneficially owning (i) 20% or more of any class of equity securities of the party or (ii) 50% or more of any class of equity securities of any of the party’s subsidiaries whose business constitutes 20% or more of the net revenues, net income or assets of the party and its subsidiaries, taken as a whole; or
	•	merger, consolidation, spin-off, business combination, recapitalization, liquidation, dissolution or similar transaction involving the party or any of its subsidiaries whose business constitutes 20% or more of the net revenues, net income or assets of the party and its subsidiaries, taken as a whole, pursuant to which the shareholders of the party or such subsidiary, as applicable, immediately prior to such transaction (other than the third party in such transaction) would own less than 80% of any class of equity securities of the resultant entity or entities.

	•	the board of directors of the party receiving the acquisition proposal has, by a majority vote, determined in its good faith judgment (after consulting with its financial advisors) that such acquisition proposal is reasonably expected to lead to a bona fide acquisition proposal for or in respect of at least a majority of the outstanding shares of capital stock of the party or all or substantially all of the assets of the party and its subsidiaries, taken as a whole, on terms that the board of directors of such party determines in its good faith judgment (after consultation with outside legal counsel and a financial advisor of recognized reputation) are more favorable to such party’s shareholders than the merger agreement, taking into account all of the terms and conditions of such acquisition proposal, including any break-up fees, expense reimbursement provisions and conditions to completion, as well as any revisions to the terms of the merger agreement proposed by the other party after being notified of such acquisition proposal;
	•	the party receiving such acquisition proposal has complied with the terms of the merger agreement relating to acquisition proposals; and

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	•	the party receiving such acquisition proposal enters into a confidentiality agreement with the third party, on terms no less favorable to the party receiving the acquisition proposal than those contained in the confidentiality agreement between Alcatel and Lucent.

	•	the board of directors by a majority vote determines, in its good faith judgment and after consultation with outside legal counsel, that the failure of the board of directors to change its recommendation would be reasonably likely to result in a breach of the directors’ fiduciary obligations to its shareholders under applicable law; and
	•	if the board of directors recommends a superior proposal, then the board of directors has complied with the terms of the merger agreement relating to acquisition proposals.

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	•	take or cause to be taken all actions and do or cause to be done all things necessary, proper or advisable under the merger agreement and applicable law to consummate the merger and the transactions contemplated by the merger agreement as soon as practicable, including preparing and filing all documentation to effect all necessary filings, applications and other documents;
	•	obtain all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained from any third party necessary, proper or advisable to consummate the merger and the transactions contemplated by the merger agreement;
	•	defend any lawsuits or other legal proceedings challenging the merger agreement or the completion of the transactions contemplated by the merger agreement; and
	•	execute and deliver any additional instruments necessary to consummate the merger and the transactions contemplated by the merger agreement.

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	•	the merger agreement will have been approved by the affirmative vote of the holders of a majority of Lucent’s outstanding common stock;

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	•	the following actions will have been approved by the holders of two-thirds of the voting rights attached to the Alcatel ordinary shares cast at the Alcatel shareholders meeting:

	•	the issuance of Alcatel ordinary shares in connection with the merger;
	•	the issuance of Alcatel ordinary shares for delivery upon exercise or conversion, as applicable, of Lucent stock options, stock-based awards, warrants and convertible debt;
	•	the adoption of certain amendments to the Alcatel bylaws;

	•	the designees to the combined company’s board of directors will have been elected by the holders of a majority of the voting rights attached to the Alcatel ordinary shares cast at the Alcatel shareholders meeting;
	•	the waiting period applicable to the completion of the merger under the HSR Act will have expired or been earlier terminated (which early termination occurred on June 7, 2006);
	•	the European Commission will have issued a decision (or been deemed to have done so) declaring the merger compatible with the Common Market (which decision was issued on July 24, 2006);
	•	all required governmental antitrust and/or competition approvals, and consents will have been received and all requisite filings, notices or notifications will have been made, other than those the absence of which would not result in a material adverse effect on either Lucent or Alcatel;
	•	there is no law, regulation, judgment, injunction, order or decree which prohibits or enjoins the completion of the merger;
	•	the registration statement of which this proxy statement/ prospectus forms a part will have been declared effective by the SEC, and no stop order suspending its effectiveness will be in effect; and Alcatel will have received the approval (visa) of the French prospectus (note d’opération) by the AMF relating to the Alcatel ordinary shares to be issued as of the effective time of the merger (on August 4, 2006, Alcatel requested the approval (visa) of the AMF for the French prospectus (comprised of a note d’opération and Alcatel’s document de référence for 2005) relating to the admission to trading on Euronext Paris of the new Alcatel ordinary shares to be issued in connection with the merger);
	•	the Alcatel ADSs (and, if required, the underlying Alcatel ordinary shares) to be issued in the merger will have been approved for listing on the NYSE, subject to official notice of issuance, and the AMF and Euronext Paris SA will have approved the listing of the Alcatel ordinary shares to be issued as of the effective time of the merger;
	•	CFIUS will have notified Alcatel and Lucent in writing that it has determined not to investigate the transactions contemplated by the merger agreement or, in the event that CFIUS has undertaken such an investigation, CFIUS will have terminated such investigation, or the President of the United States will have determined not to take any action to prohibit or restrain the merger or to seek a divestiture of any shares of Lucent common stock or the shares of the surviving corporation or limitation on the ownership rights of Alcatel over the shares of the surviving corporation that would reasonably be expected to materially adversely affect the financial condition, business or annual results of operations of Lucent and its subsidiaries, taken as a whole or Alcatel and its subsidiaries, taken as a whole;
	•	the absence of any action, litigation or proceeding by any governmental authority, instituted or pending, which seeks to prohibit or restrain the merger or to seek a divestiture of any shares of Lucent common stock or the shares of the surviving corporation or limitation on the ownership rights of Alcatel over the shares of the surviving corporation that would reasonably be expected to materially adversely affect the financial condition, business or annual results of operations of Lucent and its subsidiaries, taken as a whole or Alcatel and its subsidiaries, taken as a whole; and
	•	the absence of any statute, rule, regulation, injunction, order or decree issued or deemed applicable to the merger that is reasonably likely to prohibit or restrain the merger or to seek a divestiture of any shares of Lucent common stock or the shares of the surviving corporation or limitation on the ownership rights of Alcatel over the shares of the surviving corporation that would reasonably be

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		expected to materially adversely affect the financial condition, business or annual results of operations of Lucent and its subsidiaries, taken as a whole or Alcatel and its subsidiaries, taken as a whole.

	•	Lucent will have performed in all material respects all of its obligations under the merger agreement required to be performed by it at or prior to the effective time of the merger;
	•	the representations and warranties of Lucent in the merger agreement relating to the capital stock of Lucent will be true and correct in all material respects as of the date specified in such representation;
	•	the representations and warranties of Lucent set forth in the merger agreement that are qualified with respect to material adverse effect will be true and correct as of the date of the merger agreement and as of the effective time of the merger;
	•	the other representations and warranties of Lucent set forth in the merger agreement that are not so qualified will be true in all respects when made and at and as of the effective time of the merger as if made at and as of such time (provided that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date), except for failure to be so true and correct which would not, individually or in the aggregate, have a material adverse effect on Lucent;
	•	Alcatel will have received a certificate from Lucent, signed by a senior executive officer of Lucent, certifying that Lucent has performed its obligations under the merger agreement in all material respects and that the representations and warranties of Lucent satisfy the condition set forth above; and
	•	the fair market value of the assets of Lucent’s major pension plans as of the last day of the month last ending prior to the closing date of the merger shall not be less than $28,600,000,000 if the relevant measurement date is September 30, 2006, decreasing by $200,000,000 as of the first day of each calendar month thereafter through December 2006, but in no event shall the threshold be less than $28,000,000,000.

	•	Alcatel will have performed in all material respects all of its obligations under the merger agreement required to be performed by it at or prior to the effective time of the merger;
	•	the representations and warranties of Alcatel in the merger agreement relating to the capital stock of Alcatel will be true and correct in all material respects as of the date specified in such representation;
	•	the representations and warranties of Alcatel set forth in the merger agreement that are qualified with respect to material adverse effect will be true and correct as of the date of the merger agreement and as of the effective time of the merger;
	•	the other representations and warranties of Alcatel set forth in the merger agreement that are not so qualified will be true in all respects when made and at and as of the effective time of the merger as if made at and as of such time (provided that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date), except for failure to be so true and correct which would not, individually or in the aggregate, have a material adverse effect on Alcatel;
	•	Lucent will have received a certificate from Alcatel, signed by a senior executive officer of Alcatel, certifying that Alcatel has performed its obligations under the merger agreement in all material respects and that the representations and warranties of Alcatel satisfy the condition set forth above; and
	•	Lucent will have received the opinion of Wachtell Lipton, special counsel to Lucent, that the merger will be treated for U.S. federal income tax purposes as a reorganization qualifying under the provisions of Section 368(a) of the Internal Revenue Code, that each of Alcatel, Merger Sub and Lucent will be a party to the reorganization within the meaning of Section 368(a) of the Internal Revenue Code and that each transfer of shares of Lucent common stock to Alcatel by a shareowner of Lucent pursuant to

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		the merger will not be subject to Section 367(a)(1) of the Internal Revenue Code. Lucent may not waive receipt of a tax opinion from Wachtell Lipton as a condition after the merger has been approved by the shareowners of Lucent, unless further approval of such shareowners is obtained after appropriate disclosure.

	•	by mutual written consent of Alcatel and Lucent;
	•	by either Alcatel or Lucent if:

	•	the merger is not completed by December 31, 2006, which will be extended one or more times until March 31, 2007 in the event that all conditions to the merger have been satisfied or waived other than receipt of clearance under the HSR Act, European Union antitrust approval, or NYSE approval for the listing of the Alcatel ADSs; provided, however, that this right to terminate will not be available to a party whose failure to fulfill in any material respect any obligation under the merger agreement has caused or resulted in the failure of a condition to complete the merger;
	•	the approval of the Lucent shareowners was not obtained at the Lucent shareowners meeting duly convened to vote on the merger, or at any adjournment or postponement of such meeting;
	•	the approval of Alcatel shareholders for the issuance of Alcatel ordinary shares to be issued pursuant to the merger agreement, the issuance of Alcatel ordinary shares for delivery upon exercise of Lucent stock options or upon exercise or conversion of Lucent warrants, Lucent convertible debt or Lucent stock-based accounts, the approval of the new Alcatel bylaws and the election of Alcatel directors nominated by the parties in accordance with the merger agreement was not obtained at the Alcatel shareholders meeting duly convened to vote on such matters, or at any adjournment or postponement of such meeting; or
	•	there is any law or regulation prohibiting the merger or making the completion of the merger illegal, or an injunction, judgment, order or decree enjoining the merger becomes final and non-appealable;

	•	by Lucent if:

	•	Alcatel breaches or fails to perform in any material respect any of its representations, warranties, covenants or other agreements in the merger agreement, such that the closing conditions to Lucent’s obligation to effect the merger would not be satisfied and the breach or failure to perform would not be curable, of if curable, would not be cured within 60 days following receipt of written notice from Lucent of such breach or failure to perform;
	•	prior to the receipt of the approval of the Alcatel shareholders of the issuance of Alcatel ordinary shares to be issued pursuant to the merger agreement and the other matters related to the merger agreement to be considered by the Alcatel shareholders at such meeting, the board of directors of Alcatel has recommended that Alcatel shareholders not approve such matters, has withdrawn or modified in a manner adverse to Lucent its recommendation that the Alcatel shareholders vote in favor of such matters or has recommended a superior proposal; or
	•	Alcatel has not called and held the meeting of Alcatel shareholders to approve the issuance of Alcatel ordinary shares to be issued pursuant to the merger agreement and the other matters related to the merger agreement, as required under the merger agreement; and

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	•	by Alcatel if:

	•	Lucent breaches or fails to perform in any material respect any of its representations, warranties, covenants or other agreements in the merger agreement, such that the closing conditions to Alcatel’s obligation to effect the merger would not be satisfied and the breach or failure to perform would not be curable, or if curable, would not be cured within 60 days following receipt of written notice from Alcatel of such breach or failure to perform;
	•	prior to the receipt of approval of the merger agreement by Lucent’s shareowners, the board of directors of Lucent has recommended that Lucent shareowners not approve the merger agreement, has withdrawn or modified in a manner adverse to Alcatel its recommendation that the Lucent shareowners vote in favor of such matters or has recommended a superior proposal; or
	•	Lucent has not called and held the meeting of Lucent shareowners to approve the merger agreement, as required under the merger agreement.

	•	terminated by either party on the basis of the failure of the Lucent shareowners to approve the merger agreement at the meeting of Lucent shareowners, and prior to the date of the meeting of Lucent shareowners, an acquisition proposal had been made known to Lucent or was made known to the shareowners of Lucent or otherwise became publicly known or a third party had publicly announced an intention (whether or not conditional) to make an acquisition proposal for Lucent;
	•	terminated by Alcatel if the meeting of Lucent shareowners to approve the merger agreement is not called and held in accordance with the merger agreement, and prior to the date of termination, an acquisition proposal had been made known to Lucent or was made known to the shareowners of Lucent or otherwise became publicly known or a third party had publicly announced an intention (whether or not conditional) to make an acquisition proposal for Lucent; or
	•	terminated by Alcatel because the board of directors of Lucent has recommended that Lucent shareowners not approve the merger agreement, or has withdrawn or modified in a manner adverse to Alcatel its recommendation that the Lucent shareowners vote in favor of such matters or has recommended a superior proposal;

	•	terminated by either party on the basis of the failure of the Lucent shareowners to approve the merger agreement at the meeting of Lucent shareowners, and prior to the date of the meeting of Lucent shareowners, an acquisition proposal had been made known to Lucent or was made known to the shareowners of Lucent or otherwise became publicly known or a third party had publicly announced an intention (whether or not conditional) to make an acquisition proposal for Lucent, and within twelve months after the date of such termination, Lucent enters into an agreement with a third party with respect to, or consummates, an acquisition proposal;

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	•	terminated by Alcatel if the meeting of Lucent shareowners to approve the merger agreement is not called and held in accordance with the merger agreement, and within twelve months after the date of such termination, Lucent enters into an agreement with a third party with respect to, or consummates, an acquisition proposal; or
	•	terminated by Alcatel because the Lucent board of directors has recommended that Lucent shareholders not approve the merger agreement, or has withdrawn or modified in a manner adverse to Alcatel its recommendation that the Lucent shareowners vote in favor of such matters or has recommended a superior proposal, and within twelve months after the date of such termination, Lucent enters into an agreement with a third party with respect to, or consummates, an acquisition proposal;

	•	terminated by either party on the basis of the failure of the Alcatel shareholders to approve the issuance of Alcatel ordinary shares required to be issued pursuant to the merger agreement and the other matters related to the merger agreement to be considered by the Alcatel shareholders, and prior to the date of the meeting of Alcatel shareholders, an acquisition proposal had been made known to Alcatel or was made known to the shareholders of Alcatel or otherwise became publicly known or a third party had publicly announced an intention (whether or not conditional) to make an acquisition proposal for Alcatel;
	•	terminated by Lucent if the meeting of Alcatel shareholders to approve the issuance of Alcatel ordinary shares required to be issued pursuant to the merger agreement and the other matters related to the merger agreement to be considered by the Alcatel shareholders is not called and held in accordance with the merger agreement, and prior to the date of termination, an acquisition proposal had been made known to Alcatel or was made known to the shareholders of Alcatel or otherwise became publicly known or a third party had publicly announced an intention (whether or not conditional) to make an acquisition proposal for Alcatel; or
	•	terminated by Lucent because the board of directors of Alcatel has recommended that Alcatel shareholders not approve the issuance of Alcatel ordinary shares required to be issued pursuant to the merger agreement and the other matters related to the merger agreement, or has withdrawn or modified in a manner adverse to Lucent its recommendation that the Alcatel shareholders vote in favor of such matters or has recommended a superior proposal;

	•	terminated by either party on the basis of the failure of the Alcatel shareholders to approve the issuance of Alcatel ordinary shares required to be issued pursuant to the merger agreement and the other matters related to the merger agreement, and prior to the date of the meeting of Alcatel shareholders, an acquisition proposal had been made known to Alcatel or was made known to the shareholders of Alcatel or otherwise became publicly known or a third party had publicly announced an intention (whether or not conditional) to make an acquisition proposal for Alcatel, and within twelve months after the date of such termination, Alcatel enters into an agreement with a third party with respect to, or consummates, an acquisition proposal;
	•	terminated by Lucent if the meeting of Alcatel shareholders to approve the issuance of Alcatel ordinary shares required to be issued pursuant to the merger agreement and the other matters related to the merger agreement is not called and held in accordance with the merger agreement, and within

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		twelve months after the date of such termination, Alcatel enters into an agreement with a third party with respect to, or consummates, an acquisition proposal; or
	•	terminated by Lucent because the board of directors of Alcatel has recommended that Alcatel shareholders not approve the issuance of Alcatel ordinary shares required to be issued pursuant to the merger agreement and the other matters related to the merger agreement, or has withdrawn or modified in a manner adverse to Lucent its recommendation that the Alcatel shareholders vote in favor of such matters or has recommended a superior proposal, and within twelve months after the date of such termination, Alcatel enters into an agreement with a third party with respect to, or consummates, an acquisition proposal;

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	•	each outstanding share of Lucent common stock at the effective time of the merger will be converted into the right to receive 0.1952 of an Alcatel ADS;
	•	all of the outstanding Lucent stock options and other stock-based awards at the effective time of the merger, whether vested or not vested, shall be converted into a right to acquire, on the same terms and conditions as were applicable under such Lucent stock option prior to the closing, a number of Alcatel ordinary shares or Alcatel ADSs determined by multiplying the number of shares subject to such award by the exchange ratio, at an exercise price determined by dividing the former exercise price by the exchange ratio; and
	•	each outstanding Lucent warrant will at the effective time of the merger be convertible into a number of Alcatel ordinary shares or Alcatel ADSs determined in accordance with the terms and conditions of the warrant agreement, dated as of December 10, 2004, between Lucent and the Bank of New York, as warrant agent.

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																						Pro Forma								Combined
																						Adjustments								Pro Forma
						Historical												Combined				Reflecting								IFRS After
		Historical				Lucent				Pro Forma				Ref to				Pro Forma				Thales								Thales
		Alcatel				U.S. GAAP				Adjustments				Note 2-a &				IFRS				Transaction				Ref to				Transaction
		IFRS				(Unaudited)				(Unaudited)				3-b				(Unaudited)				(Unaudited)				Note 5-c				(Unaudited)
		Note 1				Note 1				Notes 2-a, 3-a & b												Note 5-c
ASSETS
Goodwill			3,772				316				10,704				(5)				14,792				(795	)			(1	)			13,997
Intangible assets			819				35				4,660				(2)&(5)				5,514				(33	)			(1	)			5,481
Property, plant and equipment, net			1,111				1,061				—								2,172				(190	)			(1	)			1,982
Share in net assets of equity affiliates and other non-current financial assets			912				54				—								966				670				(2	)			1,636
Deferred tax assets			1,768				—				269				(2)				2,037				(136	)			(1	)			1,901
Prepaid pension costs			294				5,208				(3,448	)			(1)&(5)				2,054				—								2,054
Marketable securities			—				1,880				—								1,880				—								1,880
Other non-current assets			468				716				(383	)			(2)				801				—								801
Non-current assets			9,144				9,270				11,802								30,216				(484	)							29,732
Inventories and work in progress, amounts due from customers on construction-type contracts and advances and progress payments			2,355				647				344				(5)				3,346				(685	)			(1	)			2,661
Trade receivables and related accounts, net			3,420				1,207				—								4,627				(220	)			(1	)			4,407
Other current assets			1,046				532				(205	)			(2)				1,373				(87	)			(1	)			1,286
Marketable securities			640				549				—								1,189				—								1,189
Cash and cash equivalents			4,510				1,270				(52	)			(7)				5,728				548				(3	)			6,276
Current assets			11,971				4,205				87								16,263				(444	)							15,819
TOTAL ASSETS			21,115				13,475				11,889								46,479				(928	)							45,551
LIABILITIES AND SHAREHOLDERS’ EQUITY
Shareholders’ equity — Attributable to the equity holders of the parent			6,234				249				11,366				(6)				17,849				651				(4	)			18,500
Minority interests			477				—				26				(2)				503				—								503
Shareholders’ equity			6,711				249				11,392								18,352				651								19,003
Pensions, retirement indemnities and other post-retirement benefits			1,461				5,194				503				(1)&(5)				7,158				(133	)			(1	)			7,025
Bonds and notes issued and other long-term debt			2,752				4,264				(437	)			(5)				6,579				(1	)			(1	)			6,578
Other non-current liabilities			457				725				21				(1),(2)&(5)				1,203				(52	)			(1	)			1,151
Non-current liabilities			4,670				10,183				87								14,940				(186	)							14,754
Provisions			1,621				—				969				(2)				2,590				(76	)			(1	)			2,514
Current portion of long-term debt			1,046				311												1,357				(13	)			(1	)			1,344
Trade payables and related accounts			3,755				652												4,407				(520	)			(1	)			3,887
Customers’ deposits and advances and amounts due to customers on construction-type contracts			1,282				362												1,644				(688	)			(1	)			956
Other current liabilities			2,030				1,718				(559	)			(2)				3,189				(96	)			(1	)			3,093
Current liabilities			9,734				3,043				410								13,187				(1,393	)							11,794
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			21,115				13,475				11,889								46,479				(928	)							45,551

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		Pro Forma				Note 2-a				Note 2-a				Note 3-b				Note 3-b				Note 3-b
		Adjustments				(1)				(2)				(5)				(6)				(7)
Goodwill			10,704												10,704
Intangible assets			4,660								319				4,341
Deferred tax assets			269								269
Prepaid pension costs			(3,448	)			(2,146	)							(1,302	)
Other non-current assets			(383	)							(64	)
											(319	)
Inventories and work in progress, amounts due from customers on construction-type contracts and advances and progress payments			344												344
Other current assets			(205	)							(205	)
Cash and cash equivalents			(52	)																			(52	)
			11,889				(2,146	)			—				14,087				—				(52	)
Shareholders’ equity — attributable to the equity holders of the parent			11,366																11,366
Minority interests			26								26
Pensions, retirement indemnities and other post-retirement benefits			503				(2,820	)							3,323
Bonds and notes issued and other long-term debt			(437	)											(437	)
Other non-current liabilities			21				263				(410	)			194
											(26	)
Provisions			969								969
Other current liabilities			(559	)							(559	)
			11,889				(2,557	)			—				3,080				11,366				—

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																							Pro forma
																							adjustments								Combined pro
							Historical																reflecting								forma IFRS
			Historical				Lucent				Pro forma				Ref to				Combined				Thales				Ref to				after Thales
			Alcatel				U.S. GAAP				Adjustments				Note 2-a				pro forma IFRS				transaction				Note				transaction
			IFRS				(Unaudited)				(Unaudited)				& 3-c				(Unaudited)				(Unaudited)				5-d				(Unaudited)
			Note 1				Note 1				Notes 2-a, 3-a & c												Note 5-d
Revenues				13,135				7,355				—								20,490				(1,909	)			(5)				18,581
Cost of sales				(8,503	)			(4,148	)			(335	)			(2),(12)&(13)				(12,986	)			1,429				(5)				(11,557	)
Gross profit				4,632				3,207				(335	)							7,504				(480	)			(5)				7,024
Administrative and selling expenses				(2,000	)			(1,581	)			76				(2)&(13)				(3,505	)			180				(5)				(3,325	)
Research and development costs				(1,443	)			(949	)			(1,295	)			(2),(9)&(13)				(3,687	)			167				(5)				(3,520	)
Income (loss) from operating activities before restructuring, share-based payments, impairment of capitalized development costs and gain on disposal of consolidated entities				1,189				677				(1,554	)							312				(133	)			(5)				179
Restructuring costs				(110	)			8				—								(102	)			30				(5)				(72	)
Litigation and settlement				—				—				(223	)			(2)				(223	)			—								(223	)
Gain/ (loss) on disposal of consolidated entities				129				—				—								129				—								129
Other operating income (expenses)				(69	)			—				(57	)			(2)&(11)				(126	)			3				(5)				(123	)
Income (loss) from operating activities				1,139				685				(1,834	)							(10	)			(100	)			(5)				(110	)
																(1),(2),(10),
Financial result				(50	)			(269	)			630				(13)&(14)				311				—								311
Other income (expense)				—				196				(196	)			(2)				—				—								—
Share in net income (losses) of equity affiliates				(14	)			—				—								(14	)			63				(7)				49
Income before tax and discontinued operations				1,075				612				(1,400	)							287				(37	)							250
Income tax (expense) benefit(1)				(91	)			117				538								564				(54	)			(5)&(6)				510
Income (loss) from continuing operations				984				729				(862	)			(1)&(15)				851				(91	)							760
Income (loss) from discontinued operations				(13	)			—				—								(13	)			—								(13	)
NET INCOME (LOSS)				971				729				(862	)							838				(91	)							747
Attributable to:
	- Equity holders of the parent			930				729				(858	)							801				(91	)							710
	- Minority interests			41				—				(4	)							37				—								37
• Less non-recurring charges or credits directly attributable to the transaction:
	- inventory and work in progress step-up (net of tax)			—				—				(199	)			(12)				(199	)			—								(199	)
Net income attributable to equity holders of the parent before discontinued activities and non-recurring charges or credit directly attributable to the transaction				943				729				(659	)							1,013				(91	)							922
Net income attributable to the equity holders of the parent per share (in euros)
	- Basic earnings per share			0.68				0.16												0.36												0.32
	- Diluted earnings per share			0.68				0.15												0.35												0.31
Weighted average number of existing shares (in millions):
	- basic			1,368				4,438												2,242												2,242
	- diluted			1,377				5,088												2,263												2,263
Net income attributable to the equity holders of the parent (before discontinued activities and non-recurring charges or credit directly attributable to the transaction) per share (in euros)
	- Basic earnings per share			0.69				0.16												0.45												0.41
	- Diluted earnings per share			0.69				0.15												0.45												0.41
Weighted average number of existing shares (in millions):
	- basic			1,368				4,438												2,242												2,242
	- diluted			1,377				5,088												2,263												2,263

(1)	See Note 3-c(15) for a discussion of the impact of the valuation allowance reversals reflected in the historical Lucent statement of income under U.S. GAAP.

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		Pro forma				Note 2-a				Note 2-a				Note 3-c				Note 3-c				Note 3-c				Note 3-c				Note 3-c				Note 3-c				Note 3-c
		adjustments				(1)				(2)				(9)				(10)				(11)				(12)				(13)				(14)				(15)
Cost of sales			(335	)							(14	)															(327)				6
Administrative and selling expenses			76								69																				7
Research and development costs			(1,295	)							(434	)			(868)																7
Litigation and settlement			(223	)							(223	)
Other operating income (expenses)			(57	)							(40	)											(17	)
Financial result			630				(481	)			834								(2	)											302				(23	)
Other income (expenses)			(196	)							(196	)
Income tax expense			538				188																																350
Minority interests			(4	)							(4	)
Non-recurring charges or credits directly attributable to the transaction			(199	)																							(199)

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																						Pro Forma								Combined
																						Adjustments								Pro Forma
						Historical												Combined				Reflecting								U.S. GAAP
		Historical				Lucent				Pro Forma								Pro Forma				Thales								After Thales
		Alcatel				U.S. GAAP				Adjustments				Ref to Note				U.S. GAAP				Transaction				Ref to				Transaction
		U.S. GAAP				(Unaudited)				(Unaudited)				2-b, 2-c & 3-d				(Unaudited)				(Unaudited)				Note 5-e				(Unaudited)
		Note 1				Note 1				Notes 2-b, 2-c, 3-a & d												Note 5-e
ASSETS
Cash and cash equivalents			4,510				1,270				(129	)			(4)&(18)				5,651				624				(11	)			6,275
Marketable securities			640				549				—								1,189				—								1,189
Other debtors and assets held for sale			1,360				532				(100	)			(4)				1,792				(6	)			(9	)			1,786
Trade receivables and related accounts, net			4,090				1,207				(525	)			(4)				4,772				(38	)			(9	)			4,734
Inventories, net			1,695				647				228				(4)&(16)				2,570				(220	)			(9	)			2,350
Current assets			12,295				4,205				(526	)							15,974				360								16,334
Marketable securities			—				1,880												1,880												1,880
Other investments and other non- current assets, net			2,312				770				(508	)			(4)&(16)				2,574				(32	)			(9	)			2,542
Share in net assets of equity affiliates			706				—				995				(4)				1,701				(199	)			(10	)			1,502
Property, plant and equipment, net			1,168				1,061				(179	)			(4)				2,050				(17	)			(9	)			2,033
Prepaid pension costs			—				5,208				(1,226	)			(4)&(16)				3,982				—								3,982
Acquisition goodwill			7,024				316				8,787				(4)&(16)				16,127				(114	)			(9	)			16,013
Other intangible assets, net			679				35				3,783				(4)&(16)				4,497				(3	)			(9	)			4,494
Non-current assets			11,889				9,270				11,652								32,811				(365	)							32,446
TOTAL ASSETS			24,184				13,475				11,126								48,785				(5	)							48,780
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other current liabilities			2,106				2,080				(195	)			(4)				3,991				71				(9	)			4,062
Trade payables			3,755				652				(321	)			(4)				4,086				(197	)			(9	)			3,889
Accrued contract costs and other accrued liabilities			1,264				—				(114	)			(4)				1,150				—								1,150
Customer deposits and advances			1,144				—				(247	)			(4)				897				(400	)			(9	)			497
Short-term financial debt			1,051				311				(69	)			(4)				1,293				—				(9	)			1,293
Current liabilities			9,320				3,043				(946	)							11,417				(526	)							10,891
Other long term liabilities			573				725				1,244				(3),(4)&(16)				2,542				—								2,542
Bonds and notes issued and other financial debt — long-term part			2,913				4,264				(1	)			(4)				7,176				—								7,176
Other reserves			470				—				(470	)			(4)				—				—								—
Accrued pensions and retirement obligations			1,717				5,194				430				(4)&(16)				7,341				(69	)			(9	)			7,272
Non-current liabilities			5,673				10,183				1,203								17,059				(69	)							16,990
Minority interests			472				—				26				(3)				498				—								498
Capital stock			2,857				38				1,710								4,605				—								4,605
Additional paid-in capital			21,594				19,892				(9,948	)							31,538				—								31,538
Retained earnings, other reserves, cumulative translation adjustments and unrealized holding gains (loss) and cash-flow hedge			(14,076	)			(19,681	)			19,081								(14,676	)			590								(14,086	)
Less treasury stock, at cost			(1,656	)			—				—								(1,656	)			—								(1,656	)
Shareholders’ equity			8,719				249				10,843				(17)				19,811				590				(12	)			20,401
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			24,184				13,475				11,126								48,785				(5	)							48,780

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						Note				Note				Note				Note				Note
		Pro Forma				2-b				2-c				3-d				3-d				3-d
		Adjustments				(3)				(4)				(16)				(17)				(18)
Cash and cash equivalents			(129	)							(77	)											(52	)
Other debtors and assets held for sale			(100	)							(100	)
Trade receivables and related accounts, net			(525	)							(525	)
Inventories, net			228								(116	)			344
Other investments and other non-current assets, net			(508	)							(284	)			(224	)
Share in net assets of equity affiliates			995								995
Property, plant and equipment, net			(179	)							(179	)
Prepaid pension costs			(1,226	)							76				(1,302	)
Acquisition goodwill			8,787								(717	)			9,504
Other intangible assets, net			3,783								(182	)			3,965
TOTAL ASSETS			11,126				—				(1,109	)			12,287				—				(52	)
Other current liabilities			(195	)							(195	)
Trade payables			(321	)							(321	)
Accrued contract costs and other accrued liabilities			(114	)							(114	)
Customer deposits and advances			(247	)							(247	)
Short-term financial debt			(69	)							(69	)
Other long-term liabilities			1,244				(26	)			381				889
Bonds and notes issued and other long-term debt — long-term part			(1	)							(1	)
Other reserves			(470	)							(470	)
Accrued pensions and retirement obligations			430								(73	)			503
Minority interests			26				26
Shareholders’ equity			10,843																10,843
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			11,126				—				(1,109	)			1,392				10,843				—

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																							Pro Forma								Combined
																							Adjustments								Pro Forma
							Historical												Combined				Reflecting								U.S. GAAP
			Historical				Lucent				Pro Forma								Pro Forma				Thales								after Thales
			Alcatel				U.S. GAAP				Adjustments				Ref to				U.S. GAAP				Transaction				Ref to				Transaction
			U.S. GAAP				(Unaudited)				(Unaudited)				Note 2-c & 3-e				(Unaudited)				(Unaudited)				Note 5-f				(Unaudited)
			Note 1				Note 1				Notes 2-c, 3-a & e												Note 5-f
Net sales				13,129				7,355				(565	)			(4)				19,919				(1,363	)			(13)				18,556
Cost of sales				(8,517	)			(4,148	)			(5	)			(4), (22), (23), (24)&(25)				(12,670	)			996				(13)				(11,674	)
Gross profit				4,612				3,207				(570	)							7,249				(367	)							6,882
Administrative and selling expenses				(2,049	)			(1,581	)			(14	)			(4), (22), (24)&(25)				(3,644	)			126				(13)				(3,518	)
R&D expenses and purchased in-process R&D				(1,449	)			(949	)			(1,308	)			(4), (20), (22), (24)&(25)				(3,706	)			116				(13)				(3,590	)
Restructuring costs				(174	)			8				6				(4)				(160	)			18				(13)				(142	)
Income (loss) from operations				940				685				(1,886	)							(261	)			(107	)							(368	)
Interest expense on notes mandatorily redeemable for shares and other interest expenses				(243	)			(269	)			4				(4)&(21)				(508	)			17				(13)				(491	)
Interest income and other financial income, net				114				—				(114	)			(4)				—				—								—
Other income (expenses)				—				196				79				(4)				275				—								275
Gain on sale of stocks in subsidiaries				165				—				32				(4)				197				—								197
Income before amortization of goodwill and tax				976				612				(1,885	)							(297	)			(90	)							(387	)
Share in net income (losses) of equity affiliates				(22	)			—				39				(4)				17				27				(14)&(15)				44
Income tax (expense) benefit (1)				(156	)			117				473				(4)&(26)				434				—								434
Minority interests				(35	)			—				35				(4)				—				—								—
NET INCOME (LOSS)				763				729				(1,338	)							154				(63	)							91
Less non-recurring charges or credit directly attributable to the transaction:
	– inventory step-up (net of tax)			—				—				(199	)			(23)				(199	)			—								(199	)
	– IPR&D			—				—				(600	)			(20)				(600	)			—								(600	)
Net income attributable to equity holders of the parent before non recurring charges or credit directly attributable to the transaction				763				729				(539	)							953				(63	)							890
Net income per share (in euros)
	– Basic earnings per share			0.56				0.16												0.07												0.04
	– Diluted earnings per share			0.55				0.15												0.07												0.04
Weighted average number of existing shares (in millions):
	– basic			1,368				4,438												2,242												2,242
	– diluted			1,377				5,088												2,264												2,263
Net income before discontinued activities and non-recurring charges or credit directly attributable to the transaction per share (in euros)
	– Basic earnings per share			0.56				0.16												0.43												0.40
	– Diluted earnings per share			0.55				0.15												0.42												0.39
Weighted average number of existing shares (in millions):
	– basic			1,368				4,438												2,242												2,242
	– diluted			1,377				5,088												2,412												2,299

(1)	See Note 3-c(15) for a discussion of the impact of the valuation allowance reversals reflected in the historical Lucent statement of income under U.S. GAAP.

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						Note				Note				Note				Note				Note				Note				Note				Note
		Pro Forma				2-c				3-e				3-e				3-e				3-e				3-e				3-e				3-e
		Adjustments				(4)				(20)				(21)				(22)				(23)				(24)				(25)				(26)
Net sales			(565	)			(565	)
Cost of sales			(5	)			373												(2	)			(327	)			35				(84	)
Administrative and selling expenses			(14	)			66												(21	)							42				(101	)
R&D expenses and purchased in-process R&D			(1,308	)			97				(1,348	)							(6	)							37				(88	)
Restructuring costs			6				6
Interest expense on notes mandatorily redeemable for shares and other interest expenses			4				6								(2	)
Interest income and financial income, net			(114	)			(114	)
Other income (expenses)			79				79
Gain on sale of stocks in subsidiaries			32				32
Share in net income (losses) of equity affiliates			39				39
Income tax			473				(54	)																											527
Minority interests			35				35
Non-recurring charges or credits directly attributable to the transaction			(799	)							(600	)											(199	)

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	Description of transactions

	Basis of presentation

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	•	Earnout clauses with respect to the contribution of Alcatel’s interests in Alcatel Alenia Space and Telespazio have not been taken into account.
	•	Transaction terms having a potential impact on the cash received (and the net gain on disposal) and related to the enterprise value of the businesses contributed to Thales. Such clauses are mainly related to the normative level of working capital, the level of financial debt of the contributed businesses at the closing date and the amount of pension and similar obligations. Only clauses for which the estimated impact has been judged reliable and factually supportable have been taken into account.
	•	As some of the contributed businesses will be segregated from Alcatel’s other businesses before the closing of the proposed Thales transaction, the determination of the carrying value and the tax value of the assets contributed is preliminary and has been estimated based upon information available. The difference between these estimated values presented in the pro forma adjustments and the definitive values could have a material impact on the net result on disposal.

	Sensitivity analysis

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		Estimated
		depreciation
Life of Asset in years		expense				Net income impact				Per share impact
		(in millions of euros, except years and per share data)
3		€	167			€	102			€	0.05
4			125				76				0.03
5			100				61				0.03
6			83				51				0.02
7			71				44				0.02

	Historical financial statements and currency translation

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		Twelve				Three				Three				Twelve
		Months				Months				Months				Months
		Ended				Ended				Ended				Ended
		September 30,				December 31,				December 31,				December 31,				Twelve Months Ended
		2005				2004				2005				2005				December 31, 2005
		A				B				C				D = A+C -B				D = A+C -B
						(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
																		(in millions of euros,
																		except per share data)(3)
		(in millions of dollars, except per share data)
Revenues			9,441				2,335				2,047				9,153				7,355
Cost of sales			(5,317	)			(1,351	)			(1,196	)			(5,162	)			(4,148	)
Gross profit			4,124				984				851				3,991				3,207
Administrative and selling expenses			(1,696	)			(385	)			(656	)			(1,967	)			(1,581	)
R&D expenses			(1,177	)			(279	)			(283	)			(1,181	)			(949	)
Business restructuring			10				(1	)			(1	)			10				8
Income (loss) from operating activities			1,261				319				(89	)			853				685
Other income (expense)			114				(46	)			84				244				196
Interest expense			(341	)			(89	)			(83	)			(335	)			(269	)
Income before taxes			1,034				184				(88	)			762				612
Income taxes			151				(10	)			(16	)			145				117
NET INCOME (LOSS)			1,185				174				(104	)			907				729
Weighted average number of existing shares (in millions):
— basic			4,426				4,403				4,452				4,438				4,438
— diluted			5,218				4,998				4,452				5,088				5,088
Net income (loss) per share:
— Basic earnings per share			0.27				0.04				(0.02	)			0.20				0.16
— Diluted earnings per share			0.24				0.04				(0.02	)			0.19				0.15

(1)	The purpose of this schedule is to reflect Lucent’s statement of income for the twelve-month period ended December 31, 2005. The schedule is not intended to be a U.S. GAAP presentation of Lucent’s results and is presented to reflect twelve months of results for purposes of comparison with Alcatel’s calendar year presentation.
(2)	Certain items included in Lucent’s annual statements of income for the fiscal year ended September 30, 2005 are derived from annual calculations including the net pension and postretirement benefit credit, employee incentive awards and income taxes, among other items. This schedule does not consider the impact of how these items would have been different had the fiscal year ended on December 31, 2005.
(3)	Translated solely for convenience into euros at the average rate for the twelve-month period ended December 31, 2005 of €1.00 = $1.2445.

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	(1) Adjustments of Lucent’s historical financial statements for differences between U.S. GAAP and IFRS

	•	Market-Related-Value Method. Under U.S. GAAP, Lucent uses the market-related-value method for determining the expected return on plan assets. IFRS does not allow the use of the market-related-value method. A pro forma adjustment was made to Lucent’s statement of income to disallow the use of the market-related value method in determining the expected return on plan assets, as this method is not permitted under IFRS. The market-related-value, as indicated in the notes to Lucent’s audited consolidated financial statements as of September 30, 2005, incorporates asset-related gains and losses over a period of five years and differs materially from the fair value of the plan assets as of January 1, 2005. The aggregate market-related value of pension and postretirement plan assets was $35.2 billion (€29.7 billion) and $37.7 billion (€31.8 billion) as of September 30, 2005 and 2004 respectively, which exceeded the fair value of plan assets by $6 million (€5 million) and $4 billion (€3.4 billion), respectively. This adjustment reduces by €273 million the pre-tax financial results shown in the unaudited pro forma condensed combined statements of income. The use of the market-related-value method had a negative pre-tax effect of €208 million on the amount of amortization of the unrecognized gains and losses, and has also been included in the IFRS adjustments. These unrecognized gains and losses are cancelled in the pro forma adjustments, as explained in Note 3-c(13). In aggregate, adjustments for market-related value totaled €481 million. The amount of this adjustment is not necessarily the amount that would have been reflected had Lucent actually adopted IAS 19.
	•	Minimum Liability Adjustment. Under U.S. GAAP, Lucent is required to make a minimum liability adjustment when its accumulated benefit obligations exceed the fair value of its plan assets. This adjustment is not permitted under IFRS, and accordingly, a pro forma adjustment was made to Lucent’s balance sheet to comply with IFRS requirements. This adjustment had been accounted for directly by Lucent in other accumulated comprehensive loss, as disclosed in Note 9 — Employee Benefit Plan (pages F-59 to F-65) to Lucent’s audited consolidated financial statements as of September 30, 2005, which are included in Lucent’s current report on Form 8-K, dated May 5, 2006, which has been incorporated into this proxy statement/prospectus by reference.
	•	Asset Ceiling. Under IFRS, plan assets are limited to the lower of: (i) the value resulting from applying IAS 19 Employee benefits, which is referred to as IAS 19, and (ii) the net total present value of any available refund from the plan or reduction in future contributions to the plan. This limitation, known as an asset ceiling, is not permitted under U.S. GAAP. The net impact on equity of these two adjustments is an increase of €674 million, consisting of a decrease of €2,146 million in prepaid pension costs and a decrease of €2,820 million of pensions, retirement indemnities and other post-retirement benefits.

	•	Deferred Taxes. The deferred tax impact of the above adjustments has been computed at an estimated tax rate of 39%, and represents a decrease in equity as of December 31, 2005 of €263 million

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		(which is accounted for under the line item “other non-current liabilities”) and an increase of net income of €188 million for the twelve months ended December 31, 2005.

	(2) Reclassifications of specific line-items in the balance sheet and statement of income of Lucent under IFRS

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	(3) Minority Interests

	(4) Homogenization of U.S. GAAP standards applied

		Proportionate
		consolidation adjustment
		(in millions of euros)
ASSETS
Cash and cash equivalents			(77	)
Other debtors and assets held for sale			(100	)
Trade receivables and related accounts, net			(525	)
Inventories, net			(116	)
Current assets			(818	)
Other investments and other non-current assets, net			(208	)
Share in net assets of equity affiliates			995
Property, plant and equipment, net			(179	)
Acquisition goodwill			(717	)
Other intangible assets, net			(182	)
Non-current assets			(291	)
TOTAL ASSETS			(1,109	)

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		Proportionate
		consolidation adjustment
		(in millions of euros)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other current liabilities			(195	)
Trade payables			(321	)
Accrued contract costs and other accrued liabilities			(114	)
Customer deposits and advances			(247	)
Short term financial debt			(69	)
Current liabilities			(946	)
Other long-term liabilities			(89	)
Bonds and notes issued and other financial debt — long-term part			(1	)
Accrued pensions and retirement obligations			(73	)
Non-current liabilities			(163	)
Minority interests			—
Shareholders’ equity			—
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			(1,109	)

		Proportionate
		consolidation adjustment
		(in millions of euros)
Net sales			(565	)
Cost of sales			373
Gross profit			(192	)
Administrative and selling expenses			66
R&D expenses and purchased in-process R&D			97
Restructuring costs			6
Income (loss) from operations			(23	)
Interest expense on notes mandatorily redeemable for shares and other interest expenses			6
Gain on sale of stocks in subsidiaries			32
Income before amortization of goodwill, tax and discontinued operations			15
Share in net income (losses) of equity affiliates			39
Income tax			(54	)
Minority interests			—
Income (loss) from continuing operations			—
Income (loss) from discontinued operations			—
NET INCOME (LOSS)			—

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	Purchase price computation

Number of Lucent common stock outstanding as of March 31, 2006				4,476,628,861
Treasury stock as of March 31, 2006				—
Exchange ratio per share (1,952 Alcatel ordinary shares exchanged for 10,000 Lucent ordinary shares tendered)				0.1952
Total number of Alcatel ordinary shares to be issued				873,837,954
Multiplied by Alcatel’s average stock price (in euros) for the period beginning two days before and ending two days after the April 2, 2006 announcement of the merger, as an approximation for the stock price at the effective date of the merger				13.045
	Fair value of Alcatel ordinary shares issued (in millions of euros)			11,399
	Fair value of outstanding warrants (in millions of euros)			105
	Fair value of outstanding stock options and similar equity awards (in millions of euros)			215
Estimated transaction costs (in millions of euros)				50
Estimated purchase price (in millions of euros)				11,769

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	Purchase price allocation

			As of December 31,				As of December 31,
			2005				2005
			IFRS				U.S. GAAP
			(in millions of euros)
Book value of net assets acquired as of December 31, 2005				660				249
Allocation of purchase price:
	— Acquired technologies and other intangible assets			4,000				4,000
	— In-process research and development			600				600
	— Equity component of convertible debt			437				—
	— Write-off of existing other intangible assets (excluding goodwill)			(259	)			(259	)
	— Write-off of historical goodwill			(316	)			(316	)
	— Write-up of finished goods and work in progress			344				344
	— Adjustments on pension and other post-retirement benefits			(4,625	)			(1,805	)
	— Deferred taxes on the above adjustments			(194	)			(889	)
	— Deferred compensation			102				25
	— Goodwill (residual balance not allocated)			11,020				9,820
Estimated purchase price				11,769				11,769

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	(5) Allocation of purchase price

	•	Record identifiable intangible assets at fair value for an amount of €4,341 million (consisting of the recognition of €4,600 million and the write-off of existing intangible assets (mainly capitalized marketed software) in the amount of -€259 million).
	•	Increase benefit liability to the funded status (elimination of unrecognized actuarial gains and losses and unrecognized prior service costs) as of September 30, 2005 as disclosed in Note 9 — Employee Benefit Plan (pages F-59 to F-65) to the audited consolidated financial statements contained in Lucent’s current report on Form 8-K, dated May 5, 2006: -€4,625 million (of which €1,302 million is a decrease of prepaid pension costs and €3,323 million is an increase of pensions, retirement indemnities and other post-retirement benefits).
	•	Increase inventories and work in progress for an amount corresponding to the estimated difference between (a) selling prices less the sum of (i) the cost to complete work in progress, (ii) the cost of disposal and (iii) a reasonable profit allowance for the completing and selling effort and (b) the carrying amount: €344 million.
	•	Account for the equity component calculated on the date of completion of the merger of the convertible bonds issued by Lucent that were outstanding as of December 31, 2005. If a financial instrument contains both a liability and an equity component, such components must be classified separately as financial liabilities or equity instruments under IAS 32 Financial Instruments: Disclosure and Presentation, which is referred to as IAS 32. These requirements differ from those of U.S. GAAP. The impact on the unaudited pro forma condensed combined balance sheet is an increase in equity and a decrease in debt for an estimated amount of €437 million.
	•	Record additional goodwill corresponding to the transaction: €10,704 million (of which €11,020 was the residual balance not allocated and €316 million was a write-off of historical goodwill).
	•	Compute deferred taxes on the above adjustments: -€194 million (see comments in Note 3-c(15)).

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(6)	Adjustments to shareholders’ equity

	•	to remove the historical balance of Lucent: €249 million decrease;
	•	to record the fair value of all vested stock options and similar equity-based compensation (see comments below in the section entitled “Share-based payment adjustments”): €113 million increase;
	•	to record the fair value of outstanding warrants: €105 million increase; the outstanding warrants have not been included in determining the number of Alcatel ordinary shares and Alcatel ADSs to be issued as purchase price under the assumption that they will not be exercised upon completion of the merger;
	•	to record the estimated fees related to the issuance of new Alcatel ADSs by Alcatel: €2 million decrease; and
	•	to record the amounts related to the issuance of Alcatel ADSs by Alcatel in the merger (€11,399 million increase), excluding the amount allocated to the transaction costs.

(7)	Estimated transaction costs and issuance fees

(8)	Share-based payment adjustments

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	(9)             Amortization of intangible assets (acquired technologies, IPR&D and customer relationships) at fair value

(10)	To record the interest costs related to the financing of the estimated transaction costs

(11)	Share-based payment adjustments

(12)	Impact of the allocation of the purchase price to the inventories and work in progress

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(13)	Cancellation of the amortization of unrecognized actuarial gains and losses and unrecognized prior service costs

(14)	Amortization of equity component of convertible debt

(15)	Deferred taxes impact

	•	reduce the carrying amount of goodwill to the amount that would have been recognized if the deferred tax asset had been recognized as an identifiable asset from the acquisition date; and

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	•	recognize the reduction in the carrying amount of goodwill as an expense.

(16)	Allocation of purchase price

	•	record identifiable intangible assets at fair value in an amount of €4,000 million and to write-off existing intangible assets in an amount of -€259 million, of which €224 million related to capitalized marketed software recorded in other non-current assets;
	•	increase benefit plan liability to fair value (cancellation of unrecognized actuarial gains and losses and unrecognized prior service costs, net of the related impact on the additional minimum liability adjustment), as disclosed in Note 9 — Employee Benefit Plan (pages F-59 to F-65) to the audited consolidated financial statement contained in Lucent’s current report on Form 8-K, dated May 5, 2006: -€1,805 million (of which €1,302 million is a decrease of prepaid pension costs and €503 million is an increase of accrued pensions and retirement obligations);
	•	increase inventories and work in progress for an amount corresponding to the estimated difference between (a) selling prices less the sum of (i) the cost to complete work in progress, (ii) the cost of disposal and (iii) a reasonable profit allowance for the completing and selling effort, and (b) the carrying amount: €344 million;
	•	record additional goodwill corresponding to the transaction: €9,504 million (of which €9,820 was the residual balance not allocated, and €316 was a write-off of historical goodwill); and
	•	compute deferred taxes on the above adjustments: -€889 million (see comments in Note 3-e(25)).

(17)	To adjust shareholders’ equity

	•	to eliminate the historical balance of Lucent: €249 million decrease;
	•	to record the preliminary estimate of the fair value of in-process research & development: €600 million decrease;
	•	to record the fair value of all outstanding stock options and similar equity-based compensation less the intrinsic value of the unvested portion (see comments in Note 3-d(19)): €190 million increase;
	•	to record the fair value of outstanding warrants: €105 million increase; the outstanding warrants have not been included in determining the number of Alcatel ordinary shares and Alcatel ADSs to be issued as purchase price under the assumption that they will not be exercised upon completion of the merger. Assuming that all of the outstanding warrants are exercised prior to the completion of the merger, it would increase the purchase price by €402 million;
	•	to record the estimated fees related to the issuance of new Alcatel ADSs: €2 million decrease; and
	•	to record the issuance of Alcatel ADSs (€11,399 million increase) in the merger, excluding the amount allocated to transaction costs.

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(18)	Estimated transaction costs and issuance fees

(19)	Share-based payment adjustments

	(20)     Amortization of intangible assets (acquired technologies and customer relationship) and expensing of IPR&D at fair value

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(21)	To record interest expense related to the financing of the estimated transaction costs

(22)	Share-based payment adjustments

(23)	Follow-up of the allocation of the purchase price to inventories and work in progress

(24)	Cancellation of the amortization of unrecognized actuarial gains and losses and unrecognized prior service costs

(25)	Adjustment of expected return on plan assets due to the use of the market-related-value method

(26)	Deferred taxes impact

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	•	Alcatel’s 67% interest in the capital of Alcatel Alenia Space. Alcatel Alenia Space constructs satellites for both civil and military use, particularly for communications satellite operators, the armed forces and institutional European bodies such as the European Space Agency, the Centre National d’Etudes Spatiales, France’s national space agency, and the Agenzia Spaziale Italiana, Italy’s national space agency. Finmeccanica would retain its 33% stake in the joint venture.
	•	Alcatel’s 33% interest in the capital of Telespazio. Telespazio Holdings provides services related to satellite activities. Finmeccanica would retain its 67% interest in Telespazio.
	•	Alcatel’s Transport Solutions division, which provides control and signaling system products and services for trains and subways worldwide.
	•	Alcatel’s operations relating to non-telecommunications related services activities for security systems, a part of Alcatel’s Systems Integration division.

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	•	Approximately 26.7 million newly issued Thales ordinary shares;
	•	Approximately €673 million in cash, subject to adjustment; and
	•	The potential for an earn-out payment in 2009 based on a valuation of the contributed equity of Alcatel Alenia Space.

	Under IFRS

	Under U.S. GAAP

	(1) Determination of net assets contributed and allocation of purchase price

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	•	Alcatel Alenia Space and Telespazio: the value of the net assets of these businesses for purposes of the pro forma adjustments will be the carrying amounts of these assets as recorded in the audited consolidated financial statements of Alcatel under IFRS.
	•	Transport Solutions: as this business is reported as a business division of Alcatel, information available on the carrying amounts of the net assets associated with this business relates mainly to working capital, property, plant and equipment, goodwill and intangible assets. Information reported has been used for the purpose of the pro forma adjustments. An estimated amount of the pension reserves has also been taken into account. Cash, financial debt and other operating and non-operating assets and liabilities have been excluded from the pro forma adjustments.
	•	System integration activities: the value of assets and liabilities included in the pro forma adjustments is the estimated working capital associated with the contracts that will be contributed to Thales.

(2)	Impact on share in net assets in equity affiliates

	•	a decrease of €80 million in other non-current financial assets related to businesses that will be contributed;
	•	an increase of €980 million related to the incremental interest in Thales corresponding to the market value of Thales ordinary shares that will be issued in exchange for the contributed assets; and
	•	a decrease of €230 million corresponding to the elimination of the inter-company result on the disposal of assets contributed by Alcatel to Thales, which will continue to be accounted for using the equity method after the proposed Thales transaction.

(3)	Cash and cash equivalents

(4)	Shareholders’ equity impact

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(5)	Determination of the revenues, expenses and income related to the net assets contributed

	•	Alcatel Alenia Space and Telespazio: the statement of income items of the legal entities included in the audited consolidated financial statements of Alcatel under IFRS.
	•	Transport Solutions: as this business is reported as a business division of Alcatel, information relating to the income and expenses of this business included in “income from operating activities” in the audited consolidated financial statements of Alcatel under IFRS. As no information is available on financial result and tax income (charge) for this business division, no adjustment for these statement of income items has been made in the pro forma adjustments.
	•	System integration activities: estimated revenues and operating expenses related to the contracts that will be contributed. No income or expenses below income from operating activities have been taken into account in the pro forma adjustments.

(6)	Income tax

(7)	Share in net income of equity affiliates

	•	€36 million corresponding to Alcatel’s incremental interest in Thales’ net income less the estimated impact of the interest costs associated with the cash proceeds that will be paid to Alcatel; and
	•	€27 million corresponding to 21.6% of the net income attributable to the activities contributed by Alcatel to Thales and that will be accounted for using the equity method as part of Thales Group.

(8)	Impact of the cash proceeds on financial result

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(9)	Determination of net assets contributed and allocation of purchase price

(10)	Impact on share in net assets in equity affiliates

	•	a decrease of €966 million in the share in net assets of equity affiliates and other non-current financial assets related to businesses that will be contributed;
	•	an increase of €980 million related to the incremental value in Thales based on the market value of Thales ordinary shares that will be issued in exchange for the contributed assets; and
	•	a decrease of €213 million corresponding to the elimination of the inter-company result on the disposal of assets contributed by Alcatel to Thales, which will continue to be accounted for using equity method after the transaction.

(11)	Cash and cash equivalents

(12)	Shareholders’ equity impact

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	•	revenues, expenses and income related to the businesses contributed are different under IFRS and U.S. GAAP due to the differences in accounting principles described in Note 6-1(1) below; and
	•	as described in Note 2-c above, Alcatel Alenia Space and Telespazio have been accounted for under the equity method in the unaudited pro forma condensed combined statement of income for the year ended December 31, 2005 under U.S. GAAP, as compared with the use of the proportionate consolidation method under IFRS for the six-month period ended December 31, 2005.

(13)	Determination of the revenues, expenses and income related to the net assets contributed

(14)	Income tax included in share of equity affiliates (related to Alcatel Alenia Space and Telespazio)

(15)	Share in net income of equity affiliates

	•	an increase of €35 million relating to the incremental increase in Alcatel’s interest in Thales’ net results, net of Alcatel’s interest in the interest expense incurred by Thales on the cash proceeds that will be paid to Alcatel;
	•	a decrease of €28 million relating to the share in net income of Alcatel Alenia Space and Telespazio, entities which will be contributed to Thales; and
	•	an increase of €20 million relating to the 21.6% of the net income under U.S. GAAP of the activities contributed by Alcatel to Thales that will be accounted for using the equity method as part of Thales Group.

(16)	Impact of the cash proceeds on financial result

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	Combined unaudited pro forma net income reconciled from IFRS to U.S. GAAP

			Year ended December 31, 2005								Year ended December 31, 2005
			Before Thales				After Thales				Before Thales				After Thales
			Transaction				Transaction				Transaction				Transaction
			(Unaudited)								(Unaudited)
			(in millions of euros)								(in millions of dollars) (1)
Combined unaudited pro forma net income before non-recurring charges or credits directly attributable to the merger, as determined under IFRS				801				710				949				842
Differences between IFRS and U.S. GAAP, as they relate to Alcatel.				(102	)			(102	)			(121	)			(121	)
Differences between IFRS and U.S. GAAP, as they relate to Lucent.				481				481				570				570
Differences between IFRS and U.S. GAAP, as they relate to proposed Thales transaction								28								33
Market-related-value impact on amortization of unrecognized losses (see Note 6.1(4)(a))				(208	)			(208	)			(246	)			(246	)
Market-related-value impact on expected return on an asset (see note 6.1(4)(a))				(273	)			(273	)			(323	)			(323	)
Equity component of convertible debt (see Note 6.1(4)(b))				23				23				27				27
IPR&D expensed under U.S. GAAP and amortized under IFRS				(480	)			(480	)			(569	)			(569	)
Share-based payment				(12	)			(12	)			(15	)			(15	)
Income tax effect on the above adjustments and differences:
	- on Alcatel			(65	)			(65	)			(77	)			(77	)
	- on Lucent			(188	)			(188	)			(223	)			(223	)
	- on purchase accounting			177				177				210				210
Elimination of discontinued operations, extraordinary items, or the cumulative effects of accounting changes				—				—				—				—
Combined unaudited pro forma net income before non-recurring charges or credits directly attributable to the transaction, as determined under U.S. GAAP				154				91				182				108

(1)	Translated solely for convenience into dollars at the noon buying rate of €1.00 = $1.1842 on December 31, 2005.

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	Combined unaudited pro forma shareholders’ equity reconciled from IFRS to U.S. GAAP

			As of December 31, 2005								As of December 31, 2005
			Before Thales				After Thales				Before Thales				After Thales
			Transaction				Transaction				Transaction				Transaction
			(Unaudited)								(Unaudited)
			(in millions of euros)								(in millions of dollars)(1)
Combined unaudited pro forma shareholders’ equity attributable to equity holders of the parent according to IFRS				17,849				18,500				21,137				21,908
Differences between IFRS and U.S. GAAP, as they relate to Alcatel				2,485				2,485				2,943				2,943
Differences between IFRS and U.S. GAAP, as they relate to Lucent				(674	)			(674	)			(798	)			(798	)
Differences between IFRS and U.S. GAAP, as they relate to proposed Thales transaction								(61	)							(72	)
Pension - minimum liability adjustment (see note 6.1(4)(a))				2,820				2,820				3,339				3,339
Equity component of convertible debt (see note 6.1(4)(b))				(437	)			(437	)			(517	)			(517	)
Goodwill adjustment				(1,200	)			(1,200	)			(1,421	)			(1,421	)
In-process Research and Development				(600	)			(600	)			(711	)			(711	)
Income tax effect on the above adjustments and differences:
	- on Alcatel			—				—				—				—
	- on Lucent			263				263				312				312
	- on purchase accounting			(695	)			(695	)			(824	)			(824	)
Elimination of discontinued operations, extraordinary items, or the cumulative effects of accounting changes
Combined unaudited pro forma shareholders’ equity according to U.S. GAAP				19,811				20,401				23,460				24,159

(1)	Translated solely for convenience into dollars at the noon buying rate of €1.00 = $1.1842 on December 31, 2005.

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(1)	Differences between IFRS and U.S. GAAP, as they relate to Alcatel

		Year Ended				Year Ended
		December 31, 2005				December 31, 2005
		(in millions of				(in millions of
		euros)				dollars)(1)
Net income attributable to equity holders of the parent as reported in the Consolidated Statements of Income according to IFRS			930				1,101
-a & b- Business combinations			(100	)			(118	)
-c- Capitalization of development costs			23				27
-d- Restructuring plans			(52	)			(62	)
-e- Sale and leaseback transactions			(2	)			(3	)
-f- Compound financial instruments			(27	)			(32	)
-g- Share-based payment			69				82
-h- Pensions and other post-retirement benefits			(9	)			(11	)
Other adjustments			(4	)			(4	)
Income tax effect on the above adjustments			(65	)			(77	)
Elimination of discontinued operations, extraordinary items, or the cumulative effects of accounting changes			—				—
Net income (loss) according to U.S. GAAP			763				903

(1)	Translated solely for convenience into dollars at the noon buying rate of €1.00 = $1.1842 on December 31, 2005.

		Year Ended
		December 31,				Year Ended
		2005				December 31, 2005
		(in millions				(in millions of
		of euros)				dollars)(1)
Shareholders’ equity attributable to the equity holders of the parent according to IFRS			6,234				7,382
-a & b- Business combinations and amortization of goodwill			3,265				3,867
-c- Capitalization of development costs			(194	)			(230	)
-d- Restructuring plans			60				71
-e- Sale and leaseback transactions			(195	)			(231	)
-f- Compound financial instruments			(116	)			(137	)
-h- Pensions and other post-retirement benefits			(427	)			(506	)
Other adjustments			92				109
Income tax effect on the above adjustments			—				—
Elimination of discontinued operations, extraordinary items, or the cumulative effects of accounting changes			—				—
Shareholders’ equity according to U.S. GAAP			8,719				10,325

(1)	Translated solely for convenience into dollars at the noon buying rate of €1.00 = $1.1842 on December 31, 2005.

(a)	Business combinations

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(b)	Amortization and impairment of goodwill

(c)	Capitalization of development expenses related to Research and Development efforts

	•	technical feasibility of completing the project so that it will be available for use or sale;
	•	intention to complete the project;
	•	ability to use or sell the intangible asset arising from the project;
	•	capacity to generate probable future economic benefits;
	•	availability of adequate resources to complete the development; and
	•	ability to measure the expenditures attributable to the project.

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(d)	Liability recognition for certain employee termination benefits and other costs associated with restructuring plans, such as anticipated termination of leases

(e)	Leases and sale-leaseback transactions

(f)	Compound financial instruments

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(g)	Share-based payment

(h)	Pension and post-retirement benefits other than pension plans

(2)	Differences between U.S. GAAP and IFRS as they relate to Lucent

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		Year ended				Year ended
		December 31, 2005				December 31, 2005
						(in millions of
		(in millions of euros)				dollars)(1)
Net income (loss) under U.S. GAAP for the twelve-month period ended December 31, 2005			729				863
-a- Pensions and other post-retirement benefits			(481	)			(570	)
Other adjustments			—				—
Income tax effect on the above adjustments			188				223
Elimination of discontinued operations, extraordinary items, or the cumulative effects of accounting changes			—				—
Net income attributable to equity holders of the parent according to IFRS			436				516

(1)	Translated solely for convenience into dollars at the noon buying rate of €1.00 = $1.1842 on December 31, 2005.

		Year ended				Year ended
		December 31, 2005				December 31, 2005
						(in millions of
		(in millions of euros)				dollars)(1)
Shareholders’ equity according to U.S. GAAP as reported			249				295
-a- Pensions and other post-retirement benefits:
- asset ceiling			(2,146	)			(2,541	)
- minimum liability adjustment			2,820				3,339
Income tax effect on the above adjustments			(263	)			(312	)
Elimination of discontinued operations, extraordinary items, or the cumulative effects of accounting changes			—				—
Shareholders’ equity attributable to the holders of the parent entity according to IFRS			660				781

(1)	Translated solely for convenience into dollars at the noon buying rate of €1.00 = $1.1842 on December 31, 2005.

(a)	Pension and other post-retirement benefits

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(3)	Differences between IFRS and U.S. GAAP, as they relate to the proposed Thales transaction

(4)	Differences between IFRS and U.S. GAAP relating to purchase accounting entries

(a)	Pension and other post-retirement benefits

(b)	Compound financial instruments

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	•	five members designated by Alcatel from Alcatel’s current board of directors, currently expected to be Daniel Bernard, W. Frank Blount, Jozef Cornu, Jean-Pierre Halbron and Daniel Lebègue;
	•	five members designated by Lucent from Lucent’s current board of directors, currently expected to be Linnet F. Deily, Henry B. Schacht, Karl J. Krapek, Edward E. Hagenlocker and Robert E. Denham;
	•	Serge Tchuruk, the current chairman of the board of directors and chief executive officer of Alcatel, and Patricia F. Russo, the current chairman of the board of directors and chief executive officer of Lucent; and
	•	two persons (one French and one European) who will qualify as independent directors and who will be mutually agreed upon by Alcatel and Lucent.

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	•	a carrier business group, headed by Etienne Fouques, which will consist of wireless, wireline and convergence groups headed respectively by Mary Chan, Michel Rahier and Marc Rouanne;
	•	an enterprise business group headed by Hubert de Pesquidoux; and
	•	a service business group headed by John Meyer.

	•	Europe/ North, to include the United Kingdom, all scandinavian countries, Belgium, the Netherlands, Luxembourg, Germany, Russia and all eastern European countries, headed by Vince Molinaro;
	•	Europe/ South, to include France, Italy, Spain, other southern European countries, Africa, the Middle East, India, and Latin America, headed by Olivier Picard;
	•	North America, including the United States, Canada and the Caribbean, headed by Cindy Christy; and
	•	Asia-Pacific, including China, northeast Asia, southeast Asia and Australia, headed by Frédéric Rose.

	•	Jeong Kim will remain as president of Bell Labs;
	•	Olivier Baujard will become chief technology officer;
	•	Helle Kristoffersen, will become the vice president of corporate strategy;
	•	John Giere will become chief marketing officer; and
	•	Elizabeth Hackenson will be head of information technology.

	•	Etienne Fouques, senior executive vice president of the carrier group;
	•	Frank D’Amelio, senior executive vice president integration and chief administrative officer;
	•	Jean-Pascal Beaufret, chief financial officer;
	•	Claire Pedini, senior vice president, human resources and communication; and
	•	Mike Quigley, president, science, technology and strategy.

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	Lucent

	Alcatel

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	Lucent

	Alcatel

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	Lucent

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	Alcatel

	Lucent

	•	the material facts as to the director’s or officer’s relationship or interest are disclosed and a majority of disinterested directors consent to the transaction;
	•	the material facts are disclosed as to the director’s or officer’s relationship or interest and the holders of a majority of shares entitled to vote thereon consent; or
	•	the transaction is fair to the corporation at the time that it is authorized by the board of directors, a committee of the board of directors or the stockholders.

	Alcatel

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	Lucent

	Alcatel

158

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	Lucent

	Alcatel

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	Lucent

	•	a brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of such stockholder;
	•	the name and record address of such stockholder; and
	•	the class or series and number of shares of Lucent capital stock that are owned beneficially or of record of such stockholder.

	•	the name, age, business address and residence address of the nominee;
	•	the principal occupation or employment of the nominee;
	•	the class or series and number of shares of capital stock of Lucent that are owned beneficially or of record by the nominee;
	•	any other information relating to the nominee that is required to be disclosed in proxy solicitations for director elections pursuant to Section 14 of the Exchange Act; and
	•	certain other specified information relating to the stockholder making the nomination.

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	Alcatel

	Lucent

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	Alcatel

	•	amendments to the organizational documents;
	•	transfers of the company’s registered office to a non-neighboring department;
	•	increases or decreases of the company’s registered capital;
	•	eliminations of shareholders’ pre-emptive rights with respect to any transactions that either immediately or with the passage of time would result in an increase in the registered capital;
	•	authorizations of employee stock option and/or purchase plans; and
	•	authorizations of mergers, spin-offs, dissolutions and dispositions of all or substantially all of the company’s assets if the disposition would entail a modification of the company’s corporate purpose.

	Lucent

	Alcatel

	Lucent

	Alcatel

	Lucent

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	Alcatel

	•	any individual or legal entity which at any time comes to hold a number of shares representing 2% of the total number of shares of the company, or comes to cross any further 1% threshold, or whose holding falls below these thresholds, must, within five trading days from the date it crossed a threshold, notify Alcatel of the total number of shares that it owns; and
	•	any individual or legal entity which at any time comes to hold a number of shares representing 3% of the total number of shares of the company, or comes to cross any further 1% threshold, must request the conversion of its shares into registered form within five trading days from the date on which it crossed a threshold. This registration obligation applies to all shares already held by a shareholder, as well as to the shares it may come to hold beyond the threshold.

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	Lucent

	Alcatel

	•	the company’s losses for the fiscal year, less
	•	any required contribution to the company’s legal reserve fund under French law, plus
	•	any additional profits that the company reported, but did not distribute in its prior fiscal years, less
	•	any loss carryforward from prior fiscal years, plus
	•	any reserves available for distribution.

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	•	the profit of the company for the fiscal year, less
	•	the aggregate amount of losses the company may have incurred prior to the last fiscal year, less
	•	any required contribution to the company’s legal reserve fund under French law, plus
	•	any additional profits the company reported, but did not distribute during the last fiscal year.

	Lucent

	Alcatel

	Lucent

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	•	either (1) the proposed business combination or (2) the transaction by which the 15% stockholder became a 15% stockholder is approved by the board of directors of the corporation prior to completion;
	•	if the 15% stockholder owns at least 85% of the outstanding voting stock of the corporation, without regard to those shares owned by the corporation’s officers and directors or certain employee stock plans; or
	•	if the transaction or business combination is approved by the board of directors of the corporation and, at an annual or special meeting, by the holders of at least 662/3 % of the outstanding voting stock of the corporation not owned by the 15% stockholder.

	Alcatel

	•	any individual or legal entity acting alone or in concert that holds directly or indirectly between one-third and one-half of the shares or voting rights of a company and has increased its interest in the capital or voting rights of such company by more than 2% within less than 12 consecutive months;
	•	any individual or legal entity acting alone or in concert that, as a result of a merger or asset contribution, comes to hold more than one-third of a company’s shares or voting rights, where such shares represent an essential part of the assets of the entity absorbed or contributed; or
	•	any company holding more than one-third of the share capital or voting rights of a listed company, where such interest constitutes an essential part of the company’s assets and (i) a third party acquires “control” (as defined under the French Commercial Code) of the company; or (ii) a group of persons acting in concert acquires control of the company, unless one or more of those persons already exercised control over the company and remains predominant, and as long as the balance of respective interests is not altered significantly.

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	Lucent

	Alcatel

	Lucent

	Alcatel

	•	inventory lists;
	•	annual financial statements;
	•	consolidated financial statements, if any;

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	•	reports of the board of directors and the statutory auditors;
	•	proposed resolutions;
	•	information regarding candidates for the board of directors;
	•	the total overall compensation paid to the corporation’s ten highest-paid employees;
	•	the total amount of charitable deductions made by the corporation, certified by the statutory auditors;
	•	minutes of shareholders meetings;
	•	attendance sheets of shareholders meetings;
	•	a list of transactions with related parties;
	•	report on employment-related matters (bilan social); and
	•	a list of the corporation’s directors and statutory auditors.

	•	the agenda for the meeting;
	•	a table showing the results of operations for the last five years;
	•	a summary of the company’s financial situation over the last fiscal year;
	•	the proposed resolutions to be presented at the meeting;
	•	a proxy card and a form for voting by mail; and
	•	a form for requesting documents at later meetings.

	Lucent

	•	an annual report on Form 10-K within 60 days after the end of each fiscal year;
	•	quarterly reports on Form 10-Q within 40 days after the end of each of the first three quarters of the fiscal year; and
	•	current reports on Form 8-K upon the occurrence of specified corporate events.

	•	an annual report containing audited financial statements; and
	•	a proxy statement that complies with the requirements of the Exchange Act.

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	Alcatel

	•	annual financial statements;
	•	a management report;
	•	a report of the statutory auditors on the annual financial statements;
	•	the proposed allocation of the results submitted to the shareholders; and
	•	the resolution on the allocation of the company’s results approved by the shareholders.

	•	consolidated financial statements;
	•	a group management report; and
	•	a report of the statutory auditors on the consolidated financial statements.

	•	attach to its annual financial statements an inventory of the securities listed in the corporate portfolio as of the close of the fiscal year;
	•	publish annually in the BALO, within four months from the end of the fiscal year and at least 15 days prior to the annual ordinary shareholders meeting, the following documents:

	•	annual financial statements;
	•	the proposed allocation of results, in table format required pursuant to the French general accounting principles; and
	•	consolidated financial statements;

	•	publish, within 45 days from the annual ordinary shareholders meeting, a separate BALO entry of the following documents:

	•	approved annual financial statements;
	•	the decision of the allocation of the result; and
	•	consolidated accounts reviewed by the statutory auditors;

	•	publish, within four months from the end of the first semester, a table of activity and results and a report on the semester’s activity; and
	•	publish, within 45 days from the end of each quarter, a breakdown per branch of activity of its quarterly turnover and, if applicable, its turnover for previous quarters, a comparison of those figures with the figures of the previous fiscal year, as well as a consolidated statement of its net turnover.

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Alcatel SEC Filings (File No. 001-11130)		Period and/or Date Filed or Date Furnished
Annual Report on Form 20-F		Fiscal year ended December 31, 2005, filed on March 31, 2006, as amended on August 4, 2006
Reports on Form 6-K		Furnished on April 3, 2006; April 6, 2006; and June 8, 2006

Lucent SEC Filings (File No. 001-11639)		Period and/or Date Filed
Annual Report on Form 10-K		Fiscal year ended September 30, 2005, filed on December 14, 2005
Quarterly Report on Form 10-Q		Quarterly period ended December 31, 2005, filed on February 8, 2006; and quarterly period ended March 31, 2006, filed on May 9, 2006
Current Reports on Form 8-K		Filed on: December 22, 2005 (under Item 1.01 only); January 13, 2006 (under Item 5.02 only); January 20, 2006; February 28, 2006; March 27, 2006; April 3, 2006; May 5, 2006; June 8, 2006 and July 27, 2006 (under Item 2.02 (to the extent filed and not furnished) and Item 8.01 only)
Proxy Statement on Schedule 14A for Lucent’s 2006 Annual Meeting of Shareowners		Filed on January 3, 2006

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Alcatel		Lucent Technologies Inc.
54, rue La Boétie		600 Mountain Avenue
75008 Paris, France		Murray Hill, New Jersey 07974
Attention: Investor Relations		Attention: Investor Relations

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				Page
ARTICLE I The Merger
Section 1.01		The Merger			A-1
Section 1.02		Conversion of Shares			A-2
Section 1.03		Surrender and Payment			A-2
Section 1.04		Stock Options and Other Stock-Based Awards			A-4
Section 1.05		Adjustments			A-5
Section 1.06		Fractional Shares			A-5
Section 1.07		Withholding Rights			A-6
Section 1.08		Lost Certificates			A-6
Section 1.09		Shares Held by Lucent Affiliates			A-6
ARTICLE II Certain Governance Matters
Section 2.01		Corporate Name and Executive Offices			A-6
Section 2.02		Alcatel Board of Directors and Management			A-7
Section 2.03		Articles of Association and By-laws of Alcatel			A-7
Section 2.04		Board Rules of Alcatel			A-7
Section 2.05		Certificate of Incorporation of the Surviving Corporation			A-7
Section 2.06		By-laws of the Surviving Corporation			A-7
Section 2.07		Directors and Officers of the Surviving Corporation			A-7
Section 2.08		Governance of Bell Laboratories and Certain Government Contracts			A-7
ARTICLE III Representations and Warranties of Lucent
Section 3.01		Corporate Existence and Power			A-8
Section 3.02		Corporate Authorization			A-8
Section 3.03		Governmental Authorization			A-9
Section 3.04		Non-Contravention			A-9
Section 3.05		Capitalization of Lucent			A-9
Section 3.06		Subsidiaries			A-10
Section 3.07		SEC Filings			A-11
Section 3.08		Financial Statements			A-12
Section 3.09		Disclosure Documents			A-12
Section 3.10		Absence of Certain Changes			A-12
Section 3.11		No Undisclosed Material Liabilities			A-13
Section 3.12		Investigation; Litigation			A-13
Section 3.13		Taxes			A-13
Section 3.14		Employee Benefit Plan; Employment and Labor Matters			A-14
Section 3.15		Compliance with Laws			A-15
Section 3.16		Environmental Matters			A-16
Section 3.17		Intellectual Property			A-17
Section 3.18		Vendor Financing			A-17
Section 3.19		Takeover Statutes			A-18

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				Page
Section 3.20		Finders’ or Advisors’ Fees			A-18
Section 3.21		Opinions of Financial Advisors			A-18
ARTICLE IV Representations and Warranties of Alcatel
Section 4.01		Corporate Organization			A-18
Section 4.02		Corporate Authorization			A-18
Section 4.03		Governmental Authorization			A-19
Section 4.04		Non-Contravention			A-19
Section 4.05		Capitalization of Alcatel			A-20
Section 4.06		Subsidiaries			A-20
Section 4.07		SEC Filings			A-21
Section 4.08		Financial Statements			A-21
Section 4.09		Disclosure Documents			A-22
Section 4.10		Absence of Certain Changes			A-22
Section 4.11		No Undisclosed Material Liabilities			A-23
Section 4.12		Investigation; Litigation			A-23
Section 4.13		Taxes			A-23
Section 4.14		Employee Benefit Plans; Employment and Labor Matters			A-24
Section 4.15		Compliance with Laws			A-25
Section 4.16		Environmental Matters			A-25
Section 4.17		Intellectual Property			A-26
Section 4.18		Vendor Financing			A-26
Section 4.19		Finders’ or Advisors’ Fees			A-26
Section 4.20		Opinion of Financial Advisor			A-26
Section 4.21		Takeover Statutes			A-26
ARTICLE V Covenants of Lucent
Section 5.01		Conduct of Lucent			A-27
Section 5.02		Lucent Stockholder Meeting; Proxy Material			A-29
Section 5.03		Other Offers			A-29
Section 5.04		Shareholder Rights Plan			A-30
ARTICLE VI Covenants of Alcatel
Section 6.01		Conduct of Alcatel			A-31
Section 6.02		Obligations of Merger Subsidiary			A-33
Section 6.03		Director and Officer Liability			A-33
Section 6.04		Alcatel Shareholder Meeting; Form F-4			A-33
Section 6.05		Stock Exchange Listing			A-34
Section 6.06		Employee Benefits			A-34
Section 6.07		Other Offers			A-35
Section 6.08		Business in Sanctioned Countries			A-36

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				Page
ARTICLE VII Covenants of Alcatel and Lucent
Section 7.01		Reasonable Best Efforts			A-37
Section 7.02		Preparation of Proxy Statement/ Prospectus; Form F-4, Form F-6			A-38
Section 7.03		Access to Information; Compliance Program; Transition Committee			A-39
Section 7.04		Tax Treatment			A-39
Section 7.05		Public Announcements			A-40
Section 7.06		Further Assurances			A-40
Section 7.07		Notices of Certain Events			A-40
Section 7.08		Payment of Dividends			A-41
ARTICLE VIII Conditions to the Merger
Section 8.01		Conditions to the Obligations of Each Party			A-41
Section 8.02		Conditions to the Obligations of Alcatel and Merger Subsidiary			A-42
Section 8.03		Conditions to the Obligations of Lucent			A-43
ARTICLE IX Termination
Section 9.01		Termination			A-44
Section 9.02		Effect of Termination			A-44
ARTICLE X Miscellaneous
Section 10.01		Notices			A-45
Section 10.02		Non-Survival of Representations and Warranties			A-45
Section 10.03		Amendments; No Waivers			A-45
Section 10.04		Expenses			A-46
Section 10.05		Successors and Assigns			A-48
Section 10.06		Governing Law			A-48
Section 10.07		Jurisdiction			A-48
Section 10.08		Waiver of Jury Trial			A-48
Section 10.09		Counterparts; Effectiveness			A-48
Section 10.10		Entire Agreement; No Third Party Beneficiaries			A-48
Section 10.11		Interpretation			A-48
Section 10.12		Severability			A-49

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		Page
1933 Act			7
ADS			3
Affected Employees			46
Agreement			1
Alcatel			1
Alcatel Acquisition Proposal			48
Alcatel Balance Sheet			29
Alcatel Balance Sheet Date			29
Alcatel CEO			9
Alcatel Change in Recommendation			45
Alcatel Circular			29
Alcatel Disclosure Letter			26
Alcatel Employee Plan			32
Alcatel Initial Fee			63
Alcatel Necessary Corporate Documents			45
Alcatel Ordinary Share			3
Alcatel SEC Documents			28
Alcatel Securities			27
Alcatel Shareholder Approval			25
Alcatel Shareholder Meeting			45
Alcatel Stock Option Plans			27
Alcatel Subsidiary Securities			28
Alcatel Superior Proposal			48
Alcatel Termination Fee			63
Alcatel Vendor Financing			35
AMF			12
Appropriate Assets			10
Book-Entry Shares			4
Certificates			3
CFIUS			55
Cleanup			21
Closing			2
Closing Date			2
Code			1
Common Shares Trust			8
Confidentiality Agreement			52
Delaware Law			1
Depository			3
Detriment			56
EC Merger Regulation			12
Effective Time			2
End Date			58
Environmental Claim			22
Environmental Laws			22
ERISA			19
Excess Shares			7
Exchange Act			12
Exchange Agent			3
Exchange Ratio			2
Exon-Florio Act			12
Filed Alcatel SEC Documents			24
Filed Lucent SEC Documents			10
Form F-4			29
Form F-6			29
Hazardous Materials			22
HSR Act			12
IFRS			29
Indemnitees			44
Intellectual Property			22
Lien			12
Lucent			1
Lucent Acquisition Proposal			40
Lucent Balance Sheet			16
Lucent Balance Sheet Date			16
Lucent CEO			9
Lucent Change in Recommendation			39
Lucent Convertible Debt			7
Lucent Disclosure Letter			6
Lucent Employee Plan			19
Lucent Initial Fee			62
Lucent Proxy Statement			16
Lucent SEC Documents			15
Lucent Securities			13
Lucent Stock Option			5
Lucent Stock Option Plans			5
Lucent Stock-Based Account			6
Lucent Stockholder Approval			11
Lucent Stockholder Meeting			38
Lucent Subsidiary Securities			14
Lucent Superior Proposal			40
Lucent Termination Fee			62
Lucent Vendor Financing			24
Lucent Warrants			6
Major Pension Plans			57

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		Page
Material Adverse Effect			11
Merger			1
Merger Consideration			3
Merger Subsidiary			1
Multiemployer Plans			19
New Alcatel By-Laws			9
NYSE			7
Person			3
Plan Asset Measurement Date			57
Plan Assets			57
Qualifying Amendment			51
Release			22
Rule 145			8
Sarbanes-Oxley Act			15
SEC			7
Shares			2
Subsidiary			3
Surviving Corporation			1
Tax Returns			19
Taxes			18
Trade Secrets			23
Transition Committee			52
US GAAP			15
Warrant Agreement			6

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	(i) each share of Common Stock, par value $0.01 per share, of Lucent (the “Shares”) held by Lucent as treasury stock or held by Alcatel or Merger Subsidiary immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto;
	(ii) each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation; and
	(iii) each Share outstanding immediately prior to the Effective Time shall, except as otherwise provided in Section 1.02(a)(i), be converted into the right to receive 0.1952 (the “Exchange Ratio”) of an ADS (as defined below).

	“ADS” means an American Depository Share of Alcatel representing one (1) Alcatel Ordinary Share.
	“Alcatel Ordinary Share” means an ordinary share, nominal value €2.00 per share, of Alcatel.
	“Subsidiary” when used with respect to any Person means any other Person, whether incorporated or unincorporated, of which (i) more than fifty percent of the capital securities or other ownership interests or (ii) securities or other interests having by their terms ordinary voting power to elect more than fifty percent of the board of directors (or comparable governing body or person), is directly owned or controlled by such first Person or by any one or more of its Subsidiaries.
	“Person” means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof.

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	(i) any event, occurrence, change or development of a state of circumstances or facts which has had, individually or in the aggregate, a Material Adverse Effect on Lucent; or

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	(ii) any action taken by Lucent or any Subsidiary of Lucent that, if taken on or after the date of this Agreement, would conflict with or constitute a violation of Section 5.01 (other than clauses (c) or (g) of Section 5.01).

	(a) liabilities disclosed or provided for in Lucent Balance Sheet or in the notes thereto;
	(b) liabilities incurred in the ordinary course of business since the Lucent Balance Sheet Date which would not, individually or in the aggregate, have a Material Adverse Effect on Lucent;
	(c) liabilities disclosed in the Filed Lucent SEC Documents or set forth on Section 3.11(c) of the Lucent Disclosure Letter; and
	(d) liabilities arising, or expressly permitted to be incurred, under this Agreement (including Section 5.01).

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	(i) Lucent is in compliance with all applicable Environmental Laws (which compliance includes the possession by Lucent of all permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof), except where failure to be in compliance would not, individually or in the aggregate, have a Material Adverse Effect on Lucent;
	(ii) there is no Environmental Claim pending or threatened against Lucent or, to the best knowledge of Lucent, against any Person whose liability for any Environmental Claim Lucent has or may have retained or assumed either contractually or by operation of law, except for any such Environmental Claims which would not, individually or in the aggregate, have a Material Adverse Effect on Lucent;
	(iii) there are no past or present actions, activities, circumstances, conditions, events or incidents, including the Release or presence of any Hazardous Material, which could form the basis of any Environmental Claim against Lucent or, to the best knowledge of Lucent, against any Person whose liability for any Environmental Claim Lucent has or may have retained or assumed either contractually or by operation of law which would, individually or in the aggregate, have a Material Adverse Effect on Lucent; and
	(iv) there is no Cleanup of Hazardous Materials being conducted or planned at any property currently or formerly owned or operated by Lucent, except for such Cleanups which would not, individually or in the aggregate have a Material Adverse Effect on Lucent.

	(i) “Cleanup” means all actions required to: (A) cleanup, remove, treat or remediate Hazardous Materials in the indoor or outdoor environment; (B) prevent the Release of Hazardous Materials so that they do not migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (C) perform pre-remedial studies and investigations and post-remedial monitoring and care; or (D) respond to any government requests for information or documents in any way relating to cleanup, removal, treatment or remediation or potential cleanup, removal, treatment or remediation of Hazardous Materials in the indoor or outdoor environment.
	(ii) “Environmental Claim” means any claim, action, cause of action, investigation or notice (written or oral) by any Person alleging potential liability (including potential liability for investigatory costs, Cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence or Release of any Hazardous Materials at any location, whether or not owned or operated by Lucent or Alcatel, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.
	(iii) “Environmental Laws” means all federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment, including laws relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, disposal, transport or handling of Hazardous Materials and all laws and regulations with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials.
	(iv) “Hazardous Materials” means all substances defined as Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. § 300.5, or defined as such by, or regulated as such under, any Environmental Law.
	(v) “Release” means any release, spill, emission, discharge, leaking, pumping, injection, deposit, disposal, dispersal, leaching or migration into the indoor or outdoor environment (including ambient air,

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	surface water, groundwater and surface or subsurface strata) or into or out of any property, including the movement of Hazardous Materials through or in the air, soil, surface water, groundwater or property.

	(i) Lucent, or one of its Subsidiaries, owns or possesses adequate licenses or other legal rights to use, sell or license all Intellectual Property used in the present conduct of the businesses of Lucent and its Subsidiaries, free and clear of all Liens other than Liens in respect of the Collateral Agreements;
	(ii) no claims or, to the knowledge of Lucent, threat of claims have been asserted by any Person related to the use of any Intellectual Property in the conduct of the businesses of Lucent and its Subsidiaries;
	(iii) no settlement agreements, consents, judgments, orders, forbearance to sue or similar obligations limit or restrict Lucent’s or any Subsidiary’s rights in and to any Intellectual Property, other than the granting of a license or a covenant not to sue;
	(iv) it is the policy of Lucent and its Subsidiaries to not knowingly infringe any valid Intellectual Property right of any Person, and Lucent and its Subsidiaries have, to Lucent and its Subsidiaries’ knowledge, abided by their policy of not knowingly infringing any valid Intellectual Property right of any Person;
	(v) to the knowledge of Lucent, no third party is infringing or otherwise violating any Intellectual Property owned by Lucent or its Subsidiaries;
	(vi) Lucent and its Subsidiaries take reasonable measures to protect the confidentiality of their Trade Secrets. To the knowledge of Lucent, no Trade Secret of Lucent or its Subsidiaries has been disclosed or authorized to be disclosed to any third party other than pursuant to a written nondisclosure agreement that adequately protects Lucent’s and its Subsidiaries’ proprietary interests in and to such Trade Secrets;
	(vii) the consummation of the transactions as specified herein will not result in the loss or impairment of Lucent’s and its Subsidiaries’ rights to own or use any of the Intellectual Property nor will such consummation require the consent of any third party in respect of any such Intellectual Property; and
	(viii) Lucent and its Subsidiaries have conducted their respective businesses in compliance with all applicable laws, statutes, ordinances and regulations relating to, or in respect of, Intellectual Property.

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	(i) any event, occurrence, change or development of a state of circumstances or facts which has had, individually or in the aggregate, a Material Adverse Effect on Alcatel; or
	(ii) any action taken by Alcatel or any Subsidiary that, if taken on or after the date of this Agreement, would conflict with or constitute a violation of Section 6.01 (other than clauses (c) or (g) of Section 6.01).

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	(a) liabilities disclosed or provided for in the Alcatel Balance Sheet or in the notes thereto;
	(b) liabilities incurred in the ordinary course of business since the Alcatel Balance Sheet Date which would not, individually or in the aggregate, have a Material Adverse Effect on Alcatel;
	(c) liabilities disclosed in the Filed Alcatel SEC Documents or set forth on Section 4.11(c) of the Alcatel Disclosure Letter; and
	(d) liabilities arising, or expressly permitted to be incurred, under this Agreement (including Section 6.01).

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	(ii) there is no Environmental Claim pending or threatened against Alcatel or, to the best knowledge of Alcatel, against any Person whose liability for any Environmental Claim Alcatel has or may have retained or assumed either contractually or by operation of law, except for any such Environmental Claims which would not, individually or in the aggregate, have a Material Adverse Effect on Alcatel;
	(iii) there are no past or present actions, activities, circumstances, conditions, events or incidents, including the Release or presence of any Hazardous Material which could form the basis of any Environmental Claim against Alcatel, or to the best knowledge of Alcatel, against any Person whose liability for any Environmental Claim Alcatel has or may have retained or assumed either contractually or by operation of law which would, individually or in the aggregate, have a Material Adverse Effect on Alcatel; and
	(iv) there is no Cleanup of Hazardous Materials being conducted or planned at any property currently or formerly owned or operated by Alcatel, except for such Cleanups which would not, individually or in the aggregate have a Material Adverse Effect on Alcatel.

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	(i) Alcatel, or one of its Subsidiaries, owns or possesses adequate licenses or other legal rights to use, sell or license all Intellectual Property used in the present conduct of the businesses of Alcatel and its Subsidiaries, free and clear of all Liens;
	(ii) no claims or, to the knowledge of Alcatel, threat of claims have been asserted by any Person related to the use of any Intellectual Property in the conduct of the businesses of Alcatel and its Subsidiaries;
	(iii) no settlement agreements, consents, judgments, orders, forbearance to sue or similar obligations limit or restrict Alcatel’s or any Subsidiary’s rights in and to any Intellectual Property other than the granting of a license or a covenant not to sue;
	(iv) it is the policy of Alcatel and its Subsidiaries to not knowingly infringe any valid Intellectual Property right of any Person, and Alcatel and its Subsidiaries have, to Alcatel and its Subsidiaries’ knowledge, abided by their policy of not knowingly infringing any valid Intellectual Property right of any Person;
	(v) to the knowledge of Alcatel, no third party is infringing or otherwise violating any Intellectual Property owned by Alcatel or its Subsidiaries;
	(vi) Alcatel and its Subsidiaries take reasonable measures to protect the confidentiality of their Trade Secrets. To the knowledge of Alcatel, no Trade Secret of Alcatel or its Subsidiaries has been disclosed or authorized to be disclosed to any third party other than pursuant to a written nondisclosure agreement that adequately protects Alcatel’s and its Subsidiaries’ proprietary interests in and to such Trade Secrets;
	(vii) the consummation of the transactions as specified herein will not result in the loss or impairment of Alcatel’s and its Subsidiaries’ rights to own or use any of the Intellectual Property nor will such consummation require the consent of any third party in respect of any such Intellectual Property; and
	(viii) Alcatel and its Subsidiaries have conducted their respective businesses in compliance with all applicable laws, statutes, ordinances and regulations relating to, or in respect of, Intellectual Property.

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	(a) Lucent will not, and will not permit any of its Subsidiaries to, adopt or propose any change in its certificate of incorporation or by-laws (or comparable organizational documents) or otherwise take any action to exempt any person or entity (other than Alcatel) from any applicable antitakeover law, provided that the organizational documents of Subsidiaries may be changed in a way that is not material;
	(b) Lucent will not, and will not permit any Subsidiary of Lucent to, adopt, enter into or effect any plan or agreement of complete or partial liquidation, dissolution, merger (excluding acquisitions permitted under Section 5.01(i)), consolidation, spin-off, restructuring, recapitalization or other material reorganization of Lucent or any of its Subsidiaries (other than any such action between its wholly owned Subsidiaries);
	(c) Lucent will not, and will not permit any Subsidiary of Lucent to, issue, sell, transfer, pledge, dispose of or encumber any shares of capital stock of any class or series of Lucent or its Subsidiaries, or issue, sell or transfer securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock of any class or series of Lucent or its Subsidiaries, or materially amend the terms of any outstanding capital stock other than upon issuance of Shares upon exercise or settlement of Lucent Stock Options or Lucent Stock-Based Accounts, Lucent Convertible Debt or Lucent Warrants, and in cases other than those in connection with employee benefit and compensation matters to the extent permitted by Section 5.01 of the Lucent Disclosure Letter;
	(d) (i) Lucent will not, and will not permit any Subsidiary of Lucent to, split, combine, subdivide or reclassify any of its outstanding shares of capital stock, and (ii) Lucent will not declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock;
	(e) Lucent will not, and will not permit any Subsidiary of Lucent to, redeem, purchase or otherwise acquire directly or indirectly any of Lucent’s capital stock, except for repurchases, redemptions or acquisitions (i) required by the terms of its capital stock or any securities outstanding on the date of this Agreement, or (ii) required by or in connection with the respective terms, as of the date of this Agreement, of any Lucent Stock Option Plan or any dividend reinvestment plan as in effect on the date of this Agreement in the ordinary course of the operations of such plan consistent with past practice and only to the extent consistent with Section 7.04;
	(f) Lucent will not amend the terms (including the terms relating to accelerating the vesting or lapse of repurchase rights or obligations) of any outstanding options to purchase Shares;

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	(g) Lucent will not, and will not permit any Subsidiary of Lucent to, make or commit to make any capital expenditure, other than capital expenditures set forth on Section 5.01 of the Lucent Disclosure Letter;
	(h) Lucent will not, and will not permit any Subsidiary of Lucent to, increase the compensation or benefits of any current or former director, officer or employee, except for increases in the ordinary course of business consistent with past practice or as required under applicable law or any existing agreement or commitment;
	(i) except for (1) acquisitions of assets in the ordinary course of business consistent with past practices, (2) acquisitions pursuant to existing contracts or commitments as set forth on Section 5.01(i) of the Lucent Disclosure Letter, and (3) acquisitions not in excess of $500,000,000 in the aggregate, Lucent will not, and will not permit any of its Subsidiaries to, acquire assets or stock (or similar ownership interests) of any other Person;
	(j) Lucent will not, and will not permit any of its Subsidiaries to, sell, transfer, lease, license, pledge, encumber or otherwise dispose of any material (as determined with respect to Lucent and its Subsidiaries taken as a whole) assets or stock, other than (i) inventory, receivables and vendor financing loans in the ordinary course of business consistent with past practice and (ii) pursuant to existing contracts or commitments;
	(k) except for any such change which is required in order to remain in compliance with US GAAP or applicable law, Lucent will not, and will not permit any Subsidiary of Lucent to, change any method of financial accounting or accounting practice used by it;
	(l) Lucent will not, and will not permit any Subsidiary of Lucent to, enter into any material joint venture, partnership or other similar arrangement or materially amend or modify in an adverse manner the terms of (or waive any material rights under) any existing material joint venture, partnership or other similar arrangement (other than any such action between its wholly owned Subsidiaries);
	(m) Except as set forth in Section 5.01 of the Lucent Disclosure Letter, Lucent will not, and will not permit any of its Subsidiaries to, incur material indebtedness, other than (1) pursuant to the credit facilities of Lucent existing on the date of this Agreement, or (2) to refinance, extend or renew the maturity of any existing indebtedness in an amount not to exceed such existing indebtedness, provided that such refinancing or extension is at prevailing market interest rates and otherwise on terms not materially less favorable in aggregate than the existing indebtedness being so refinanced or extended;
	(n) Lucent will not, and will not permit any of its Subsidiaries to, enter into or commit to provide any Lucent Vendor Financing not in effect as of the date of this Agreement other than in accordance with Section 5.01 of the Lucent Disclosure Letter;
	(o) other than with respect to the settlement, payment, discharge or compromise in the ordinary course of business of litigation arising in the ordinary course of Lucent’s and its Subsidiaries’ business, or settlements providing solely for the payment of money damages that are (i) subject to reserves existing as of the date of this Agreement in accordance with US GAAP, (ii) covered by existing insurance policies or (iii) otherwise less than $50,000,000 in the aggregate, Lucent will not, and will not permit any of its Subsidiaries to, settle, pay, discharge or compromise any material claim (including arbitration) or litigation;
	(p) Lucent will not, and will not permit any of its Subsidiaries to, (i) enter into, modify or amend any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC), other than in the ordinary course of business, or (ii) enter into any contract or agreement which expressly limits the ability of Lucent or any Subsidiary of Lucent, or would limit Alcatel or any Subsidiary of Alcatel after the Effective Time, to compete in or conduct any line of business or compete with any Person or in any geographic area or during any period of time, in each case, if such limitation is or is reasonably likely to be material to Lucent and its Subsidiaries, taken as a whole, or, following the Effective Time, to Alcatel and its Subsidiaries, taken as a whole;

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	(q) Lucent will not, and will not permit any of its subsidiaries to, enter into any new line of business material to it and its Subsidiaries, taken as a whole;
	(r) Lucent will not, and will not permit any of its Subsidiaries to, agree or commit to do any of the foregoing.

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	(a) Alcatel will not, and will not permit any of its Subsidiaries to, adopt or propose any change in its certificate of incorporation or by-laws (or comparable organizational documents) or otherwise take any action to exempt any person or entity (other than Lucent) from any applicable antitakeover law, provided that the organizational documents of Subsidiaries may be changed in a way that is not material;
	(b) Alcatel will not, and will not permit any Subsidiary of Alcatel to, adopt, enter into or effect any plan or agreement of complete or partial liquidation, dissolution, merger (excluding acquisitions permitted under Section 6.01(i)), consolidation, spin-off, restructuring, recapitalization or other material reorganization of Alcatel or any of its Subsidiaries (other than any such action between its wholly owned Subsidiaries);
	(c) Alcatel will not, and will not permit any Subsidiary of Alcatel to, issue, sell, transfer, pledge, dispose of or encumber any shares of capital stock of any class or series of Alcatel or its Subsidiaries, or issue, sell or transfer securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock of any class or series of Alcatel or its Subsidiaries, other than upon issuance of Shares upon exercise or settlement of Alcatel Stock Options or materially amend the terms of any outstanding capital stock;
	(d) (i) Alcatel will not, and will not permit any Subsidiary of Alcatel to, split, combine, subdivide or reclassify any of its outstanding shares of capital stock, and (ii) Alcatel will not declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock other than the regular annual dividend approved by the Alcatel stockholders at the annual general meeting of Alcatel;
	(e) Alcatel will not, and will not permit any Subsidiary of Alcatel to, redeem, purchase or otherwise acquire directly or indirectly any of Alcatel’s capital stock, except for repurchases, redemptions or acquisitions (i) required by the terms of its capital stock or any securities outstanding on the date of this Agreement, or (ii) required by or in connection with the respective terms, as of the date of this Agreement, of any stock option plan of Alcatel or its Subsidiaries or any dividend reinvestment plan as in effect on the date of this Agreement in the ordinary course of the operations of such plan consistent with past practice and only to the extent consistent with Section 7.04;
	(f) Alcatel will not amend the terms (including the terms relating to accelerating the vesting or lapse of repurchase rights or obligations) of any outstanding options to purchase ADSs or Alcatel Ordinary Shares;
	(g) Alcatel will not, and will not permit any Subsidiary of Alcatel to, make or commit to make any capital expenditure, other than capital expenditures set forth on Section 6.01 of the Alcatel Disclosure Letter;

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	(h) Alcatel will not, and will not permit any Subsidiary of Alcatel to, increase the compensation or benefits of any current or former director, officer or employee, except for increases in the ordinary course of business consistent with past practice or as required under applicable law or any existing agreement or commitment;
	(i) except for (1) acquisitions of assets in the ordinary course of business consistent with past practices (2) acquisitions pursuant to existing contracts or commitments as set forth on Section 6.01(i) of the Alcatel Disclosure Letter and (3) acquisitions not in excess of $500,000,000 in the aggregate, of which no individual acquisition shall exceed $300,000,000, Alcatel will not, and will not permit any of its Subsidiaries to, acquire assets or stock (or similar ownership interests) of any other Person;
	(j) Alcatel will not, and will not permit any of its Subsidiaries to, sell, transfer, lease, license, pledge, encumber or otherwise dispose of any material (as determined with respect to Alcatel and its Subsidiaries taken as a whole) assets or stock, other than (i) inventory, receivables and vendor financing loans in the ordinary course of business consistent with past practice and (ii) pursuant to existing contracts or commitments;
	(k) except for any such change which is required in order to remain in compliance with IFRS or applicable law, Alcatel will not, and will not permit any Subsidiary of Alcatel to, change any method of financial accounting or accounting practice used by it;
	(l) Alcatel will not, and will not permit any Subsidiary of Alcatel to, enter into any material joint venture, partnership or other similar arrangement or materially amend or modify in an adverse manner the terms of (or waive any material rights under) any existing material joint venture, partnership or other similar arrangement (other than any such action between its wholly owned Subsidiaries);
	(m) Except as set forth in Section 6.01 of the Alcatel Disclosure Letter, Alcatel will not, and will not permit any of its Subsidiaries to, incur material indebtedness, other than (1) pursuant to the credit facilities of Alcatel existing on the date of this Agreement, or (2) to refinance, extend or renew the maturity of any existing indebtedness in an amount not to exceed such existing indebtedness, provided that such refinancing or extension is at prevailing market interest rates and otherwise on terms not materially less favorable in aggregate than the existing indebtedness being so refinanced or extended;
	(n) Alcatel will not, and will not permit any of its Subsidiaries to, enter into or commit to provide any Alcatel Vendor Financing not in effect as of the date of this Agreement other than in accordance with Section 6.01 of the Alcatel Disclosure Letter;
	(o) other than with respect to the settlement, payment, discharge or compromise in the ordinary course of business of litigation arising in the ordinary course of Alcatel’s and its Subsidiaries’ business, or settlements providing solely for the payment of money damages that are (i) subject to reserves existing as of the date of this Agreement in accordance with IFRS, (ii) covered by existing insurance policies or (iii) otherwise less than $50,000,000 in the aggregate, Alcatel will not, and will not permit any of its Subsidiaries to, settle, pay, discharge or compromise any material claim (including arbitration) or litigation;
	(p) Alcatel will not, and will not permit any of its Subsidiaries to, (i) enter into, modify or amend any “material contract” ( as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC), other than in the ordinary course of business, or (ii) enter into any contract or agreement which expressly limits the ability of Alcatel or any Subsidiary of Alcatel, or would limit Lucent or any Subsidiary of Lucent after the Effective Time, to compete in or conduct any line of business or compete with any Person or in any geographic area or during any period of time, in each case, if such limitation is or is reasonably likely to be material to Alcatel and its Subsidiaries, taken as a whole, or, following the Effective Time, to Lucent and its Subsidiaries, taken as a whole;
	(q) Alcatel will not, and will not permit any of its Subsidiaries to, enter into any new line of business material to it and its Subsidiaries, taken as a whole;

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	(r) Alcatel will not, and will not permit any of its Subsidiaries to, agree or commit to do any of the foregoing.

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	(i) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; and
	(ii) any notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by this Agreement.

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	(a) the Lucent Stockholder Approval shall have been obtained in accordance with Delaware Law;
	(b) the Alcatel Shareholder Approval shall have been obtained in accordance with applicable French law;
	(c) any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated;
	(d) the European Commission shall have issued a decision under Article 6(1)(b) or 8(1) or 8(2) of the EC Merger Regulation (or shall be deemed to have done so under Article 10(6) thereof), declaring the transactions contemplated hereby compatible with EC Common Market;
	(e) the parties shall (i) have received all required governmental antitrust and/or competition approvals and consents (excluding those specified in foregoing paragraphs (c) and (d)), and (ii) have made all requisite filings, notices or notifications, other than, in the case of each of clauses (i) and (ii), those the absence of which would not result in a Material Adverse Effect on Lucent or Alcatel;
	(f) no provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit or enjoin the consummation of the Merger;
	(g) the Form F-4 shall have been declared effective by the SEC under the 1933 Act, and no stop order suspending the effectiveness of the Form F-4 shall be in effect and no proceedings for such purpose shall be pending before or threatened by the SEC; and the approval (visa) of the registration statement by the AMF relating to the Alcatel Ordinary Shares to be issued on the Effective Date as part of the transactions contemplated by this Agreement shall have been obtained;
	(h) ADSs (and, if required, the underlying shares of Alcatel Ordinary Shares) to be issued in the Merger shall have been approved for listing on the NYSE, subject to official notice of issuance and the AMF and the Euronext Paris SA shall have approved the listing of the Alcatel Ordinary Shares to be issued on the Effective Date as part of the transactions contemplated by this Agreement;
	(i) at or prior to the Effective Time, the Committee on Foreign Investment in the United States (“CFIUS”) shall have notified Alcatel in writing that it has determined not to investigate the transactions contemplated by this Agreement (including the Merger) pursuant to the powers vested in it by the Exon-Florio Act or, in the event that CFIUS has undertaken such an investigation, CFIUS has terminated such investigation or the President of the United States has determined not to take any action that would result in a Detriment;

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	(j) there shall not be instituted or pending any action, litigation or proceeding by any governmental authority (whether domestic, foreign or supranational) before any court or governmental authority or agency, domestic, foreign or supranational, (i) seeking to prohibit, materially restrain or otherwise materially interfere with the Merger or the ownership or operation by Alcatel or any Subsidiary of Alcatel of all or any material portion of the business or assets of Lucent or any of its Subsidiaries or of Alcatel or any of its Subsidiaries or to compel Alcatel or any Subsidiary of Alcatel to dispose of or hold separate all or any material portion of the business or assets of Lucent or any of its Subsidiaries or of Alcatel or any of its Subsidiaries, or (ii) seeking divestiture of any Shares (or shares of stock of the Surviving Corporation) or seeking to impose or confirm limitations on the ability of Alcatel or any Subsidiary of Alcatel effectively to exercise full rights of ownership of the Shares (or shares of stock of the Surviving Corporation) including the right to vote any Shares (or shares of stock of the Surviving Corporation) on any matters properly presented to stockholders, in the case of clause (i) or clause (ii) which would reasonably be expected to materially adversely affect the financial condition, business or annual results of operations of Lucent and its Subsidiaries taken as a whole or Alcatel and its Subsidiaries taken as a whole (any such matter described in clauses (i) or (ii) of this Agreement being referred to in this Agreement as a “Detriment”);
	(k) there shall not be any statute, rule, regulation, injunction, order or decree or decision, enacted, enforced, promulgated, entered, issued or deemed applicable to the Merger and the other transactions contemplated hereby (or in the case of any statute, rule or regulation, awaiting signature or reasonably expected to become law), by any court, government or governmental authority or agency or legislative body, domestic, foreign or supranational, that is reasonably likely, directly or indirectly, to result in a Detriment;

	(a) Lucent shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time;
	(b) (i) the representations and warranties of Lucent contained in this Agreement that are qualified by a “Material Adverse Effect” qualification shall be true in all respects as so qualified when made and at and as of the Effective Time as if made at and as of such time (provided that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date); (ii) the representations and warranties of Lucent contained in this Agreement that are not qualified by a “Material Adverse Effect” qualification (other than the representations and warranties of Lucent contained in the second sentence of Section 3.05) shall be true in all respects when made and at and as of the Effective Time as if made at and as of such time (provided that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date), except for failure to be so true and correct which would not, individually or in the aggregate, have a Material Adverse Effect on Lucent, and (iii) the representation and warranty of Lucent contained in the second sentence of Section 3.05 shall be in true in all material respects as of the date specified in such representation and warranty;
	(c) Alcatel shall have received a certificate of Lucent, signed by a senior executive officer of Lucent, certifying to the effect that the conditions set forth in Sections 8.02(a) and 8.02(b) have been satisfied; and
	(d) The fair market value of the Plan Assets as of the Plan Asset Measurement Date shall not be less than the Plan Asset Target. For purposes of this Section 8.02(d): (i) “Plan Assets” shall mean assets held under the Major Pension Plans, less the amount of all contributions to such plans following September 30, 2005; (ii) “Major Pension Plans” shall mean those pension plans maintained by Lucent or any of its Subsidiaries and reflected in “major plans” under the column headed “pension benefits September 30, 2005” on page 61 of Lucent’s annual report on Form 10-K for its fiscal year ended September 30, 2005; (iii) “Plan Asset Measurement Date” shall mean the last day of the month last

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	ending prior to the Closing Date and (iv) “Plan Asset Target” shall mean $28,600,000,000 if the Plan Measurement Date is on or prior to September 30, 2006, reduced by $200,000,000 as of the first day of each calendar month thereafter through December 2006, but in no event less that $28,000,000,000.

	(a) Alcatel shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time;
	(b) (i) the representations and warranties of Alcatel contained in this Agreement that are qualified by a “Material Adverse Effect” qualification shall be true in all respects as so qualified when made and at and as of the Effective Time as if made at and as of such time (provided that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date); (ii) the representations and warranties of Alcatel contained in this Agreement that are not qualified by a “Material Adverse Effect” qualification (other than the representations and warranties of Lucent contained in the first sentence of Section 4.05) shall be true in all respects when made and at and as of the Effective Time as if made at and as of such time (provided that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date), except for failure to be so true and correct which would not, individually or in the aggregate, have a Material Adverse Effect on Alcatel, and (iii) the representation and warranty of Alcatel contained in the first sentence of Section 4.05 shall be in true in all material respects as of the date specified in such representation and warranty;
	(c) Lucent shall have received a certificate of Alcatel, signed by a senior executive officer of Alcatel, certifying to the effect that the conditions set forth in Sections 8.03(a) and 8.03(b) have been satisfied; and
	(d) Lucent shall have received an opinion of Wachtell, Lipton, Rosen & Katz in form and substance reasonably satisfactory to Lucent, on the basis of certain facts, representations and assumptions set forth or referred to in such opinion, dated the Effective Time, to the effect that (i) the Merger will be treated for United States federal income tax purposes as a reorganization qualifying under the provisions of Section 368(a) of the Code and that each of Alcatel, Merger Subsidiary and Lucent will be a party to the reorganization within the meaning of Section 368(b) of the Code and (ii) each transfer of Shares to Alcatel by a stockholder of Lucent pursuant to the Merger will not be subject to Section 367(a)(1) of the Code. In rendering such opinion, such counsel shall be entitled to rely upon (among other things) (x) and require certain representations of officers of Alcatel and Lucent reasonably requested by counsel, including without limitation those contained in certificates substantially in the form attached as Section 7.04(b) of the Alcatel Disclosure Letter and Lucent Disclosure Letter, respectively, and (y) any rulings received by the parties from the IRS with respect to the Merger (and any representations of Alcatel or Lucent made in connection therewith), including any ruling received by the parties to the effect that the Merger will not be subject to section 367(a)(1) of the Code (and any representations of Alcatel or Lucent made in connection therewith). The opinion may assume that all applicable reporting requirements have been satisfied and that any stockholder who is a “five-percent transferee shareholder” with respect to Alcatel within the meaning of United States Treasury Regulations Section 1.367(a)-3(c)(5)(ii) will in a timely and effective manner file the agreement described in United States Treasury Regulations Section 1.367(a)-3(c)(1)(iii)(B). After receipt of Lucent Stockholder Approval, Lucent shall not waive receipt of a tax opinion from Wachtell, Lipton, Rosen & Katz as a condition to closing unless further approval of the shareholders of Lucent is obtained with appropriate disclosure.

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	(a) by mutual written consent of Lucent and Alcatel;
	(b) by either Lucent or Alcatel,

	(i) if the Effective Time shall not have occurred on or before December 31, 2006 (the “End Date”); provided that if (x) the Effective Time has not occurred by December 31, 2006 solely by reason of non-satisfaction of one or more of the conditions set forth in Sections 8.01(c), 8.01(d), 8.01(e) or 8.01(h) and (y) all other conditions in Article VIII have been satisfied or (to the extent legally permissible) waived or are then capable of being satisfied, the End Date will be extended one or more times up to and including March 31, 2007; provided further that the right to terminate this Agreement under this Section 9.01(b)(i) shall not be available to any party whose failure to fulfill in any material respect any obligation under this Agreement has caused or resulted in the failure of the Effective Time to occur on or before December 31, 2006, in the case of a failure prior to that date, or March 31, 2007, in the case of any such failure after December 31, 2006;
	(ii) if the Lucent Stockholder Approval shall not have been obtained by reason of the failure to obtain the required vote at the Lucent Stockholder Meeting or any adjournment thereof;
	(iii) if the Alcatel Shareholder Approval shall not have been obtained by reason of the failure to obtain the required vote at the Alcatel Shareholder Meeting or any adjournment thereof;
	(iv) if there shall be any law or regulation that makes consummation of the Merger illegal or otherwise prohibited or if any judgment, injunction, order or decree enjoining Alcatel or Lucent from consummating the Merger is entered and such judgment, injunction, order or decree shall become final and nonappealable;

	(c) by Alcatel, if (i) there is a Lucent Change in Recommendation or (ii) the Lucent Stockholder Meeting shall not have been called and held as required by Section 5.02;
	(d) by Lucent, if (i) there is an Alcatel Change in Recommendation or (ii) the Alcatel Shareholder Meeting shall not have been called and held as required by Section 6.04.
	(e) by Lucent, if Alcatel shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 8.01 or 8.03, and (B) is incapable of being cured by Alcatel or is not cured by Alcatel within 60 days following receipt of written notice from Lucent of such breach or failure to perform;
	(f) by Alcatel, if Lucent shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 8.01 or 8.02, and (B) is incapable of being cured by Lucent or is not cured by Lucent within 60 days following receipt of written notice from Alcatel of such breach or failure to perform;

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	if to Alcatel or Merger Subsidiary, to:
	Alcatel
	54, rue La Boétie
	75008 Paris, France
	Facsimile No.: +33 1 40 76 14 35

	Attn:	Pascal Durand-Barthez General Counsel

	with a copy to:
	Roger S. Aaron
	Stephen F. Arcano
	Skadden, Arps, Slate, Meagher & Flom LLP
	Four Times Square
	New York, New York 10036
	Facsimile No.: (212) 735-2000
	if to Lucent, to:
	Lucent Technologies, Inc.
	600 Mountain Avenue
	Murray Hill, New Jersey 07974
	Facsimile No.: (908) 582 4640

	Attn:	William Carapezzi, Jr., Esq. Senior Vice President, General Counsel and Corporate Secretary

	with a copy to:
	David A. Katz
	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	New York, New York 10019
	Facsimile No.: (212) 403-2000

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	LUCENT TECHNOLOGIES, INC.

	By:	/s/ Patricia F. Russo ______________________________________ Patricia F. Russo Chairman and Chief Executive Officer

	ALCATEL

	By:	/s/ Serge Tchuruk ______________________________________ Serge Tchuruk Chairman and Chief Executive Officer

	AURA MERGER SUB, INC.

	By:	/s/ Jean-Pascal Beaufret ______________________________________ Jean-Pascal Beaufret President

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	1.	2% of the total number of the shares must, within a period of five trading days from the date on which this share ownership threshold is reached, inform the Company of the total number of shares that he owns, by letter or fax. This notification shall be renewed under the same conditions each time a further threshold of 1% is reached.
	2.	3% of the total number of the shares must, within a period of five trading days from the date on which this share ownership threshold is reached, request the registration of his shares. This obligation to register shares shall apply to all the shares already held as well as to any which might be acquired subsequently in excess of this threshold. The copy of the request for registration, sent by letter or fax to the Company within fifteen days from the date on which this share ownership threshold is reached, shall be deemed to be a notification that the threshold has been reached. A further request shall be sent in the same conditions each time a further threshold of 1% is reached, up to 50%.

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	(a)	reviewed certain publicly available financial statements and other business and financial information of Alcatel and the Company, respectively;
	(b)	reviewed certain internal financial statements and other financial and operating data concerning Alcatel and the Company, respectively;
	(c)	reviewed certain financial projections prepared by the managements of Alcatel and the Company, respectively;
	(d)	reviewed information relating to certain strategic, financial and operational benefits anticipated from the Merger, prepared by the managements of Alcatel and the Company, respectively;

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	(e)	discussed the past and current operations and financial condition and the prospects of Alcatel, including information relating to certain strategic, financial and operational benefits anticipated from the Merger, with senior executives of Alcatel;

	(f)	discussed the past and current operations and financial condition and the prospects of the Company, including information relating to certain strategic, financial and operational benefits anticipated from the Merger, with senior executives of the Company;

	(g)	reviewed the pro forma impact of the Merger on the Company’s, Alcatel’s and the combined company’s earnings per share, cash flow, consolidated capitalization and other financial ratios;
	(h)	reviewed the reported prices and trading activity for Alcatel Ordinary Shares, the Alcatel ADS and the Lucent Common Stock;
	(i)	compared the financial performance of Alcatel and the Company and the prices and trading activity of Alcatel Ordinary Shares, the Alcatel ADS and the Lucent Common Stock with that of certain other publicly-traded companies comparable with Alcatel and the Company, respectively, and their securities;
	(j)	participated in discussions among representatives of Alcatel and the Company and their financial and legal advisors;
	(k)	reviewed the Merger Agreement draft dated March 31, 2006, and certain related documents; and
	(l)	performed such other analyses, reviewed such other information and considered such other factors as we have deemed appropriate.

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	Very truly yours,
	MORGAN STANLEY & CO. INCORPORATED

	By:	/s/ Robert L. Eatroff ______________________________________ Robert L. Eatroff Managing Director

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	•	the proposed merger (the “Merger”) would be completed through the merger of Lucent and Merger Sub, a wholly-owned subsidiary of Alcatel, with Lucent shares being exchanged for Alcatel American Depositary Shares (the “Alcatel ADS”), on the basis of an exchange ratio of 0.1952 Alcatel ADS for one Lucent share, in accordance with the terms and conditions provided in the Agreement and Plan of Merger entered into on April 2, 2006 between Alcatel, Merger Sub, and Lucent. The exchange ratio corresponds to the parity of the Lucent share and the Alcatel ADS prices over a recent period, prior to the market rumors of the Merger, on March 24, 2006. The Merger, subject to certain conditions and authorizations, might be completed prior to the end of 2006.
	•	the Merger is expected to result in pre-tax cost synergies estimated at €1.4bn per year within three years. The cash cost of implementing these synergies is estimated at €1.4bn.

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	(i) Publicly available information on the Merger, Alcatel and Lucent, and specifically:

	•	the Agreement and Plan of Merger and the Form F-4;
	•	the annual reports of Alcatel (Document de référence, Form 20-F and Form 10-K) and of Lucent (Form 10-K) for the last five fiscal years (ended respectively on December 31, 2005 and September 30, 2005);
	•	Certain Alcatel and Lucent interim reports, including certain Lucent quarterly reports (Form 10-Q);

	(ii) Information relating to the Merger presented to the Alcatel board of directors, including financial projections prepared by Alcatel on the same, Lucent, the expected synergies and the combined company;
	(iii) Several meetings and telephone conversations with Alcatel and its advisor for the Merger;

	(i) BNP Paribas first compared the proposed parity of 0.1952 Alcatel ADS per Lucent share with the parity resulting from the performance of the Lucent share price and that of the Alcatel ADS (which correlates exactly with the price of the ordinary Alcatel share) over several periods prior to market rumors on March 24, 2006. The Alcatel share prices were adjusted by the dividend offered in 2005 (€0.16 per share) and reserved for its own shareholders.
	The proposed parity is lower than the averages recorded on March 23, 2006 (1-month, 3-month, 6-month, 1-year). It is only higher than the parity of the last share prices on March 23, 2006 (0.1848).
	The proposed parity was also compared to the parity resulting from target share prices of financial analysts prior to March 24, 2006. For each 12 month period preceding this date, it is lower than the parity resulting from the average target share prices for Alcatel and Lucent.
	(ii) BNP Paribas then performed a valuation of the Alcatel shareholders’ share in the value of the combined company’s equity, synergies included, and compared this value with the value of Alcatel’s

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	equity prior to the rumors of March 24, 2006 (the market capitalization of Alcatel calculated on the basis of the 1-month average share price on March 23, 2006, was used as a reference).
	The value of the combined company was determined using two separate methods:

	•	discounting the free cash flows of the group resulting from the Merger, synergies included. We extrapolated the free cash flows after 2009, the last year of the financial projections prepared by Alcatel, on a normalized basis, assumed to grow at 2% per year (inflation included). A discount rate of 9.7%, corresponding to our estimate of the weighted average cost of capital of the combined company, was used. A corporate income tax rate of 30% was used after 2009. Possible tax-loss carryforwards from which the combined company could benefit at this time were valued separately;
	•	a comparison of the multiples of Alcatel, Lucent and comparable companies (Avaya, Cisco Systems, Ericsson, Motorola, Nokia and Nortel Networks). The most relevant multiple is the value of capital employed over EBIT which factors in the earnings power and capital intensity of the companies, without factoring in the impacts of different financial structures. This multiple was calculated for 2007 and 2008, as financial analysts’ estimates were unavailable for 2009. This multiple was applied to projections of the EBIT of the combined company for 2007 and 2008. Expected synergies for 2007 and 2008 only represent 30% and 70% respectively of synergies expected over the long term. The amount of long-term synergies, discounted at the weighted average cost of capital, was factored in so as to provide a truer image of the earnings power of the combined company. We considered the tax-loss carryforwards as implicitly valued by the multiples of the peer companies, as most of them also have substantial tax-loss carryforwards.

	The two methods were applied both on the basis of the consensus of financial analysts’ forecasts for both companies and on the basis of projections prepared by Alcatel (extrapolated by us for the discounted cash flows approach). Lucent’s forecast EBIT was adjusted to factor in only the service cost relating to pension and other post-retirement benefits obligations and to exclude the impact, positive however without any cash effect, of the actuarial assumptions relied on for these commitments.
	In order to determine the value of the combined company’s equity, we took the following factors into account:

	•	The net debt, estimated at market value, of Alcatel and Lucent on March 31,2006;
	•	The minority interests in the equity of the subsidiaries that have been fully consolidated, but that are not wholly-owned, valued at their book value. This amount reflects a P/ E ratio that is higher than the sector average, which leads us to assume that this approach is cautious;
	•	The difference between the present value of the assets covering pension and other post-retirement benefits obligations and the after tax value of these obligations, as assessed by Alcatel;
	•	The value of financial assets, the income on which is not included in EBIT.

	Using the multiples approach, the cost of implementing the synergies resulting from the Merger was deducted from the asset value in order to determine the equity value. Using the discounted cash flows approach, they were included in the flows.
	Regardless of the method used to value the equity of the combined company, (discounted free cash flows or multiples of peers) or of the financial projections used for Lucent (prepared by Alcatel or resulting from the consensus of financial analysts, with in both cases, only the service cost factored in), and given the expected synergies, Alcatel’s shareholders’ share (60%) in the equity of the combined company is substantially higher than the value of Alcatel’s equity prior to the announcement of the Merger (calculated on the basis of the Alcatel 1-month average share price on March 23, 2006).
	On the basis of the financial projections for Lucent prepared by Alcatel, the percentage of the creation of value in connection with the Merger that the Alcatel shareholders would get is lower than the percentage of their share in the capital of the combined company (60%), which could be expected in the

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	case of a merger through a share exchange with no premium, on the basis of listed share prices. This is explained by the fact that the financial projections of Lucent prepared by Alcatel are lower, in the interests of caution, to the consensus of financial analysts. Additionally, on the basis of the financial projections for Lucent prepared by Alcatel and extrapolated by us, the creation of value for Alcatel shareholders, calculated using the discounted cash flows method, is positive when the actual synergies realized represent approximately half of the expected synergies.
	If we use the financial projections for Lucent drawn from analysts’ consensus — for 2006, 2007 and 2008 only — the percentage of the creation of value by the Merger that the Alcatel shareholders would get, would be close to the percentage of their share in the capital of the combined company (60%). Additionally, also on the basis of the financial projections for Lucent drawn from analysts’ consensus, the creation of value for Alcatel shareholders, calculated using the discounted cash flows method, is positive when the actual synergies realized represent approximately one third of the expected synergies.
	Furthermore, for indicative purposes, BNP Paribas analyzed the impact of the Merger on Alcatel’s forecast earnings per share. This analysis is based on projections made by Alcatel for Alcatel and Lucent (only factoring in the service cost) and expected synergies from the Merger in 2007, 2008 and 2009. Earnings per share were calculated before depreciation of intangibles and excluding the cost of implementing the synergies.
	This analysis reveals, given the expected synergies, a slight increase in Alcatel’s earnings per share from 2007, and an increase of over 30% in 2008 and 2009.

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/s/ Christophe Moulin		/s/ Pascal Quiry
Christophe Moulin		Pascal Quiry
Managing Director		Managing Director
BNP Paribas Corporate Finance		BNP Paribas Corporate Finance

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