F-4/A 1 y20140a1fv4za.htm AMENDMENT NO. 1 TO FORM F-4 F-4/A
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As filed with the Securities and Exchange Commission on August 4, 2006
Registration No. 333-133919
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Amendment No. 1
to
Form F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
ALCATEL
(Exact name of registrant as specified in its charter)
N/A
(Translation of registrant name into English)
         
Republic of France   4813   N/A
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
 
54, rue La Boétie
75008 Paris, France
011 33 (1) 40 76 10 10
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Steven Sherman
Senior Vice President and Chief Financial Officer
Alcatel USA, Inc.
3400 West Plano Parkway
Plano, Texas 75075
(972) 519-3000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
With copies to:
             
Pascal Durand-Barthez
General Counsel
Alcatel
54, rue La Boétie
75008 Paris, France
011 33 (1) 40 76 10 10
  Roger S. Aaron, Esq.
Stephen F. Arcano, Esq.
Skadden, Arps, Slate,
Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
  William Carapezzi, Jr., Esq.
General Counsel and
Corporate Secretary
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
(908) 582-3000
  David A. Katz, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
(212) 403-1000
     Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933 (the “Securities Act”), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
     If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
 
     The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
 
 


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The information contained herein is subject to completion or amendment. No securities may be sold until a registration statement filed with the U.S. Securities and Exchange Commission is effective. This preliminary proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale is not permitted or would be unlawful.

SUBJECT TO COMPLETION, DATED AUGUST 4, 2006
(LUCENT TECHNOLOGY ) (ALCATEL)
To the Shareowners of Lucent Technologies Inc.:
      You are cordially invited to attend a special meeting of shareowners of Lucent Technologies Inc. scheduled for September 7, 2006, at the DuPont Theatre located at 10th and Market Streets, Wilmington, Delaware 19801. At the special meeting, you will be asked to approve and adopt our merger agreement with Alcatel, dated as of April 2, 2006. In the merger, a subsidiary of Alcatel will be merged with and into Lucent, with Lucent surviving the merger and continuing its existence as a wholly owned subsidiary of Alcatel. The combined company created by this merger of equals will be renamed “Alcatel Lucent,” with effect upon completion of the merger.
      If the merger is completed, each share of Lucent common stock that you own at the effective time of the merger will be converted into the right to receive 0.1952 of an American Depositary Share of Alcatel (as the combined company), which is referred to as an Alcatel ADS. Each Alcatel ADS represents one ordinary share of Alcatel, nominal value 2 per share. Based on the estimated number of shares of Lucent common stock outstanding on the record date for the special meeting, Alcatel expects to issue approximately 874,912,290 Alcatel ADSs representing 874,912,290 Alcatel ordinary shares to Lucent shareowners in the merger. Alcatel ADSs trade on the New York Stock Exchange, or the NYSE, under the symbol “ALA.” We estimate that immediately after the effective time of the merger, former Lucent shareowners will hold Alcatel ADSs representing approximately 39% of the then-outstanding Alcatel ordinary shares.
      The merger cannot be completed unless Lucent shareowners approve and adopt the merger agreement and the transactions contemplated by the merger agreement. Such approval and adoption requires the affirmative vote of the holders of at least a majority of the outstanding shares of Lucent common stock outstanding on the record date.
      The Lucent board of directors has carefully reviewed and considered the terms and conditions of the merger agreement and the proposed merger. Based on its review, 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 Lucent shareowners, and has unanimously approved and adopted the merger agreement and the transactions contemplated by the merger agreement. The Lucent board of directors unanimously recommends that Lucent shareowners vote “FOR” the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement.
      The accompanying proxy statement/ prospectus contains detailed information about the merger and the special meeting. This document is also a prospectus for the Alcatel ordinary shares underlying the Alcatel ADSs that will be issued in the merger. We encourage Lucent shareowners to read carefully this proxy statement/ prospectus before voting, including the section entitled “Risk Factors” beginning on page 23.
      Your vote is very important. Whether or not you plan to attend the Lucent special meeting, please take the time to vote by completing and mailing the enclosed proxy card or, if the option is available to you, by granting your proxy electronically over the Internet or by telephone. If your shares are held in “street name,” you must instruct your broker in order to vote.
  Sincerely,
 
  -s- Patricia F. Russo
 
  Patricia F. Russo
  Chairman of the Board of Directors and
  Chief Executive Officer
  Lucent Technologies Inc.

      Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this proxy statement/ prospectus or determined if this proxy statement/ prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.
      This proxy statement/ prospectus is dated August 4, 2006, and is being mailed to Lucent shareowners on or about August 7, 2006.


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ADDITIONAL INFORMATION
      This proxy statement/ prospectus incorporates by reference important business and financial information about Alcatel and Lucent from documents filed with the U.S. Securities and Exchange Commission, which is referred to as the SEC, that are not included in or delivered with this proxy statement/ prospectus. For a more detailed description of the documents incorporated by reference into this proxy statement/ prospectus and how you may obtain them, see “Additional Information — Where You Can Find More Information” beginning on page 171.
      Documents incorporated by reference are available to you without charge upon your written or oral request, excluding any exhibits to those documents, unless the exhibit is specifically incorporated by reference as an exhibit in this proxy statement/ prospectus. You can obtain any of these documents from the SEC’s website at http://www.sec.gov or by requesting them in writing or by telephone from the appropriate company.
     
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
      Alcatel and Lucent are not incorporating the contents of the websites of the SEC, Alcatel, Lucent or any other person into this document. Alcatel and Lucent are providing only the information about how you can obtain certain documents that are incorporated by reference into this proxy statement/ prospectus at these websites for your convenience.
      IN ORDER FOR YOU TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE LUCENT SPECIAL MEETING, ALCATEL OR LUCENT, AS APPLICABLE, SHOULD RECEIVE YOUR REQUEST BY NO LATER THAN AUGUST 30, 2006.
ABOUT THIS DOCUMENT
      This document, which forms part of a registration statement on Form F-4 filed with the SEC by Alcatel (File No. 333-133919), constitutes a prospectus of Alcatel under Section 5 of the U.S. Securities Act of 1933, as amended, which is referred to as the Securities Act, with respect to the Alcatel ordinary shares underlying the Alcatel ADSs to be issued to Lucent shareowners as required by the merger agreement. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the U.S. Securities Exchange Act of 1934, as amended, which is referred to as the Exchange Act, with respect to the special meeting of Lucent shareowners, at which Lucent shareowners will be asked to consider and vote upon a proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement.
CURRENCIES
      In this prospectus, unless otherwise specified or the context otherwise requires:
  •  “$” 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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(LUCENT TECHNOLOGY )
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
NOTICE OF SPECIAL MEETING OF SHAREOWNERS
TO BE HELD ON SEPTEMBER 7, 2006
 
To the Shareowners of Lucent Technologies Inc.:
      We will hold a special meeting of shareowners of Lucent on September 7, 2006, at 11:00 a.m. Eastern time, at the DuPont Theatre located at 10th and Market Streets, Wilmington, Delaware 19801, for the following purposes:
        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.
      Only Lucent shareowners of record at the close of business on July 17, 2006, the record date for the Lucent special meeting, are entitled to notice of, and to vote at, the Lucent special meeting and any adjournments or postponements of the Lucent special meeting.
      The Lucent board of directors has unanimously approved the merger agreement and the transactions contemplated by the merger agreement and unanimously recommends that you vote “FOR” the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement, which are described in detail in this proxy statement/ prospectus.
      A list of shareowners eligible to vote at the Lucent special meeting will be available for inspection at the special meeting and at the offices of Lucent during regular business hours for a period of no less than ten days prior to the special meeting.
YOUR VOTE IS IMPORTANT
      Whether or not you plan to attend the meeting, please vote as soon as possible. To vote your shares, call the toll-free telephone number listed on your proxy card, use the Internet as described in the instructions on the enclosed proxy card, or complete, sign, date and mail your proxy card. Voting over the Internet, by telephone or by written proxy will assure that your vote is counted at the meeting if you do not attend in person. The proxy card should be received by September 6, 2006 in the enclosed envelope to ensure that your vote is counted at the special meeting. If you vote over the Internet or by telephone, you do not need to return your proxy card.
  By Order of the Board of Directors,
  Lucent Technologies Inc.
 
  William R. Carapezzi, Jr.
  Senior Vice President,
  General Counsel and Secretary
Murray Hill, New Jersey, August 4, 2006


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 EX-4.1: DEPOSIT AGREEMENT
 EX-5.1: OPINION OF PASCAL DURAND-BARTHEZ
 EX-8.1: OPINION OF WACHTELL, LIPTON, ROSEN & KATZ
 EX-23.1: CONSENT OF DELOITTE & ASSOCIES
 EX-23.2: CONSENT OF PRICEWATERHOUSECOOPERS LLP
 EX-99.1: CONSENT OF GOLDMAN SACHS INTERNATIONAL
 EX-99.2: CONSENT OF J.P.MORGAN SECURITIES INC.
 EX-99.3: CONSENT OF MORGAN STANLEY & CO. INCORPORATED
 EX-99.4: CONSENT OF BNP PARIBAS
     
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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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE
LUCENT SPECIAL SHAREOWNERS MEETING
      The following are some questions that you may have regarding the proposed merger and the other matters being considered at the Lucent special meeting and brief answers to those questions. Lucent and Alcatel urge you to read carefully the remainder of this proxy statement/ prospectus because the information in this section does not provide all the information that might be important to you with respect to the proposed merger and the other matters being considered at the Lucent special meeting. Additional important information is also contained in the annexes to, and the documents incorporated by reference in, this proxy statement/ prospectus. Unless stated otherwise, all references in this proxy statement/ prospectus to Alcatel are to Alcatel, a société anonyme organized under the laws of the Republic of France; all references to Lucent are to Lucent Technologies Inc., a Delaware corporation; all references to Merger Sub are to Aura Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Alcatel; all references to the combined company are to Alcatel, with Lucent as a wholly owned subsidiary following completion of the merger; and all references to the merger agreement are to the Agreement and Plan of Merger, dated as of April 2, 2006, by and among Lucent, Alcatel and Merger Sub, a copy of which is attached as Annex A to this proxy statement/ prospectus.
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:
     
 
MACKENZIE PARTNERS, INC LOGO
  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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SUMMARY
      The following is a summary that highlights information contained in this proxy statement/ prospectus. This summary may not contain all of the information that is important to you. For a more complete description of the merger agreement and the transactions contemplated by the merger agreement, Alcatel and Lucent encourage you to carefully read this entire proxy statement/ prospectus, including the attached annexes. In addition, Alcatel and Lucent encourage you to read the information incorporated by reference into this proxy statement/ prospectus, which includes important business and financial information about Alcatel and Lucent that has been filed with the SEC. You may obtain the information incorporated by reference into this proxy statement/ prospectus without charge by following the instructions in the section entitled “Additional Information — Where You Can Find More Information.”  
The Companies
      Alcatel. Alcatel is a worldwide provider of a wide variety of telecommunications equipment and services operating in more than 130 countries. Alcatel’s telecommunications equipment and services enable its customers to send or receive virtually any type of voice or data transmission. Alcatel’s customers include fixed-line and wireless telecommunications operators, Internet service providers, governments and businesses. Alcatel was founded in 1898 and is headquartered in Paris, France.  
 
      Alcatel ADSs are traded on the NYSE under the trading symbol “ALA.” Each Alcatel ADS represents one Alcatel ordinary share. Alcatel ordinary shares are quoted on the Euronext Paris SA under the trading symbol “CGE.”  
 
      Alcatel’s principal executive offices are located at 54, rue La Boétie, 75008 Paris, France (telephone number 011 33 (1) 40 76 10 10).  
 
      Lucent Technologies Inc. Lucent designs and delivers the systems, services and software that drive next-generation communications networks. Lucent uses its strengths in mobility, optical, software, data and voice networking technologies, as well as services, to create new revenue-generating opportunities for its customers, while enabling them to quickly deploy and better manage their networks. Lucent’s customer base includes communications service providers, governments and enterprises worldwide. The history of Lucent dates back to 1869, when its predecessor, the Western Electric Company, was formed. Lucent is headquartered in Murray Hill, New Jersey.  
 
      Lucent common stock is traded on the NYSE under the symbol “LU.”  
 
      Lucent’s principal executive offices are located at 600 Mountain Avenue, Murray Hill, New Jersey 07974 (telephone number (908) 582-3000).  
 
      Aura Merger Sub. Merger Sub is a wholly owned subsidiary of Alcatel. Merger Sub was formed on March 30, 2006 solely for the purpose of effecting the merger. Merger Sub has not conducted any business operations other than those incidental to its formation and in connection with the transactions contemplated by the merger agreement.  
The Merger (see page 43)
      Alcatel and Lucent have agreed to combine their businesses pursuant to the merger agreement described in this proxy statement/prospectus. Under the terms of the merger agreement, Merger Sub will merge with and into Lucent, with Lucent surviving the merger and continuing its existence as a wholly owned subsidiary of Alcatel. The combined company will be renamed “Alcatel Lucent,” with effect upon completion of the merger. The merger agreement is attached as Annex A to this proxy statement/ prospectus. Alcatel and Lucent encourage you to read the merger agreement in its entirety because it is the legal document that governs the merger.  

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Merger Consideration (see page 91)
      In the merger, each share of Lucent common stock outstanding immediately prior to the effective time of the merger will be automatically converted into the right to receive 0.1952 of an Alcatel ADS, which is referred to as the exchange ratio, together with the right, if any, to receive cash in lieu of fractional shares of Lucent. 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 to receive a fractional Alcatel ADS in the merger will be entitled to receive a cash payment in lieu of such fractional Alcatel ADS.
      Former Lucent shareowners are currently expected to own approximately 39% of the outstanding ordinary shares of Alcatel after the merger, based on the number of Alcatel ordinary shares and shares of Lucent common stock outstanding as of July 17, 2006.
      Lucent shareowners will have to surrender their common stock certificates to receive the merger consideration payable to them and any dividend they would otherwise be entitled to receive in respect of such Alcatel ADSs. PLEASE DO NOT SEND ANY CERTIFICATES NOW. Alcatel or the exchange agent will send Lucent shareowners written instructions on how to surrender Lucent common stock certificates for Alcatel ADSs after the merger is completed.
Treatment of Stock Options (see page 92)
      The merger agreement provides that each option to purchase shares of Lucent common stock granted under employee and director stock plans of Lucent (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) will be converted into a right to acquire Alcatel ordinary shares, on the same terms and conditions as were applicable to such option prior to the effective time of the merger, provided 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.
Recommendation of the Lucent Board of Directors (see page 57)
      The Lucent board of directors has determined unanimously 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.
Shareowners Entitled to Vote; Vote Required (see page 40)
      You can vote at the Lucent special meeting if you owned Lucent common stock at the close of business on July 17, 2006, which is referred to as the record date. On the record date, there were 4,482,132,632 shares of Lucent common stock outstanding and entitled to vote at the Lucent special meeting, held by approximately 3.3 million shareowners of record. You may cast one vote for each share of Lucent common stock that you owned on the record date.
      Abstentions will be counted in determining whether a quorum is present at the Lucent special meeting for purposes of the vote of Lucent shareowners on the proposal to approve the merger agreement and the transactions contemplated by the merger agreement. An abstention will have the same effect as a vote against the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement.

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Opinions of Financial Advisors (see pages 61, 66 and 74)
Alcatel
      On April 2, 2006, Goldman Sachs International, which is referred to as Goldman Sachs, financial advisor to Alcatel, delivered its written opinion to the Alcatel board of directors that, as of the date of the opinion and based upon and subject to the factors and assumptions set forth therein, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to Alcatel. The full text of Goldman Sachs’ written opinion is attached to this proxy statement/ prospectus as Annex C. You are encouraged to read this opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken. Goldman Sachs’ opinion is directed to the Alcatel board of directors and does not constitute a recommendation to any shareowners as to any matters relating to the merger.
      On May 12, 2006, BNP Paribas delivered its written opinion to the Alcatel board of directors that, based on public information and information made available to BNP Paribas by Alcatel, the assumptions made by Alcatel and the features of the merger described in their written opinion, the exchange ratio in the proposed merger appears to be reasonable for the Alcatel shareholders, as of April 2, 2006, from a financial point of view. An English translation of the text of the opinion of BNP Paribas is attached to this proxy statement/prospectus as Annex F. You are encouraged to read the full text of the English translation of the BNP Paribas opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations to the review undertaken. The English translation of the opinion letter attached to this proxy statement/prospectus is provided for informational purposes only and is qualified in its entirety by reference to the original French-language opinion letter filed with the Autorité des Marchés Financiers, or AMF. BNP Paribas’ opinion is directed to the Alcatel board of directors and does not constitute a recommendation to any shareholder as to any matters relating to the merger.
Lucent
      On April 1, 2006, J.P. Morgan Securities Inc., which is referred to as JPMorgan, financial advisor to Lucent, rendered its oral opinion, subsequently confirmed in writing, to the Lucent board of directors that, as of such date and based upon and subject to the factors, limitations and assumptions set forth in its opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to holders of Lucent common stock. The full text of JPMorgan’s written opinion is attached to this proxy statement/ prospectus as Annex D. You are encouraged to read this opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken. JPMorgan’s opinion is directed to the Lucent board of directors and does not constitute a recommendation to any shareowner as to any matters relating to the merger.
      On April 1, 2006, Morgan Stanley & Co. Incorporated, which is referred to as Morgan Stanley, financial advisor to Lucent, rendered its oral opinion, subsequently confirmed in writing, to the Lucent board of directors that, as of April 1, 2006, based upon and subject to the various considerations set forth in the opinion, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to the holders of shares of Lucent common stock (other than Alcatel or any of its subsidiaries or affiliates). The full text of Morgan Stanley’s written opinion is attached to this proxy statement/ prospectus as Annex E. You are encouraged to read this opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken. Morgan Stanley’s opinion is directed to the Lucent board of directors and does not constitute a recommendation to any shareowner as to any matters relating to the merger.
Directors and Management of the Combined Company After the Merger
Board of Directors Following the Effective Time of the Merger
      On July 26, 2006, the Alcatel board of directors nominated twelve individuals for election by the Alcatel shareholders to the board of directors of the combined company effective as of, and conditioned upon, the

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occurrence of the effective time of the merger. Each nominee, if elected, will serve for a term of four years. Immediately following the completion of the merger, the newly elected board members are expected to appoint two independent directors. The election of the directors specified below to the board of directors of the combined company by the Alcatel shareholders is a condition to the merger. Following completion of the merger and the expected appointment of two independent directors by the newly elected board members, the combined company’s board of directors is expected to be comprised of fourteen members, as follows:
  •  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.
      For a one-year period following the completion of the merger, at least a 662/3 % vote of the entire board of directors of the combined company and the nominating committee would be required to fill any vacancy on the board of directors.
      Alcatel also nominated two employee representatives for election by the Alcatel shareholders as censeurs. The censeurs will be non-voting observers at meetings of the board of directors.
Executive Positions
      As of the effective time of the merger, Serge Tchuruk will be appointed as non-executive chairman of the board of directors of the combined company, and Patricia F. Russo will be appointed as chief executive officer of the combined company, in accordance with the articles of association and bylaws (statuts) of Alcatel in effect as of the effective time of the merger. If either appointee is unwilling or unable to serve as of the effective time of the merger, the combined company’s board of directors will name another appointee in accordance with the articles of association and bylaws (statuts) of the combined company in effect as of the effective time of the merger.
      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 of the board of directors or the chief executive officer of the combined company and to decide on any replacement.
Name and Executive Offices of the Combined Company After the Merger
New Corporate Name
      The combined company will be renamed “Alcatel Lucent,” with effect upon completion of the merger. Alcatel and Lucent will mutually agree on a stock trading symbol prior to the effective time of the merger.
Executive Offices
      As of and after the merger, the executive offices of the combined company will be located in Paris, France, and the principal offices of the activities of Lucent known as “Bell Laboratories” (which will be the global research and development headquarters of the combined company), and the North American operating headquarters of the combined company will be located in New Jersey.

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Ownership of the Combined Company After the Merger
      Alcatel and Lucent expect that the combined company will issue a maximum of approximately 874 million Alcatel ADSs in the merger which represent an equal number of Alcatel ordinary shares. Based on the number of shares of Lucent common stock outstanding on the record date, after the effective time of the merger, former Lucent shareowners will own Alcatel ADSs representing approximately 39% of the then-outstanding Alcatel ordinary shares. In addition, Alcatel may issue additional Alcatel ADSs as a result of the future exercise or conversion of Lucent warrants and convertible debt, and issue additional Alcatel ordinary shares and Alcatel ADSs in connection with Lucent equity-based compensation, in an aggregate amount representing approximately 274 million Alcatel ordinary shares.
Share Ownership of Directors and Executive Officers
      At the close of business on July 31, 2006, directors and executive officers of Lucent and their affiliates beneficially owned and were entitled to vote approximately 35 million shares of Lucent common stock, collectively representing less than 1% of the shares of Lucent common stock outstanding on that date. Lucent directors and executive officers have indicated that they expect to vote for the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement.
Interests of the Directors and Executive Officers of Lucent in the Merger (see page 80)
      In considering the recommendation of the Lucent board of directors with respect to the merger agreement and the transactions contemplated by the merger agreement, you should be aware that certain members of the Lucent board of directors and certain of Lucent’s executive officers have interests in the transactions contemplated by the merger agreement that may be different than, or in addition to, the interests of Lucent shareowners generally. These interests include, among other things, the following:
  •  certain executive officers whose employment is terminated under certain circumstances after the merger will be entitled to severance benefits payable by Lucent;
 
  •  certain executive officers hold options and other stock-based awards granted under Lucent’s equity compensation plans which in some cases will vest upon approval and adoption of the merger agreement by Lucent shareowners and receipt of all regulatory approvals for the merger and in other cases will vest if their employment is terminated under certain circumstances after the merger;
 
  •  Patricia F. Russo, the chairman of the board of directors and chief executive officer of Lucent, will be the chief executive officer of the combined company following the merger;
 
  •  five directors 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, in addition to Ms. Russo will be designated by Lucent to serve on the board of directors of the combined company after the effective time of the merger;
 
  •  certain of Lucent’s current executive officers will be offered continued employment with the combined company after the effective time of the merger; and
 
  •  directors and officers will be indemnified by the combined company with respect to acts or omissions by them in their capacities as such prior to the effective time of the merger.
      The Lucent board of directors was aware of these interests and considered them, among other matters, in making its recommendation. See “The Merger — Recommendation of the Lucent Board of Directors and Its Reasons for the Merger.”
Listing of Alcatel ADSs; Delisting and Deregistration of Lucent Common Stock (see page 89)
      Under the merger agreement, Alcatel is required to have the Alcatel ADSs issued in the merger (and, if necessary, the underlying Alcatel ordinary shares) approved for listing on the NYSE, and the Alcatel ordinary

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shares approved for listing on Euronext Paris SA. If the merger is completed, Lucent common stock will no longer be listed on the NYSE and will be deregistered under the Exchange Act.
Dissenters’ Rights in the Merger (see page 89)
      Holders of Lucent common stock will not have any appraisal rights under the Delaware General Corporation Law, or under Lucent’s certificate of incorporation in connection with the merger, and neither Lucent nor Alcatel will independently provide holders of Lucent common stock with any such rights.
Conditions to Completion of the Merger (see page 102)
      A number of conditions must be satisfied or waived, where legally permissible, before the proposed merger can be consummated. These include, among others:
  •  approval and adoption of the merger agreement by Lucent shareowners;
 
  •  approval by Alcatel shareholders of the issuance of Alcatel ordinary shares in connection with the merger;
 
  •  approval by Alcatel shareholders of the issuance of Alcatel ordinary shares for delivery upon exercise or conversion, as applicable, of Lucent stock options, warrants, convertible debt and equity-based awards granted under any Lucent employee incentive or benefit plan;
 
  •  approval by Alcatel shareholders of the adoption of certain amendments to Alcatel’s articles of association and bylaws (statuts);
 
  •  election by Alcatel shareholders of the designees to the combined company’s board of directors;
 
  •  expiration or termination of the waiting period under the HSR Act;
 
  •  issuance of a decision by the European Commission declaring the merger compatible with the Common Market;
 
  •  receipt of approval for listing the Alcatel ADSs (and, if required, the underlying Alcatel ordinary shares) on the NYSE, and receipt of the approval of the AMF and the Euronext Paris SA of the listing of the Alcatel ordinary shares to be issued as of the effective time of the merger;
 
  •  the Committee on Foreign Investment in the United States, which is referred to as 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; and
 
  •  in the case of Alcatel, the fair market value of the assets of Lucent’s major pension plans will not be less than specified threshold amounts.
      On June 7, 2006, the Antitrust Division granted early termination of the HSR waiting period, 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 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. Neither Alcatel nor Lucent can give any assurance that all of the remaining conditions to the merger will be either satisfied or waived or that the merger will occur as intended.

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Regulatory Approvals Required for the Merger (see page 83)
      Alcatel and Lucent plan to submit a notice of the merger to CFIUS, in accordance with the regulations implementing the Exon-Florio Amendment to the Defense Production Act of 1950, which is referred to as the Exon-Florio Amendment. On June 7, 2006, the Antitrust Division granted early termination of the HSR waiting period, 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 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 merger may also be subject to the regulatory requirements of other municipal, state, federal and foreign governmental agencies and authorities, including those relating to the offer and sale of securities.
Other Offers (see page 97)
      Under the merger agreement, neither Alcatel nor Lucent is permitted:
  •  to solicit, initiate, or knowingly encourage or facilitate the making of any inquiries regarding any other acquisition proposal; or
 
  •  subject to certain exceptions, to disclose or provide any non-public information to any third party with respect to any such acquisition proposal, afford access to its properties, books or records to any third party that has made or is considering making such an acquisition proposal, or approve or recommend, or propose to approve or recommend, or enter into any agreement relating to such an acquisition proposal.
      However, before the merger agreement and the transactions contemplated by the merger agreement are approved by the party’s shareholders, the party may furnish non-public information to, and engage in negotiations with, a third party making an unsolicited, bona fide written acquisition proposal; provided that:
  •  the board of directors of the party receiving the acquisition proposal has determined that such acquisition proposal is reasonably expected to lead to a superior proposal, taking into account 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
 
  •  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.
Termination of the Merger Agreement (see page 105)
      The merger agreement may be terminated and the merger may be abandoned at any time prior to the completion of the merger by mutual written consent of Alcatel and Lucent. Either party will also have the right to terminate the merger agreement upon the occurrence of any of the following:
  •  non-consummation of the merger 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 antitrust clearance from governmental authorities or listing approval from the NYSE; provided that a party may not terminate upon occurrence of this event if such party’s failure to fulfill its obligations has caused or resulted in the merger not occurring before such time;
 
  •  the failure to obtain any necessary Lucent shareowner approval or Alcatel shareholder approval;
 
  •  the existence of a law or regulation prohibiting the merger, or the entry of a final and non-appealable injunction or government order which prohibits or restricts the merger;

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  •  a material breach of the other party’s representations, warranties or covenants (subject to a 60-day cure period);
 
  •  if the other party’s board of directors has failed to recommend the merger, or has withdrawn or modified in a manner adverse to the other party its recommendation of the merger, or has recommended a superior proposal; or
 
  •  if the other party has not called and held its shareholders meeting as required by the merger agreement.
Termination Fee (see page 106)
      Each of Lucent and Alcatel will be required to pay a fee to the other if the merger agreement is terminated under the circumstances specified below:
      A fee of $250 million, which is referred to as the initial termination fee, will be payable by one party to the other party if:
  •  (a) either party terminates the merger agreement because the paying party’s shareholders failed to approve the merger, or (b) the party receiving the fee terminates the merger agreement because the paying party’s shareholders meeting was not called and held as required; and prior to the paying party’s shareholders meeting, a competing acquisition proposal was made known to the paying party; or
 
  •  the party receiving the fee terminates the merger agreement because the paying party’s board of directors has failed to recommend, or has withdrawn or modified in an adverse manner its recommendation of the merger, or has recommended a superior proposal.
      A fee of $500 million, which is referred to as the termination fee, will be payable by one party to the other party if:
  •  (a) either party terminates the merger agreement because the paying party’s shareholders failed to approve the merger, (b) prior to the paying party’s shareholders meeting, an acquisition proposal was made known to the paying party, and (c) the paying party enters into any business combination transaction, or an agreement providing for such transaction, with any third party within 12 months following such termination; or
 
  •  (a) the party receiving the fee terminates because (i) the paying party’s board of directors has failed to recommend, or has withdrawn or modified in an adverse manner its recommendation of the merger, or has recommended a superior proposal; or (ii) the paying party’s shareholders meeting was not called and held as required; and (b) the paying party enters into any business combination transaction, or an agreement providing for such transaction, with any third party within 12 months following such termination.
      If the paying party is required to pay both the initial termination fee and the termination fee, the amount of the termination fee will be offset by the amount of the initial termination fee paid.
Material U.S. Federal Income Tax Consequences of the Merger (see page 85)
      The merger is intended to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, for U.S. federal income tax purposes. As a result, Alcatel and Lucent believe you will not recognize gain or loss on the exchange of your Lucent common stock for Alcatel ADSs, although gain or loss may be recognized upon the receipt of cash in lieu of fractional Alcatel ADSs. Alcatel and Lucent cannot assure you that the Internal Revenue Service will agree with the treatment of the merger as a tax-free reorganization. Tax matters are complicated, and the tax consequences of the merger to each Lucent shareowner will depend on the facts of each shareowner’s situation. Lucent shareowners are urged to read the discussion under “The Merger — Material U.S. Federal Income Tax Consequences” and to consult their own tax advisors for a full understanding of the tax consequences of their participation in the merger.

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Accounting Treatment (see page 88)
      Alcatel will account for the merger using the purchase method under International Financial Reporting Standards as adopted by the European Union, which are referred to as IFRS.
Payment of Dividends (see page 165)
Alcatel
      Under French law, the Alcatel board of directors must first propose the distribution of any dividend to a general meeting of all Alcatel’s shareholders. A majority of the holders of Alcatel ordinary shares (including Alcatel ordinary shares underlying Alcatel ADSs) present or represented at the general meeting must approve the distribution. Under French law, the aggregate amount of any dividends paid on Alcatel ordinary shares will, for any year, be limited to Alcatel’s so-called distributable amounts (sommes distribuables) for that year. In any fiscal year, Alcatel’s distributable amounts will equal the sum of the following:
  •  Alcatel’s profits for the fiscal year, less
 
  •  Alcatel’s losses for the fiscal year, less
 
  •  any required contribution to Alcatel’s legal reserve fund under French law, plus
 
  •  any additional profits that Alcatel reported, but did not distribute in its prior fiscal years, less
 
  •  any loss carryforward from prior fiscal years, plus
 
  •  any reserves available for distribution.
      In the future, Alcatel may offer its shareholders the option to receive any dividends in shares instead of cash.
      On February 2, 2006, Alcatel announced that its board of directors would propose a resolution at its annual shareholders meeting to be held in 2006 to pay a dividend of 0.16 per Alcatel ordinary share and Alcatel ADS for 2005. This meeting is currently expected to be held on September 7, 2006. If the dividend is approved at such meeting, it is expected that a dividend with respect to all Alcatel ordinary shares (including Alcatel ordinary shares underlying Alcatel ADSs) issued on or before December 31, 2005 will be paid on September 11, 2006 to holders of Alcatel ordinary shares who held such shares as of September 8, 2006 (record date), and in the case of Alcatel ADSs, to Société Générale, as custodian for the Bank of New York, the depositary for the Alcatel ADSs, for distribution consistent with past practice to the holders of Alcatel ADSs who held such Alcatel ADSs as of September 8, 2006. Lucent shareowners will not receive this dividend. The merger agreement provides that Alcatel may not declare, set aside or pay any dividend other than a regular annual dividend approved by Alcatel shareholders at Alcatel’s annual general meeting.
Lucent
      Lucent does not currently pay cash dividends on its common stock and has no plans to reinstate a dividend on its common stock. The merger agreement provides that Lucent may not declare, set aside or pay any dividend prior to the effective time of the merger or the termination of the merger agreement.
Comparison of Rights of Lucent Shareowners and Alcatel Shareholders (see page 154)
      As a result of the merger, your shares of Lucent common stock will be converted into the right to receive Alcatel ADSs representing Alcatel ordinary shares. Because Lucent is a corporation organized under the laws of Delaware and Alcatel is a société anonyme organized under the laws of the Republic of France, there are material differences between the rights of Lucent shareowners and the rights of holders of Alcatel ordinary shares and Alcatel ADSs. These differences are described in detail under “Comparison of Rights of Lucent Shareowners and Alcatel Shareholders.”

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SELECTED HISTORICAL FINANCIAL DATA OF ALCATEL
      In accordance with a regulation adopted by the European Union in July 2002, all companies incorporated under the laws of one of the member states of the European Union and whose securities are publicly traded within the European Union are required to prepare their consolidated financial statements for the fiscal year starting on or after January 1, 2005, on the basis of accounting standards issued by the International Accounting Standards Board. Therefore, in accordance with these requirements, Alcatel converted from using French generally accepted accounting principles to IFRS, as adopted by the European Union.
      As a first-time adopter of IFRS at January 1, 2005, Alcatel has followed the specific requirements described in IFRS 1, First Time Adoption of IFRS. The options selected for the purpose of the transition to IFRS are described in the notes to Alcatel’s 2005 audited consolidated financial statements appearing in Alcatel’s 2005 Form 20-F, which has been incorporated into this proxy statement/ prospectus by reference. Effects of the transition on the balance sheet at January 1, 2004, the statement of income for the year ended December 31, 2004 and the balance sheet at December 31, 2004 are presented and discussed in Note 38 to Alcatel’s 2005 audited consolidated financial statements appearing in Alcatel’s 2005 Form 20-F.
      The table below represents selected consolidated financial data for Alcatel for the years ended December 31, 2004 and December 31, 2005 in IFRS, which have been derived from the audited consolidated financial statements of Alcatel and for the years ended December 31, 2001 through December 31, 2005 in accordance with accounting principles generally accepted in the United States, which are referred to as U.S. GAAP. The selected consolidated financial data are qualified by reference to, and should be read in conjunction with, Alcatel’s 2005 Form 20-F, Alcatel’s audited consolidated financial statements and the notes to those statements and Item 5 — “Operating and Financial Review and Prospects” appearing in Alcatel’s 2005 Form 20-F.
      IFRS differs from U.S. GAAP in certain significant respects. For a discussion of significant differences between U.S. GAAP and IFRS as they relate to Alcatel’s consolidated financial statements and a reconciliation to U.S. GAAP of net income and shareholders’ equity for 2005 and 2004, see Notes 39 through 42 to the audited consolidated financial statements appearing in Alcatel’s 2005 Form 20-F.
                                                 
    Years Ended December 31,
     
    2005(1)   2005   2004   2003   2002   2001
                         
    (in millions, except per share data)
Statement of Income Data Amounts in accordance with IFRS
                                               
Revenues
  $ 15,554     13,135     12,244                          
Income (loss) from operating activities before restructuring, share-based payments, impairment of capitalized development costs and gain on disposal of consolidated entities
    1,408       1,189       1,179                          
Restructuring costs
    (130 )     (110 )     (324 )                        
Income (loss) from operating activities
    1,349       1,139       707                          
Income(loss) from continuing operations
    1,165       984       503                          
Net income (loss)
    1,150       971       645                          
Net income (loss) attributable to equity holders of the parent
    1,101       930       576                          

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    Years Ended December 31,
     
    2005(1)   2005   2004   2003   2002   2001
                         
    (in millions, except per share data)
Earnings per Ordinary Share
                                               
Net income (loss) attributable to the equity holders of the parent (before discontinued operations):
                                               
— Basic(2)
    0.82       0.69       0.32                          
— Diluted(3)
    0.82       0.69       0.31                          
Dividends per ordinary share(4)
    0.19       0.16                                
Dividend per ADS(4)
    0.19       0.16                                
Amounts in accordance with U.S. GAAP(5)
                                               
Net sales
  $ 15,547     13,129     12,663     12,528     16,549     25,627  
Income (loss) from operations
    1,113       940       550       (1,349 )     (8,300 )     (5,285 )
Net income (loss)
    904       763       550       (1,721 )     (11,511 )     (4,937 )
Basic earnings per ordinary share(2)(6):
                                               
 
Income (loss) before extraordinary items
    0.66       0.56       0.45       (1.46 )     (7.29 )     (4.05 )
 
Net income (loss)
    0.66       0.56       0.45       (1.42 )     (9.67 )     (4.26 )
Diluted earnings per ordinary share(3)(6):
                                               
 
Income (loss) before extraordinary items
    0.66       0.55       0.43       (1.46 )     (7.29 )     (4.05 )
 
Net income (loss)
    0.66       0.55       0.42       (1.42 )     (9.67 )     (4.26 )
Basic earnings per ADS(6):
                                               
 
Income (loss) before extraordinary items
    0.66       0.56       0.45       (1.46 )     (7.29 )     (4.05 )
 
Net income (loss)
    0.66       0.56       0.45       (1.42 )     (9.67 )     (4.26 )
Diluted earnings per ADS(6):
                                               
 
Income (loss) before extraordinary items
    0.66       0.55       0.43       (1.46 )     (7.29 )     (4.05 )
 
Net income (loss)
    0.66       0.55       0.42       (1.42 )     (9.67 )     (4.26 )
                         
    At December 31,
     
    2005(1)   2005   2004
             
Balance Sheet Data Amounts in accordance with IFRS
                       
Total assets
  $ 24,656     20,821     20,342  
Marketable securities and cash and cash equivalents
    6,099       5,150       5,163  
Bonds, notes issued and other debt — Long-term part
    3,259       2,752       3,491  
Current portion of long-term debt
    1,239       1,046       1,115  
Capital stock
    3,383       2,857       2,852  
Shareholders’ equity attributable to the equity holders of the parent after appropriation(4)
    7,111       6,005       4,920  
Minority interests
    565       477       373  

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    At December 31,
     
    2005(1)   2005   2004   2003   2002   2001
                         
    (in millions)
Amounts in accordance with U.S. GAAP(5)
                                               
Shareholders’ equity before proposed appropriation
  $ 10,325     8,719     6,864     6,414     8,184     20,985  
Total assets(7)
    28,639       24,184       23,888       25,998       30,435       49,046  
Long-term debt
    3,450       2,913       3,628       4,713       5,070       6,202  
 
(1)  Translated solely for convenience into dollars at the noon buying rate of 1.00 = $1.1842 on December 31, 2005.
 
(2)  Based on the weighted average number of shares issued after deduction of the weighted average number of shares owned by consolidated subsidiaries at December 31, without adjustment for any share equivalent:
  Ordinary shares: 1,367,994,653 in 2005 for IFRS earnings per share and 1,367,994,653 for U.S. GAAP earnings per share; 1,349,528,158 in 2004 for IFRS earnings per share (including 120,780,519 shares related to bonds mandatorily redeemable for ordinary shares) and 1,228,745,770 for U.S. GAAP earnings per share; 1,211,579,968 in 2003, 1,190,067,515 in 2002 and 1,158,143,038 in 2001 for U.S. GAAP earnings per share.
(3)  Diluted earnings per share takes into account share equivalents having a dilutive effect after deduction of the weighted average number of share equivalents owned by Alcatel’s subsidiaries. Net income is adjusted for after-tax interest expense related to Alcatel’s convertible bonds. The dilutive effect of stock option plans is calculated using the treasury stock method. The number of shares taken into account is as follows:
  •  IFRS: ordinary shares: 1,376,576,909 in 2005 and 1,362,377,441 in 2004.
 
  •  U.S. GAAP: ordinary shares: 1,377,183,582 in 2005; 1,363,661,187 in 2004; 1,211,579,968 in 2003; 1,190,067,515 in 2002 and 1,158,143,038 in 2001.
(4)  Under French company law, payment of annual dividends must be made within nine months following the end of the fiscal year to which they relate. On February 2, 2006, Alcatel announced that its board of directors would propose a resolution at its annual shareholders meeting to be held in 2006 to pay a dividend of 0.16 per Alcatel ordinary share and per Alcatel ADS for 2005.
 
(5)  For information concerning the differences between IFRS and U.S. GAAP for years 2005 and 2004, see Notes 39 to 42 to Alcatel’s 2005 consolidated financial statements appearing in Alcatel’s 2005 Form 20-F, which has been incorporated into this proxy statement/ prospectus by reference.
 
(6)  All ordinary share and per ordinary share data and all ADS and per ADS data for the years ended December 31, 2002 and 2001 have been adjusted to reflect the conversion on April 17, 2003 of all of Alcatel’s outstanding Class O shares and Class O ADSs into Alcatel ordinary shares and ADSs, as applicable, on a one-to-one basis. Alcatel no longer has Class O shares trading on the Euronext Paris SA or Class O ADSs trading on the Nasdaq National Market.
 
(7)  Advance payments received from customers are not deducted from the amount of total assets. See Note 39(k) to Alcatel’s consolidated financial statements appearing in Alcatel’s 2005 Form 20-F.

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SELECTED HISTORICAL FINANCIAL DATA OF LUCENT
      The table below sets forth selected consolidated financial data for Lucent for the fiscal years ended September 30, 2001 through September 30, 2005 in accordance with U.S. GAAP and the two interim periods of six months ended March 31, 2006 and 2005. The selected consolidated financial data are qualified by reference to, and should be read in conjunction with, the consolidated financial statements of Lucent and its subsidiaries as of September 30, 2005 and 2004, and for each of the three years in the period ended September 30, 2005, and report on the effectiveness of internal control over financial reporting as of September 30, 2005, which are incorporated into this proxy statement/prospectus by reference to Exhibit 99.1 of Lucent’s current report on Form 8-K, dated May 5, 2006, and Lucent’s quarterly reports on Form 10-Q for the quarterly periods ending December 31, 2005 and March 31, 2006, which are incorporated into this proxy statement/ prospectus by reference.
                                           
    Years Ended September 30,
     
    2005   2004   2003   2002   2001
                     
    (in millions, except per share data)
Results of Operations
                                       
Revenues
  $ 9,441     $ 9,045     $ 8,470     $ 12,321     $ 21,294  
Business restructuring
    (10 )     (20 )     (184 )     1,490       7,567  
Goodwill impairment
                35       826       3,849  
Income taxes
    (151 )     (939 )     (233 )     4,757       (5,734 )
Income (loss) from continuing operations
    1,185       2,002       (770 )     (11,826 )     (14,170 )
Earnings (loss) per common share from continuing operations:
                                       
 
Basic
    0.27       0.47       (0.29 )     (3.51 )     (4.18 )
 
Diluted
    0.24       0.42       (0.29 )     (3.51 )     (4.18 )
Dividends per common share
                            0.06  
                                         
    At September 30,
     
    2005   2004   2003   2002   2001
                     
    (in millions)
Financial Position
                                       
Cash, cash equivalents and marketable securities
  $ 4,930     $ 4,873     $ 4,507     $ 4,420     $ 2,390  
Assets
    16,400       16,963       15,911       17,791       33,664  
Debt
    5,434       5,990       5,980       5,106       4,409  
Liabilities
    16,025       18,342       19,282       20,845       20,807  
8.00% redeemable convertible preferred stock
                868       1,680       1,834  
Shareowners’ equity (deficit)
    375       (1,379 )     (4,239 )     (4,734 )     11,023  

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    Six Months Ended
    March 31,
     
    2006   2005
         
    (in millions, except
    per share data)
    (unaudited)
Results of Operations
               
Revenues
  $ 4,185     $ 4,670  
Business restructuring
    (3 )     (7 )
Income taxes
    47       (31 )
Net income (loss)
    77       441  
Net income (loss) per common share:
               
 
Basic
    0.02       0.10  
 
Diluted
    0.02       0.09  
                 
    At March 31,
     
    2006   2005
         
    (in millions)
    (unaudited)
Financial Position
               
Cash, cash equivalents and marketable securities
  $ 3,969     $ 4,107  
Assets
    16,029       16,417  
Debt
    5,415       5,874  
Liabilities
    15,474       16,896  
Shareowners’ equity (deficit)
    555       (479 )

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SELECTED UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
      The following selected unaudited pro forma condensed combined financial information, which gives effect to the merger, is presented in millions of euros and reflects pro forma financial results of the merger of Alcatel and Lucent using the purchase method of accounting under IFRS.
      The selected unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial condition of the combined company that would have been achieved had the merger been completed during the periods presented, nor is the selected unaudited pro forma condensed combined financial information necessarily indicative of the future operating results or financial position of the combined company. The selected unaudited pro forma condensed combined financial information does not reflect any cost savings or other synergies that may result from the merger, nor does it reflect any special items such as payments pursuant to change-of-control provisions or restructuring and integration costs that may be incurred as a result of the merger. In addition, the financial effects of any actions described under “The Merger — Alcatel’s Reasons for the Merger” and “The Merger — Recommendation of the Lucent Board of Directors and Its Reasons for the Merger,” such as synergies or the effect of asset dispositions, if any, that may be required by regulatory authorities, cannot currently be determined and therefore are not reflected in the selected unaudited pro forma condensed combined financial information.
      Alcatel reports its financial results in euros and in conformity with IFRS, with a reconciliation to U.S. GAAP. Lucent reports its financial results in U.S. dollars and in conformity with U.S. GAAP.
      IFRS differs from U.S. GAAP in certain significant respects. For a discussion of significant differences between U.S. GAAP and IFRS as they relate to Alcatel’s consolidated financial statements and a reconciliation to U.S. GAAP of Alcatel’s net income and shareholders’ equity for 2005 and 2004, see Notes 39 through 42 to Alcatel’s audited consolidated financial statements included in Alcatel’s 2005 Form 20-F, which has been incorporated by reference to this proxy statement/ prospectus.
      The selected unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with the unaudited pro forma condensed combined financial information and the related notes included elsewhere in this proxy statement/ prospectus, and with the respective consolidated financial statements of Alcatel as of and for the year ended December 31, 2005 and the consolidated financial statements of Lucent as of and for the year ended September 30, 2005 and the three-month period ended December 31, 2005, each of which has been incorporated by reference into this proxy statement/ prospectus.
      The selected unaudited pro forma condensed combined financial information is based on preliminary estimates and assumptions that Lucent and Alcatel believe to be reasonable. In the selected unaudited pro forma condensed combined financial information, the fair value of the Alcatel ADSs to be issued has been allocated to the Lucent assets and liabilities based upon preliminary estimates by the management of Alcatel and Lucent of their respective fair values as of the date of the merger. Any differences between the fair value of the Alcatel ADSs issued and the fair value of the Lucent assets and liabilities have been recorded as goodwill. Definitive allocations will be performed and finalized based upon certain valuations and other studies that will be performed with the services of outside valuation specialists after the effective time of the merger. Accordingly, the purchase allocation pro forma adjustments are preliminary and have been made solely for the purpose of preparing the unaudited pro forma condensed combined financial statements and are subject to revision based on a final determination of fair value after the effective time of the merger.
      The selected unaudited pro forma condensed combined financial information also reflects the estimated effect of the proposed Thales transaction as described in Note 5-a under “Unaudited Pro Forma Condensed Combined Financial Information.” The unaudited pro forma adjustments reflecting the proposed Thales transaction are based upon available information and certain assumptions that Alcatel’s management believes are reasonable. The unaudited pro forma adjustments reflecting the proposed Thales transaction are for illustrative purposes only and are not indicative of the actual terms of the transaction and the results of

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operations that would have occurred had the proposed Thales transaction on the terms described been consummated on the dates indicated, nor are they indicative of future operating results.
                                 
    Year Ended   Year Ended
    December 31, 2005   December 31, 2005
    Before Thales   After Thales
    Transaction   Transaction
    (Unaudited)   (Unaudited)
         
    $(1)     $(1)  
                 
    (in millions, except per share amounts)
IFRS
                               
Statement of Income Data in accordance with IFRS
                               
Combined pro forma revenues
    24,264       20,490       22,003       18,581  
Combined pro forma gross profit
    8,887       7,504       8,318       7,024  
Combined pro forma income (loss) from operating activities before restructuring, share-based payments, impairment of capitalized development costs and gain on disposal of consolidated entities
    369       312       212       179  
Combined pro forma loss from operating activities
    (11 )     (10 )     (130 )     (110 )
Combined pro forma net income attributable to the equity holders of the parent
    949       801       842       710  
Combined pro forma net income attributable to the equity holders of the parent before discontinued activities and non-recurring charges or credits directly attributable to the transaction
    1,200       1,013       1,092       922  
Earnings per share- basic — based on pro forma net income attributable to the equity holders of the parent
    0.42       0.36       0.38       0.32  
Earnings per share- diluted — based on pro forma net income attributable to the equity holders of the parent
    0.42       0.35       0.37       0.31  
Earnings per share- basic — based on pro forma net income attributable to the equity holders of the parent before discontinued activities and non-recurring charges or credits directly attributable to the transaction
    0.54       0.45       0.48       0.41  
Earnings per share- diluted — based on pro forma net income attributable to the equity holders of the parent before discontinued activities and non-recurring charges or credits directly attributable to the transaction
    0.53       0.45       0.48       0.41  
Balance Sheet Data amounts in accordance with IFRS (at December 31,)
                               
Total assets
    55,041       46,479       53,942       45,551  
Shareholders’ equity — Attributable to the equity holders of the parent
    21,137       17,849       21,908       18,500  
Cash, cash equivalents and marketable securities
    10,417       8,797       11,066       9,345  
Current portion of long-term debt
    1,607       1,357       1,591       1,344  
Bonds and notes issued and other long-term debt
    7,791       6,579       7,790       6,578  
                         
 
(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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    Year Ended   Year Ended
    December 31, 2005   December 31, 2005
    Before Thales   After Thales
    Transaction   Transaction
    (Unaudited)   (Unaudited)
         
    $(1)     $(1)  
                 
    (in millions, except per share amounts)
U.S. GAAP
                               
Statement of Income Data in accordance with U.S. GAAP
                               
Combined pro forma net sales
    23,588       19,919       21,974       18,556  
Combined pro forma gross profit
    8,584       7,249       8,150       6,882  
Combined pro forma income (loss) from operations
    (309 )     (261 )     (436 )     (368 )
Combined pro forma net income
    182       154       108       91  
Combined pro forma net income before non-recurring charges or credit directly attributable to the transaction
    1,128       953       1,054       890  
Earnings per share- basic — based on pro forma net income
    0.08       0.07       0.05       0.04  
Earnings per share- diluted — based on pro forma net income
    0.08       0.07       0.05       0.04  
Earnings per share- basic — based on pro forma net income before non-recurring charges or credit directly attributable to the transaction
    0.50       0.43       0.47       0.40  
Earnings per share- diluted — based on pro forma net income before non-recurring charges or credit directly attributable to the transaction
    0.50       0.42       0.47       0.39  
Balance Sheet Data amounts in accordance with U.S. GAAP (at December 31,)
                               
Total assets
    57,771       48,785       57,765       48,780  
Shareholders’ equity
    23,460       19,811       24,159       20,401  
Cash, cash equivalents and marketable securities
    10,326       8,720       11,065       9,344  
Short-term financial debt
    1,531       1,293       1,531       1,293  
Bonds and notes issued and other financial debt — long-term part
    8,497       7,176       8,497       7,176  
                         
 
(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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UNAUDITED COMPARATIVE PER SHARE DATA
      The following table summarizes unaudited per share data for Alcatel and Lucent on a historical basis, on a pro forma combined basis for the combined company, giving effect to the pro forma effects of the merger before the proposed Thales transaction, and on an equivalent pro forma combined basis for Lucent. It has been assumed for purposes of the pro forma financial information provided below that the merger was completed on January 1, 2005 for statement of income purposes, and on December 31, 2005 for balance sheet purposes. The following information should be read in conjunction with the audited consolidated financial statements of Alcatel and Lucent as of and for the years ended December 31, 2005 and September 30, 2005, respectively, and the unaudited consolidated financial statements of Lucent for the quarterly period ended December 31, 2005, each of which is incorporated by reference into this proxy statement/prospectus, and with the information under “Unaudited Pro Forma Condensed Combined Financial Information” and related notes included elsewhere in this proxy statement/prospectus. The pro forma information below is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have been achieved if the merger had been completed as of the beginning of the period presented, nor is it necessarily indicative of the future operating results or financial position of the combined company.
                   
    Year Ended   Year Ended
    December 31, 2005   December 31, 2005
         
    (under IFRS)   (under U.S. GAAP)
    (unaudited)   (unaudited)
Alcatel — Historical
               
Historical per Alcatel ordinary share:
               
 
Basic Income per share from continuing operations
  0.69     0.56  
 
Dividends declared per Alcatel ordinary share(1)
    0.16       0.16  
 
Book value per Alcatel ordinary share(2)
    4.55       6.37  
 
Lucent — Historical(3)
               
Historical per Lucent common share:
               
 
Basic Income per share from continuing operations
      0.16  
 
Dividends declared per Lucent common share
           
 
Book value per Lucent common share(2)
          0.06  
 
Unaudited Pro Forma Combined
               
Unaudited pro forma per combined company ordinary share:
               
 
Basic Income per share from continuing operations(4)
  0.45     0.43  
 
Dividends declared per ordinary share(1)
    0.10       0.10  
 
Book value per share(2)
    7.96       8.83  
 
Unaudited Pro Forma Lucent Equivalents(5)
               
Unaudited pro forma per Lucent ordinary share:
               
 
Basic Income per share from continuing operations
  0.09     0.08  
 
Dividends declared per Lucent common share(1)
    0.02       0.02  
 
Book value per Lucent common share(2)
    1.55       1.72  
 
(1)  On February 2, 2006, Alcatel announced that its board of directors would propose a resolution at its annual shareholders meeting to be held in 2006 to pay a dividend of 0.16 per Alcatel ordinary share and Alcatel ADS for 2005.
 
(2)  The historical book value per share is computed by dividing total shareholders’ equity attributable to equity holders of the parent by the number of common shares outstanding as at December 31, 2005.
 
(3)  Translated solely for convenience into euros at the noon buying rate of 1.00 = $1.1842 on December 31, 2005.
 
(4)  The unaudited pro forma combined company per share income from continuing operations is computed by dividing the pro forma income from continuing operations before non-recurring items by the pro forma weighted average number of shares outstanding over the period.
 
(5)  Lucent equivalent pro forma combined per share amounts are calculated by multiplying the pro forma combined per share amounts by 0.1952, the number of Alcatel ADSs that will be exchanged for each share of Lucent common stock in the merger. Each Alcatel ADS represents one Alcatel ordinary share.

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COMPARATIVE MARKET PRICE DATA AND DIVIDEND INFORMATION
      Alcatel ADSs are listed on the NYSE under the symbol “ALA.” Shares of Lucent common stock are listed on the NYSE under the symbol “LU.” The following table presents closing prices for Alcatel ADSs and Lucent common stock on March 23, 2006, the last trading day before the public announcement of discussions between Alcatel and Lucent regarding the merger, and August 3, 2006, the latest practicable trading day before the date of this proxy statement/ prospectus. You should read the information presented below in conjunction with “Comparative Per Share Market Price Data and Dividend Information.”
                 
        Lucent
    Alcatel ADSs   Common Stock
         
March 23, 2006
  $ 15.45     $ 2.82  
August 3, 2006
  $ 11.00     $ 2.09  
      For illustrative purposes, the following table provides Lucent equivalent per share information on each of the specified dates. Lucent equivalent per share amounts are calculated by multiplying Alcatel per share amounts by the exchange ratio of 0.1952.
                 
        Lucent
    Alcatel ADSs   Common Stock
         
March 23, 2006
  $ 15.45     $ 3.02  
August 3, 2006
  $ 11.00     $ 2.15  
      The table below sets forth, for the calendar quarters indicated, the high and low closing sale prices per Alcatel ADS and per share of Lucent common stock reported on the NYSE composite transactions reporting system and the dividends declared on Alcatel ADSs and on Lucent common stock.
                                                 
            Lucent Common    
    Alcatel ADSs       Stock    
                 
Calendar Year   High   Low   Dividends(1)   High   Low   Dividends
                         
2004
                                               
First Quarter
  $ 18.32     $ 13.06     $     $ 5.00     $ 2.86     $  
Second Quarter
    17.08       13.09             4.53       2.98        
Third Quarter
    15.30       10.76             3.80       2.70        
Fourth Quarter
    16.20       11.98             4.16       3.10        
2005
                                               
First Quarter
  $ 15.75     $ 12.06     $     $ 3.86     $ 2.69     $  
Second Quarter
    12.22       10.45             3.17       2.35        
Third Quarter
    13.42       10.44             3.30       2.81        
Fourth Quarter
    13.51       11.50             3.49       2.60        
2006
                                               
First Quarter
  $ 16.12     $ 12.68     $     $ 3.16     $ 2.39     $  
Second Quarter
    16.51       11.56             3.22       2.25        
Third Quarter (through August 3, 2006)
    12.82       10.70             2.43       2.04        
 
(1)  Under French company law, payment of annual dividends must be made within nine months following the end of the fiscal year to which they relate. On February 2, 2006, Alcatel announced that its board of directors would propose a resolution at its annual shareholders meeting to be held in 2006 to pay a dividend of 0.16 per Alcatel ordinary share and Alcatel ADS for 2005.
     Alcatel and Lucent urge you to obtain current market quotations for Alcatel ADSs and Lucent common stock before making any decision regarding the merger.

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CAPITALIZATION AND INDEBTEDNESS
      The tables contained in this section are provided in accordance with French law and regulations applicable to prospectuses relating to the offering of securities. Since these tables are being made available in the French prospectus (note d’opération) relating to the Alcatel ordinary shares to be issued in connection with the merger, a translation of these tables is included in this proxy statement/ prospectus. The tables were prepared solely to comply with French regulations in connection with the information to be contained in prospectuses.
      The following tables set forth the unaudited consolidated capitalization and indebtedness of Alcatel, as derived from Alcatel’s unaudited consolidated financial statements as of June 30, 2006 and March 31, 2006 under IFRS, which have not been incorporated by reference into this proxy statement/prospectus.
                   
    Alcatel   Alcatel
    June 30, 2006   March 31, 2006
    (IFRS)   (IFRS)
    (unaudited)   (unaudited)
         
    (in millions of euros)
     
Short-term debt and current portion of long-term debt
    1,244       1,171  
 
- guaranteed
    53       54  
 
- secured
    8       4  
 
- unguaranteed/ unsecured
    1,183       1,113  
Convertible and other bonds — long-term portion and other long-term debt
    2,301       2,492  
 
- guaranteed
    13       27  
 
- secured
    4       4  
 
- unguaranteed/ unsecured
    2,284       2,461  
Financial debt, gross(A)
    3,545       3,663  
Capital stock (2 nominal value: 1,430,013,256 ordinary shares issued)
    2,861       2,860  
Additional paid-in capital
    8,350       8,332  
Less treasury stock at cost
    (1,569 )     (1,572 )
Retained earnings, fair value and other reserves
    (3,502 )     (3,465 )
Cumulative translation adjustments
    (38 )     104  
Net income (loss) — attributable to the equity holders of the parent
    284       104  
Shareholders’ equity — attributable to the equity holders of the parent
    6,386       6,363  
Minority interests
    479       477  
Total shareholders’ equity(B)
    6,865       6,840  
                 
TOTAL(A) + (B)
    10,410       10,503  
                 
    Alcatel   Alcatel
    June 30, 2006   March 31, 2006
    (IFRS)   (IFRS)
    (unaudited)   (unaudited)
         
    (in millions of euros)
     
Marketable securities, net
    719       728  
Cash and cash equivalents
    3,781       3,930  
Cash, cash equivalents and marketable securities(A)
    4,500       4,658  
(Convertible and other bonds — long-term part)
    (2,141 )     (2,150 )
(Other long-term debt)
    (160 )     (342 )
(Current portion of long-term debt)
    (1,244 )     (1,171 )
(Financial debt, gross)(B)
    (3,545 )     (3,663 )
Derivative interest rate instruments — other current and non-current assets
    29       51  
Derivative interest rate instruments — other current and non-current liabilities
    (4 )     (7 )
Derivative interest rate instruments; net(C)
    25       44  
                 
TOTAL(A) + (B) + (C)
    980       1,039  

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      The following tables set forth the unaudited consolidated capitalization and indebtedness of Lucent, as derived from Lucent’s unaudited consolidated financial statements as of (i) June 30, 2006 under U.S. GAAP, which have not been incorporated by reference into this proxy statement/prospectus, and (ii) as of March 31, 2006 under U.S. GAAP, which have been incorporated by reference into this proxy statement/prospectus.
                 
    Lucent   Lucent
    June 30, 2006   March 31, 2006
    (U.S. GAAP)   (U.S. GAAP)
    (unaudited)   (unaudited)
         
    (In millions of dollars)
Debt maturing within one year
    368       368  
Long-term debt
    5,047       5,047  
                 
Financial debt, gross (A)
    5,415       5,415  
Common stock
    45       45  
Additional paid-in capital
    23,645       23,615  
Accumulated deficit
    (19,452 )     (19,531 )
Accumulated other comprehensive loss
    (3,555 )     (3,574 )
                 
Total shareholders’ equity (B)
    683       555  
                 
TOTAL (A) + (B)
    6,098       5,970  
                 
    Lucent   Lucent
    June 30, 2006   March 31, 2006
    (U.S. GAAP)   (U.S. GAAP)
    (unaudited)   (unaudited)
         
    (In millions of dollars)
Cash and cash equivalents
    1,368       1,377  
Marketable securities (current)
    588       479  
Marketable securities (non-current)
    1,741       2,113  
                 
Cash, cash equivalents and marketable securities (A)
    3,697       3,969  
(Financial debt, gross) (B)
    (5,415 )     (5,415 )
                 
TOTAL (A) + (B)
    (1,718 )     (1,446 )
Statement on Net Working Capital
      Under French law and regulations applicable to the offering of securities, Alcatel is required to make certain certifications with respect to its net working capital. Because such certifications are being made available in the French prospectus (note d’opération) relating to the Alcatel ordinary shares to be issued in connection with the merger, an English translation of such certifications is included in this proxy statement/prospectus.
      Alcatel certifies that, in its view, the Alcatel consolidated net working capital is sufficient to meet its current obligations for the 12-month period as of the date of the French prospectus. Alcatel also certifies that, in its view, the consolidated net working capital of the Alcatel group after the completion of the merger (before and after the proposed Thales transaction) is sufficient to meet its current obligations for the 12-month period as of the date of the French prospectus.

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EXCHANGE RATE INFORMATION
      The following tables show, for the periods indicated, information concerning the exchange rate between the U.S. dollar and the euro. The average rates for the monthly periods presented in these tables were calculated by taking the simple average of the daily noon buying rates, as published by the Federal Reserve Bank of New York. The average rates for the interim periods and annual periods presented in these tables were calculated by taking the simple average of the noon buying rates on the last day of each month during the relevant period. This information is provided solely for your information, and Alcatel and Lucent do not represent that euros could be converted into U.S. dollars at these rates or at any other rate. These rates are not the rates used by Alcatel in the preparation of its consolidated financial statements incorporated by reference into this proxy statement/ prospectus.
      The data provided in the following table are expressed in U.S. dollars per euro and are based on noon buying rates published by the Federal Reserve Bank of New York for the euro. On March 23, 2006, the last trading day before the public disclosure of discussions between Alcatel and Lucent regarding the merger, the exchange rate between the U.S. dollar and the euro expressed in U.S. dollars per euro was 1.00 = $1.1984. On August 3, 2006, the most recent practicable day prior to the date of this proxy statement/ prospectus, the exchange rate was 1.00 = $1.2779.
                                 
    Period-End   Average        
    Rate(1)   Rate(2)   High   Low
                 
Recent Monthly Data
                               
August 2006 (through August 3, 2006)
  $ 1.2779     $ 1.2785     $ 1.2798     $ 1.2778  
July 2006
    1.2764       1.2681       1.2822       1.2529  
June 2006
    1.2779       1.2661       1.2953       1.2522  
May 2006
    1.2833       1.2767       1.2888       1.2607  
April 2006
    1.2624       1.2273       1.2624       1.2091  
March 2006
    1.2139       1.2028       1.2197       1.1886  
February 2006
    1.1925       1.1940       1.2100       1.1860  
January 2006
    1.2158       1.2126       1.2287       1.1980  
December 2005
    1.1842       1.1861       1.2041       1.1699  
November 2005
    1.1790       1.1789       1.2067       1.1667  
October 2005
    1.1995       1.2022       1.2148       1.1914  
September 2005
    1.2058       1.2234       1.2538       1.2011  
August 2005
    1.2330       1.2295       1.2434       1.2147  
Interim Period Data
                               
Three months ended June 30, 2006
  $ 1.2779     $ 1.2745     $ 1.2953     $ 1.1860  
Six months ended June 30, 2006
    1.2779       1.2399       1.2953       1.1860  
Six months ended June 30, 2005
    1.2098       1.2776       1.3476       1.2035  
Annual Data (Year ended December 31,)
                               
2005
  $ 1.1842     $ 1.2400     $ 1.3476     $ 1.1667  
2004
    1.3538       1.2478       1.3625       1.1801  
2003
    1.2597       1.1411       1.2597       1.0361  
2002
    1.0485       0.9495       1.0485       0.8594  
2001
    0.8901       0.8909       0.9535       0.8370  
 
(1)  The period-end rate is the noon buying rate on the last business day of the applicable period.
 
(2)  The average rates for the monthly periods were calculated by taking the simple average of the daily noon buying rates, as published by the Federal Reserve Bank of New York. The average rates for the interim periods and annual periods were calculated by taking the simple average of the noon buying rates on the last business day of each month during the relevant period.

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RISK FACTORS
      In addition to the other information included in this proxy statement/ prospectus, including the matters addressed under “Cautionary Statement Concerning Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for approval and adoption of the merger agreement and the transactions contemplated by the merger agreement. In addition, you should read and consider the risks associated with each of the businesses of Alcatel and Lucent because these risks will relate to the combined company. Certain of these risks can be found in Alcatel’s 2005 Form 20-F, which has been incorporated by reference into this proxy statement/ prospectus, and in Lucent’s annual report on Form 10-K for the fiscal year ended September 30, 2005, which is referred to as Lucent’s 2005 Form 10-K and which is incorporated by reference into this proxy statement/ prospectus. You should also consider the other information in this proxy statement/ prospectus and the other documents incorporated by reference into this proxy statement/ prospectus. See “Additional Information — Where You Can Find More Information.”
Risk Factors Relating to the Merger
Because the market price of Alcatel ADSs will fluctuate, the value of Alcatel ADSs to be issued in the merger will fluctuate.
      Upon completion of the merger, each share of Lucent common stock will be converted into the right to receive 0.1952 of an Alcatel ADS. There will be no adjustment to the exchange ratio for changes in the market price of either shares of Lucent common stock or Alcatel ADSs, and the merger agreement does not provide for any price-based termination right. Accordingly, the market value of the Alcatel ADSs that holders of Lucent common stock will be entitled to receive upon completion of the merger will depend on the market value of the Alcatel ADSs at the time of the completion of the merger and could vary significantly from the market value of Alcatel ADSs on the date of this document or the date of the Lucent special meeting. The market value of the shares of Alcatel ADSs that holders of Lucent common stock will be entitled to receive in the merger also will continue to fluctuate after the completion of the merger. For example, during the first six months of 2006, the sale price of Alcatel ADSs ranged from a low of $11.69 to a high of $16.50, all as reported on the NYSE composite transactions reporting system. See “Comparative Market Price Data and Dividend Information.”
      Such variations could be the result of changes in the business, operations or prospects of Lucent or Alcatel prior to the merger or the combined company following the merger, market assessments of the likelihood that the merger will be completed or the timing of the completion of the merger, regulatory considerations, general market and economic conditions and other factors both within and beyond the control of Lucent or Alcatel. Because the completion of the merger will occur after the date of the Lucent special meeting, Lucent shareowners will not know at the time of the Lucent special meeting the market value of the Alcatel ADSs they will receive upon completion of the merger.
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.
      Completion of the merger is conditioned upon the expiration or termination of the applicable waiting period under the HSR Act, approval of the European Commission and the making of certain filings with and notices to, and the receipt of consents, orders and approvals from, various local, state, federal and foreign governmental entities, including CFIUS. On June 7, 2006, the Antitrust Division granted early termination of the HSR waiting period, 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 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. Certain of these consents, orders and approvals will involve the relevant governmental entity’s consideration of the effect of the merger on competition in various jurisdictions. The terms and conditions of such consents, orders and approvals may require the divestiture of certain assets or operations of the combined company following the merger or may impose other conditions.

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      There can be no assurance that Lucent and Alcatel will obtain the necessary consents, orders and approvals or that any such required divestitures or other conditions will not have a material adverse effect on the financial condition, business or results of operations of the combined company following the merger or cause the abandonment of the merger by Lucent and Alcatel. See “The Merger — Regulatory Approvals Required for the Merger” and “The Merger Agreement — Conditions to Completion of the Merger.”
Any delay in completing the merger may significantly reduce the benefits expected to be obtained from the merger.
      In addition to the required regulatory clearances and approvals, the merger is subject to a number of other conditions beyond the control of Lucent and Alcatel that may prevent, delay or otherwise materially adversely affect its completion. See “The Merger Agreement — Conditions to Completion of the Merger.” Alcatel and Lucent cannot predict whether and when these other conditions will be satisfied. Further, the requirements for obtaining the required clearances and approvals could delay the completion of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger may significantly reduce the synergies and other benefits that Alcatel and Lucent expect to achieve if they successfully complete the merger within the expected time frame and integrate their respective businesses.
The pendency of the merger could materially adversely affect the future business and operations of Lucent and Alcatel.
      In connection with the pending merger, some customers and strategic partners of each of Lucent and Alcatel may delay or defer decisions, which could negatively affect revenues, earnings and cash flows of Lucent and Alcatel, as well as the market prices of shares of Lucent common stock and Alcatel ADSs, regardless of whether the merger is completed. In addition, some rating agencies that provide security ratings on Lucent’s and Alcatel’s debts may downgrade their ratings on the debts of one company or both companies in light of the pending merger. A downgrade could materially adversely affect the ability of Lucent and Alcatel to finance their operations, including increasing the cost of obtaining financing. For information regarding security ratings on Lucent’s debt, see Lucent’s current report on Form 8-K, dated May 5, 2006, which has been incorporated into this proxy statement/ prospectus by reference. For information regarding security ratings on Alcatel’s debt, see Alcatel’s 2005 Form 20-F, which has been incorporated into this proxy/prospectus by reference. If the merger is terminated and Lucent determines to seek another business combination, Lucent cannot assure you that it will be able to negotiate a transaction with another company on terms comparable to the terms of the merger, or that it will avoid incurrence of any fees associated with the termination of the merger agreement. See “The Merger Agreement — Termination Fee.”
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.
      Executive officers of Lucent negotiated the terms of the merger agreement and the Lucent board of directors approved the merger agreement and unanimously recommend that you vote in favor of the approval and adoption of the merger agreement. These directors and executive officers may have interests in the merger that are different from, or in addition to, or in conflict with, yours. These interests include the continued employment of certain executive officers of Lucent by the combined company, the continued positions of certain directors of Lucent as directors of the combined company and the indemnification of former Lucent directors and officers by the combined company. With respect to Lucent directors and executive officers, these interests also include the treatment in the merger of employment agreements, change-of-control severance agreements, restricted stock units, options and other rights held by these directors and executive officers. You should be aware of these interests when you consider the Lucent board of directors’ recommendation that you vote in favor of the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement. For a discussion of the interests of directors and executive officers in the merger, see “The Merger — Interests of the Directors and Executive Officers of Lucent in the Merger.”

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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 merger agreement prohibits Lucent and Alcatel from soliciting, initiating, encouraging or facilitating certain alternative acquisition proposals with any third party, subject to exceptions set forth in the merger agreement. The merger agreement also provides for the payment by Lucent or Alcatel of a termination fee if the merger agreement is terminated in certain circumstances in connection with a competing third-party acquisition proposal for one of the companies. See “The Merger Agreement — Covenants and Agreements.” These provisions limit Lucent’s and Alcatel’s ability to pursue offers from third parties that could result in greater value to the Lucent shareowners or the Alcatel shareholders, as the case may be. The obligation to make the termination fee payment also may discourage a third party from pursuing an alternative acquisition proposal.
Risk Factors Relating to the Combined Company Following the Merger
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.
      The merger involves the integration of Alcatel and Lucent, two companies that have previously operated independently. Alcatel and Lucent entered into the merger agreement with the expectation that, among other things, the merger would enable the combined company to consolidate support functions, optimize its supply chain and procurement structure, leverage its research and development and services across a larger base, and reduce its worldwide workforce by approximately 10 percent, all of which is expected to create opportunities to achieve cost savings and revenue synergies and to achieve other synergistic benefits.
      Delays encountered by the combined company in the transition process could have a material adverse effect on the revenues, expenses, operating results and financial condition of the combined company. Although Alcatel and Lucent expect significant benefits to result from the merger, there can be no assurance that the combined company will actually realize these anticipated benefits.
      The value of Alcatel ADSs following completion of the merger may be affected by the ability of the combined company to achieve the benefits expected to result from completion of the merger. Achieving the benefits of the merger will depend in part upon meeting the challenges inherent in the successful combination and integration of global business enterprises of the size and scope of Alcatel and Lucent and the possible resulting diversion of management attention for an extended period of time. There can be no assurance that the combined company will meet these challenges and that such diversion will not negatively affect the operations of the combined company following 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.
      The combined company’s success after the merger will depend in part upon the ability of the combined company to retain key employees of Alcatel and Lucent. Competition for qualified personnel can be intense. Current and prospective employees of Alcatel and Lucent may experience uncertainty about their post-merger roles with the combined company following the merger. This may materially adversely affect the ability of each of Alcatel and Lucent to attract and retain key management, sales, marketing, technical and other personnel. In addition, key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the merger. Accordingly, no assurance can be given that the combined company will be able to attract or retain key employees of Alcatel and Lucent to the same extent that those companies have been able to attract or retain their own employees in the past.
      Technological innovation is important to the combined company’s success and depends, to a significant degree, on the work of technically skilled employees. Competition for the services of these types of employees is vigorous. Neither Alcatel nor Lucent can provide assurance that the combined company will be able to

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attract and retain these employees following the merger. If, following the merger, the combined company is unable to attract and retain technically skilled employees, the competitive position of the combined company could be materially adversely affected.
The trading price of Alcatel ADSs may be affected by factors different from those affecting the price of Lucent common stock.
      Upon completion of the merger, holders of Lucent common stock will become holders of Alcatel ADSs. The results of operations of the combined company, as well as the trading price of Alcatel ADSs after the merger, may be affected by factors different from those currently affecting Lucent’s results of operations and the trading price of Lucent common stock. For a discussion of the businesses of Alcatel and Lucent and of certain factors to consider in connection with those businesses, see the documents incorporated by reference in this proxy statement/ prospectus and referred to under “Additional Information — Where You Can Find More Information.”
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.
      Under Alcatel’s articles of association and bylaws (statuts), holders of Alcatel ordinary shares who hold their shares in the same registered name for at least three years have the right to two votes for every share so held. Under Alcatel’s ADS deposit agreement, holders of Alcatel ADSs who have the Alcatel ordinary shares underlying their Alcatel ADSs held in registered form for at least three years are also entitled to double-voting rights. In general, the Alcatel ordinary shares underlying Alcatel ADSs will be held in bearer form unless the holder thereof notifies the depositary in writing that the ordinary shares should be held in registered form. As a result, new holders of Alcatel ordinary shares (including Alcatel ordinary shares represented by Alcatel ADSs), including former holders of Lucent common stock who receive Alcatel ADSs in the merger, will qualify to obtain double-voting rights only after holding those Alcatel ADSs in the same registered name for three years after giving such notice. As of December 31, 2005, 31,029,218 Alcatel ordinary shares carried double-voting rights, representing approximately 2.17% of Alcatel’s outstanding share capital and approximately 4.4% of Alcatel’s voting rights. If the merger is consummated, after the effective time of the merger, former holders of Lucent common stock will own approximately 39% of the combined company’s outstanding share capital and approximately 38% of the combined company’s voting rights. Therefore, the percentage of the combined company’s voting rights that you will have immediately after the merger will be less than the percentage of the combined company’s outstanding share capital that you own immediately after the merger.
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.
      As a foreign private issuer under the Exchange Act, Alcatel is exempt from certain rules under the Exchange Act, including the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations. Moreover, Alcatel is not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies with securities 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 imposes certain restrictions on the selective disclosure of material information. In addition, 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. Accordingly, after the merger, if you continue to hold Alcatel ADSs, you may receive less information about the combined company than you currently receive about Lucent, and be afforded less protection under the U.S. federal securities laws than you are currently afforded. If the combined company loses its status as a foreign private issuer, it will no longer be exempt from such rules

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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. The costs incurred in fulfilling these additional regulatory requirements could be substantial.
The combined company will operate in a highly competitive industry with many participants. Its failure to compete effectively will harm its business.
      The combined company will operate in a highly competitive environment in each of its businesses, competing on the basis of product offerings, technical capabilities, quality, service and pricing. Competition for new service providers and enterprise customers as well as for new infrastructure deployments is particularly intense and increasingly focused on price. The combined company will offer customers and prospective customers many benefits in addition to competitive pricing, including strong support and integrated services for quality, technologically-advanced products; however, in some situations, it may not be able to compete effectively if purchasing decisions are based solely on the lowest price.
      The combined company will have a number of competitors, many of which currently compete with Alcatel, Lucent or both and some of which are very large, with substantial technological and financial resources and established relationships with global service providers. Some of these competitors have very low cost structures, support from governments in their home countries, or both. In addition, new competitors may enter the industry as a result of shifts in technology. These new competitors, as well as existing competitors, may include entrants from the telecommunications, computer software, computer services, data networking and semiconductor industries. We cannot assure you that the combined company will be able to compete successfully with these companies. Competitors may be able to offer lower prices, additional products or services or a more attractive mix of products or services, or services or other incentives that the combined company cannot or will not match or offer. These competitors may be in a stronger position to respond quickly to new or emerging technologies and may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to customers, prospective customers, employees and strategic partners.
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.
      The telecommunications industry uses numerous and varied technologies and large service providers often invest in several and, sometimes, incompatible technologies. The industry also demands frequent and, at times, significant technology upgrades. Furthermore, enhancing the combined company’s services revenues requires that it develop and maintain leading tools. The combined company will not have the resources to invest in all of these existing and potential technologies. As a result, the combined company will concentrate its resources on those technologies that it believes have or will achieve substantial customer acceptance and in which the combined company will have appropriate technical expertise. However, existing products often have short product life cycles characterized by declining prices over their lives. In addition, the combined company’s choices for developing technologies may prove incorrect if customers do not adopt the products that the combined company develops or if those technologies ultimately prove to be unviable. The combined company’s revenues and operating results will depend to a significant extent on its ability to maintain a product portfolio and service capability that is attractive to its customers, to enhance its existing products, to continue to introduce new products successfully and on a timely basis and to develop new or enhance existing tools for its services offerings.
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.
      A few large telecommunications service providers will account for a substantial portion of the combined company’s revenues. In addition, the telecommunications industry has recently experienced substantial

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consolidation, as evidenced by the mergers of Sprint and Nextel, Cingular and AT&T Wireless, SBC Communications and AT&T, Verizon and MCI, and the announced merger of AT&T and BellSouth. As service providers increase in size, it is possible that an even greater portion of the combined company’s revenues will be attributable to a smaller number of large service providers going forward. The combined company may also lose business from customers for which Alcatel and Lucent were the two main suppliers, if these customers choose another supplier in order to avoid having the combined company as their sole source for a product or service. In addition, Alcatel’s and Lucent’s existing customers are typically not obligated to purchase a certain amount of products or services over any period of time from Alcatel or Lucent and may have the right to reduce, delay or even cancel previous orders. The combined company, therefore, will have difficulty projecting future revenues from existing customers with certainty. Although historically Alcatel’s and Lucent’s customers have not made sudden supplier changes, the combined company’s customers could vary, as Alcatel’s and Lucent’s customers have varied, their purchases from period to period, sometimes significantly. Combined with its reliance on a small number of large customers, this could have an adverse effect on the combined company’s revenues, profitability and cash flow. In addition, the combined company’s concentration of business in the telecommunications service provider industry will make it extremely vulnerable to downturns or slowdowns in spending in that industry.
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.
      After significant deterioration earlier this decade, the global telecommunications industry stabilized in 2004 and experienced modest growth in 2005 and the first calendar quarter of 2006, as reflected in increased capital expenditures by service providers and growing demand for telecommunications services. Although Alcatel and Lucent believe the overall industry will continue to grow, the rate of growth could vary geographically and across different technologies, and is subject to substantial fluctuations. The specific industry segments in which the combined company will participate may not experience the growth of other segments. In that case, the results of its operations may be adversely affected.
      If capital investment by service providers grows at a slower pace than anticipated, revenues and profitability of the combined company may be adversely affected. The level of demand by service providers can change quickly and can vary over short periods of time, including from month to month. As a result of the uncertainty and variations in the telecommunications industry, accurately forecasting revenues, results and cash flow remains difficult.
      In addition, the combined company’s sales volume and product mix will affect its gross margin. Therefore, if reduced demand for the combined company’s products results in lower than expected sales volume, or if the combined company has an unfavorable product mix, it may not achieve the expected gross margin rate, resulting in lower than expected profitability. These factors may fluctuate from quarter to quarter.
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.
      Alcatel and Lucent have entered into long-term sales agreements with a number of their respective large customers, and they expect that the combined company will continue to enter into long-term sales agreements in the future. Some of Alcatel’s and Lucent’s existing sales agreements require Alcatel or Lucent to sell products and services at fixed prices over the lives of the agreements, and some require, or may in the future require, Alcatel, Lucent or the combined company to sell products and services that they would otherwise discontinue, thereby diverting their resources from developing more profitable or strategically important products. The costs incurred in fulfilling some of these sales agreements may vary substantially from the initial cost estimates of Alcatel, Lucent or the combined company. Any cost overruns that cannot be passed on to customers could adversely affect the combined company’s results of operations.

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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.
      Among other compensation and benefit programs, many former employees and retirees of Lucent in the U.S. participate in one or more of the following benefit plans:
  •  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.
      As described in more detail in Exhibit 99.1 to Lucent’s current report on Form 8-K, dated May 5, 2006, which has been incorporated by reference into this proxy statement/ prospectus, the performance of the financial markets, especially the equity markets, and the level of interest rates, impact the funding obligations for these pension plans. This discussion also describes the variables that influence contributions to postretirement health care benefit plans. Accordingly, the amounts the combined company might contribute to these benefit plans are subject to considerable uncertainty. You should carefully review the discussion in Exhibit 99.1 to Lucent’s current report on Form 8-K, dated May 5, 2006.
      Lucent, together with its labor unions, has been seeking changes to Section 420 of the Internal Revenue Code, which would allow Lucent, or its successor entity, to provide for a level of retiree health care benefits in connection with the use of excess pension assets to a collectively bargained level of costs rather than a level of cost imposed by statute. Absent satisfactory legislation, Lucent would be subject to a statutory maintenance of cost requirement under Section 420 in the event that it elects to utilize excess pension assets to fund such benefits.
      In addition, legislative actions have been proposed that would affect U.S. pension plans, if adopted. These proposals would alter the manner in which liabilities and asset values are determined for the purpose of calculating required pension contributions and the timing and manner in which required contributions to under-funded pension plans would be made. The proposed changes, if adopted, could significantly increase the funding requirements for U.S. pension plans of Lucent or the combined company and reduce excess pension assets that could be available to fund retiree health care benefits, even if the proposed changes to Section 420 of the Internal Revenue Code discussed above are adopted.
      Lucent has also taken some steps, and Alcatel and Lucent expect the combined company to take additional actions over time, to reduce the overall cost of these retiree health care benefit plans and the share of these costs borne by the combined company, consistent with legal requirements and Lucent’s collective bargaining obligations. However, the rate of cost increases may exceed its actions to reduce these costs. In addition, as described in Exhibit 99.1 to Lucent’s current report on Form 8-K, dated May 5, 2006, the reduction or elimination of retiree health care benefits has led to lawsuits against Lucent. Any other initiatives that either Lucent or the combined company undertake to control or reduce costs may lead to additional claims against them.
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.
      Lucent’s and Alcatel’s products are highly complex, and there is no assurance that either Lucent’s or Alcatel’s extensive product development, manufacturing and integration testing is adequate, or that the combined company’s product development, manufacturing and integration testing will be adequate, to detect all defects, errors, failures and quality issues that could affect customer satisfaction or result in claims against Lucent, Alcatel or the combined company. As a result, the combined company might have to replace certain components and/or provide remediation in response to the discovery of defects in products that are shipped.

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Most of these occurrences can be rectified without incident, as has generally been the case for each of Alcatel and Lucent historically. However, the occurrence of any defects, errors, failures or quality issues could result in cancellation of orders, product returns, diversion of the combined company’s resources, legal actions by customers or customers’ end users and other losses to the combined company or to its customers or end users. These occurrences could also result in the loss of or delay in market acceptance of the combined company’s products and loss of sales, which would harm the combined company’s business and adversely affect its revenues and profitability.
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 develop many of their products and services based on existing regulations and technical standards, their interpretation of unfinished technical standards or the lack of such regulations and standards. Changes to existing regulations and technical standards, or the implementation of new regulations and technical standards relating to products and services not previously regulated, could adversely affect the combined company’s development efforts by increasing compliance costs and causing delay. Demand for those products and services could also decline.
Lucent and Alcatel are involved in lawsuits, which, if determined against either of them, could require the combined company to pay substantial damages.
      Both Lucent and Alcatel are defendants in various lawsuits. These lawsuits against Lucent and/or Alcatel include such matters as commercial disputes, claims regarding product discontinuance, asbestos claims, labor, employment and benefit claims, shareholders’ litigation and others. For a discussion of some of these legal proceedings, see Note 13 to Lucent’s audited consolidated financial statements in Exhibit 99.1 to Lucent’s current report on Form 8-K, dated May 5, 2006, and Note 34 to Alcatel’s audited consolidated financial statements included in Alcatel’s 2005 Form 20-F. Neither Alcatel nor Lucent can predict the extent to which any of the pending or future actions will be resolved in favor of Alcatel or Lucent, or whether significant monetary judgments will be rendered against Alcatel, Lucent or the combined company. Any material losses resulting from these claims could adversely affect the combined company’s profitability and cash flow.
If the combined company fails to protect its intellectual property rights, the business and prospects of the combined company may be harmed.
      Intellectual property rights, such as patents, will be vital to the business of the combined company and developing new products and technologies that are unique is critical to the combined company’s success. Alcatel and Lucent have numerous U.S. and foreign patents and numerous pending patents. However, neither Alcatel nor Lucent can predict whether any patents, issued or pending, will provide the combined company with any competitive advantage or whether such patents will be challenged by third parties. Moreover, competitors of Alcatel or Lucent may already have applied for patents that, once issued, could prevail over the combined company’s patent rights or otherwise limit its ability to sell its products. The competitors of Alcatel or Lucent also may attempt to design around the patents of Alcatel, Lucent and the combined company or copy or otherwise obtain and use the proprietary technology of Alcatel, Lucent or the combined company. In addition, patent applications currently pending may not be granted. If the combined company does not receive the patents that it seeks or if other problems arise with the combined company’s intellectual property, its competitiveness could be significantly impaired, which would limit the combined company’s future revenues and harm its prospects.
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.
      From time to time, Alcatel and Lucent receive notices or claims from third parties of potential infringement in connections with products or services. Alcatel or Lucent also may receive such notices or claims when either of them attempts to license their intellectual property to others. Intellectual property

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litigation can be costly and time-consuming and can divert the attention of management and key personnel from other business issues. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. A successful claim by a third party of patent or other intellectual property infringement by the combined company could compel it to enter into costly royalty or license agreements or force it to pay significant damages and could even require it to stop selling certain products. Further, if one of the combined company’s important patents or other intellectual property rights is invalidated, it may suffer losses of licensing revenues and be prevented from attempting to block others, including competitors, from using the related technology.
The combined company will be subject to environmental, health and safety laws that restrict its operations.
      The combined company’s operations will be subject to a wide range of environmental, health and safety laws, including laws relating to the use, disposal and clean-up of, and human exposure to, hazardous substances. In the United States, these laws often require parties to fund remedial action regardless of fault. Although each of Alcatel and Lucent believes their aggregate reserves are adequate to cover the combined company’s environmental liabilities, factors such as the discovery of additional contaminants, the extent of required remediation and the imposition of additional cleanup obligations could cause the combined company’s capital expenditures and other expenses relating to remediation activities to exceed the amount reflected in Alcatel’s and Lucent’s environmental reserves and adversely affect the results of operations and cash flows of the combined company. Compliance with existing or future environmental, health and safety laws could subject the combined company to future liabilities, cause the suspension of production, restrict the combined company’s ability to utilize facilities or require it to acquire costly pollution control equipment or incur other significant expenses.
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 working capital requirements and cash flows of Alcatel and Lucent have historically been, and the working capital requirements and cash flows of the combined company are expected to continue to be, subject to quarterly and yearly fluctuations, depending on a number of factors. If the combined company is unable to manage fluctuations in cash flow, its business, operating results and financial condition may be materially adversely affected. Factors which could lead the combined company to suffer cash flow fluctuations include:
  •  the level of sales;
 
  •  the collection of receivables;
 
  •  the timing and size of capital expenditures; and
 
  •  customer financing obligations.
      In order to finance its business, Lucent and Alcatel expect the combined company to use available cash and investments and to have access to a syndicated credit facility allowing for the drawdown of significant levels of debt if required. However, Alcatel and Lucent expect that the ability of the combined company to draw on this facility will be conditioned upon its compliance with financial covenants. There can be no assurance that the combined company will be in compliance with the financial covenants required by its lenders at all times in the future.
      The combined company may need to secure additional sources of funding if the syndicated credit facility and borrowings are not available or are insufficient to finance its business. Neither Alcatel nor Lucent can provide any assurance that such funding will be available on terms satisfactory to the combined company. If the combined company were to incur high levels of debt, this would require a larger portion of its operating cash flow to be used to pay principal and interest on its indebtedness. The increased use of cash to pay indebtedness could leave the combined company with insufficient funds to finance its operating activities, such

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as research and development expenses and capital expenditures, which could have a material adverse effect on the combined company’s business.
      The combined company’s expected short-term debt rating will allow it limited access to the commercial paper market, and the commercial paper market is not expected to be available to the combined company on acceptable terms and conditions. The combined company’s ability to have access to the capital markets and its financing costs will be, in part, dependent on Standard & Poor’s, Moody’s or similar agencies’ ratings with respect to its debt and corporate credit and their outlook with respect to the combined company’s business. The combined company’s expected short-term and long-term credit ratings, as well as any possible future lowering of its ratings, may result in higher financing costs and reduced access to the capital markets. Neither Alcatel nor Lucent can provide any assurance that the combined company’s credit ratings will be sufficient to give it access to the capital markets on acceptable terms, or that once obtained, such credit ratings will not be reduced by Standard & Poor’s, Moody’s or similar rating agencies.
Credit and commercial risks and exposures could increase if the financial condition of the combined company’s customers declines.
      A substantial portion of Alcatel’s and Lucent’s sales are to customers in the telecommunications industry. These customers may require their suppliers to provide extended payment terms, direct loans or other forms of financial support as a condition to obtaining commercial contracts. Alcatel and Lucent expect that the combined company may provide or commit to financing where appropriate for the business of the combined company. The combined company’s ability to arrange or provide financing for its customers will depend on a number of factors, including its credit rating, its level of available credit, and its ability to sell off commitments on acceptable terms.
      More generally, Alcatel and Lucent expect that the combined company will routinely enter into long-term contracts involving significant amounts to be paid by its customers over time. Pursuant to these contracts, the combined company may deliver products and services representing an important portion of the contract price before receiving any significant payment from the customer.
      As a result of the financing that may be provided to customers and the combined company’s commercial risk exposure under long-term contracts, the combined company’s business could be adversely affected if the financial condition of its customers erodes. Over the past few years, certain customers of Alcatel and Lucent have filed with the courts seeking protection under the bankruptcy or reorganization laws of the applicable jurisdiction, or have experienced financial difficulties. Upon the financial failure of a customer, the combined company may experience losses on credit extended and loans made to such customer, losses relating to its commercial risk exposure, and the loss of the customer’s ongoing business. If customers fail to meet their obligations to the combined company, the combined company may experience reduced cash flows and losses in excess of reserves, which could materially adversely impact its results of operations and financial position.
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.
      In addition to the currency risks described elsewhere in this section, the combined company’s international operations will be subject to a variety of risks arising out of the economy, the political outlook and the language and cultural barriers in countries where it has operations or does business.
      Alcatel and Lucent expect the combined company to continue to focus on expanding business in emerging markets in Asia, Africa and Latin America. In many of these emerging markets, the combined company may be faced with several risks that are more significant than in other countries. These risks include economies that may be dependent on only a few products and are therefore subject to significant fluctuations, weak legal systems which may affect the combined company’s ability to enforce contractual rights, possible exchange controls, unstable governments, privatization actions or other government actions affecting the flow of goods and currency.

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      The combined company will be required to move products from one country to another and will provide services in one country from a base in another. Accordingly, it will be vulnerable to abrupt changes in customs and tax regimes that may have significant negative impacts on its financial condition and operating results.
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.
      Since the combined company will conduct operations throughout the world, a substantial portion of its assets, liabilities, revenues and expenses will be denominated in various currencies other than the euro and the U.S. dollar. Because the combined company’s financial statements will be denominated in euros, fluctuations in currency exchange rates, especially the U.S. dollar against the euro, could have a material impact on the combined company’s reported results. The combined company will also experience other market risks, including changes in interest rates and in prices of marketable equity securities that it owns. The combined company may use derivative financial instruments to reduce certain of these risks. If the combined company’s strategies to reduce market risks are not successful, its financial condition and operating results may be harmed.
The combined company will be involved in several significant joint ventures and will be exposed to problems inherent to companies under joint management.
      Alcatel and Lucent are, and the combined company will be, involved in several significant joint venture companies. The related joint venture agreements may require unanimous consent or the affirmative vote of a qualified majority of the shareholders to take certain actions, thereby possibly slowing down the decision-making process.
An impairment of goodwill or other intangible assets would adversely affect the combined company’s financial condition or results of operations.
      Both Alcatel and Lucent have a significant amount of intangible assets including goodwill and other acquired intangibles, development costs for software to be sold, leased or otherwise marketed and internal use software development costs as of December 31, 2005. As a result of the merger, a significant amount of additional goodwill and other acquired intangible assets will be recorded as a result of the purchase price allocation.
      Goodwill is not amortized but is tested for impairment annually, or more often, if an event or circumstance indicates that an impairment loss may have been incurred. Other intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events such as product discontinuances, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may be not be recoverable.
      Historically, both Alcatel and Lucent have recognized significant impairment charges due to various reasons, including some of those noted above as well as potential restructuring actions or adverse market conditions that are either specific to the telecommunications industry or general in nature. As result, future impairment charges may be incurred in the future that could be significant and that could have an adverse effect on the combined company’s results of operations or financial condition. In addition, the purchase price under U.S. GAAP will be determined using the market price of Alcatel ADSs as of the announcement date of the proposed merger. The purchase price under IFRS, however, will be determined using the market price of Alcatel ADSs as of the closing date of the merger. The market prices of both Lucent common stock and Alcatel ADSs have declined subsequent to the announcement date. If the market price of Alcatel ADSs remains lower at the closing date than the market price at the announcement date, the combined company may record a significantly higher amount of goodwill under U.S. GAAP than IFRS. This additional goodwill may not be realizable under U.S. GAAP, which could lead to potential impairment charges.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
      This proxy statement/ prospectus, including information included or incorporated by reference in this proxy statement/ prospectus, may contain certain forward-looking statements. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions identify forward-looking statements and any statements regarding the benefits of the merger, or Alcatel’s or Lucent’s future financial condition, results of operations and business are also forward-looking statements. Without limiting the generality of the preceding sentence, certain statements contained in the sections “The Merger — Background of the Merger,” “The Merger — Alcatel’s Reasons for the Merger,” “The Merger — Recommendation of the Lucent Board of Directors and Its Reasons for the Merger,” “The Merger — Opinion of Goldman Sachs, Financial Advisor to Alcatel,” “The Merger — Opinion of JPMorgan, Financial Advisor to Lucent” and “The Merger — Opinion of Morgan Stanley, Financial Advisor to Lucent” constitute forward-looking statements.
      These forward-looking statements involve certain risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following factors:
  •  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.
      Any forward-looking statements in this proxy statement/ prospectus are not guarantees of future performance, and actual results, developments and business decisions may differ from those contemplated by those forward-looking statements, possibly materially. Except as otherwise required by applicable law, Alcatel and Lucent disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section. See also “Additional Information — Where You Can Find More Information.”

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ALCATEL RECENT DEVELOPMENTS
Thales Transaction
Overview
      On April 5, 2006, Alcatel announced that the board of directors of Thales S.A. had approved in principle the acquisition of Alcatel’s satellite subsidiaries, its railway signaling business and its non-telecommunications related integration and services activities for security systems in exchange for Thales ordinary shares and cash. The Alcatel board of directors approved the Thales transaction on April 26, 2006, subject to final documentation and receipt of a consent from Lucent. Thales is a global electronics company serving aerospace, defense, and information technology and services markets, with revenues of 10.3 billion in 2005 and approximately 60,000 employees worldwide. Alcatel is currently the largest private shareholder in Thales, owning 9.46% of the outstanding Thales shares, which represent a 12.98% voting interest. If the transaction is completed as currently contemplated, Alcatel will own approximately 21.6% of the outstanding Thales shares, representing a 21.35% voting interest. There can be no assurance that the Thales transaction will be completed on the terms described below, or at all.
      Under the terms of the Thales transaction as currently contemplated, Alcatel would contribute the following assets to Thales:
  •  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.
      In Alcatel’s fiscal year ended December 31, 2005, the revenues generated by the assets to be contributed to Thales in the Thales transaction were approximately 1.9 billion in the aggregate.
      In exchange for Alcatel’s contribution of the assets listed above, Alcatel would receive:
  •  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.
      The Thales transaction is subject to the satisfaction of the following conditions:
  •  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
      In connection with the Thales transaction, Alcatel will enter into a cooperation agreement with Thales and the French state governing the relationship between Alcatel and Thales after completion of the Thales transaction. The cooperation agreement will require that Thales give preference to the equipment developed by Alcatel, in consideration of an agreement by Alcatel not to submit offers to military clients in certain countries, subject to certain exceptions protecting, in particular, the continuation of Lucent’s current business with the U.S. defense agencies. The agreement also will include non-compete commitments by Alcatel with respect to the Alcatel businesses being contributed to Thales, and by Thales with respect to the other businesses of Alcatel, in each case, subject to limited exceptions. The cooperation agreement will also provide that Alcatel and Thales cooperate in certain matters relating to research and development.
Shareholders Agreement
      In connection with the Thales transaction, Alcatel expects to enter into an amended shareholders agreement with Groupe Industriel Marcel Dassault S.A., which is referred to individually as Dassault and jointly with Alcatel as the Industrial Partners, and TSA, a French company wholly owned by the French state, which will govern the relationship of the shareholders in Thales and providing as set forth below. Alcatel and Dassault are currently negotiating the terms of an agreement between Alcatel and Dassault with respect to their collective shareholding in Thales as the Industrial Partners.
      Board of Directors of Thales. The Thales board of directors will be comprised of 16 persons, and will include (i) five directors appointed by the French state, represented by TSA; (ii) four directors appointed by the Industrial Partners, each of whom will be a citizen of the European Union, unless otherwise agreed by the French state; (iii) two Thales employee representatives; (iv) one representative of the employee shareholders of Thales; and (v) four independent directors. The Industrial Partners and the French state will consult with each other on the appointment of independent directors. At least one director appointed by the French state and one director appointed by the Industrial Partners will sit on each of the board committees.
      The Industrial Partners and the French state shall each have the right to replace members of the Thales board of directors, such that the number of directors appointed by each of the French state and the Industrial Partners is equal to the higher of:
  •  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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      Joint Decision-Making. The following decisions of the Thales board of directors will require the approval of a majority of the directors appointed by the Industrial Partners.
  •  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).
      If the French state and the Industrial Partners disagree on (i) major strategic decisions deemed by the French state to negatively affect its strategic interests, or (ii) the nomination of a chairman/chief executive officer in which the Industrial Partners exercised their veto power, the French state and the Industrial Partners shall consult in an effort to resolve the disagreement. If the parties cannot reach a joint agreement within 12 months (reduced to three months in the case of a veto exercised on the nomination of the chairman/chief executive officer), either the French state or the Industrial Partners may unilaterally terminate the shareholders agreement.
      Shareholding in Thales. Alcatel will lose its rights under the shareholders agreement unless it holds at least 15% of the capital and voting rights of Thales. The shareholders agreement will provide that the participation of the French state in Thales will not exceed 49.9% of the share capital and voting rights of Thales, including the French state’s “golden share” in Thales.
      Duration of Shareholders Agreement. The amended shareholders agreement will take effect on the date on which the Thales transaction is approved by the Thales shareholders, and it is expected that it will remain in force until December 31, 2011. The agreement is also expected to provide that, unless one of the parties makes a non-renewal request at least six months before the expiration date, the agreement shall be automatically renewed for a period of five years. If the equity ownership of either Alcatel, Dassault or the French state drops below 15% of the then outstanding share capital of Thales, the following provisions will apply:
  •  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.
      Breach of Alcatel’s Obligations. In the case of a material breach by Alcatel of its obligations under the agreement relating to the strategic interests of the French state (described below), which is defined as a breach that the French state determines may jeopardize substantially the protection of its strategic interests, the French state will have the power to enjoin Alcatel to cure the breach immediately. If Alcatel does not promptly cure the breach, or if the French state determines that foreign rules of extra territorial application that are applicable to Alcatel impose constraints on Thales likely to substantially jeopardize the strategic interests of the French state, the French state will be entitled to exercise its termination remedies as described below.
      If any natural person’s or entity’s equity ownership of Alcatel increases above the 20%, 331/3 %, 40%, or 50% thresholds, in capital or voting rights, Alcatel and the French state will consult as to the consequences of this event and the appropriateness of the shareholders agreement to the new situation. If, after a period of six months following the crossing of the threshold, the French state determines that the share ownership of Alcatel is no longer compatible with its strategic interests and that the situation cannot be remedied through

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an amendment to the shareholders agreement, the French state will be entitled to exercise its termination remedies as described below.
      Termination Remedies. Upon a breach of Alcatel’s obligations described above or if a third party acquires significant ownership in Alcatel as described above and an amendment to the shareholders agreement will not remedy the concerns of the French state, the French state may:
  •  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
      In connection with the Thales transaction, it is contemplated that Alcatel will enter into a revised agreement with the French state in order to strengthen the protection of the strategic interests of the French state in Thales. The proposed terms of this agreement will include, either as an amendment to, or as a separate agreement supplementing, the shareholders agreement, the following:
  •  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
      Alcatel and Lucent have agreed that, prior to Alcatel or any of its affiliates entering into any binding agreement regarding the Thales transaction, Alcatel will have received the prior written consent of Lucent to the Thales transaction.
Alcatel Second Quarter Announcement
      On July 27, 2006, Alcatel issued a press release reporting its financial highlights for the second quarter of fiscal year 2006, a copy of which was furnished to the SEC on Form 6-K on July 28, 2006.

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LUCENT RECENT DEVELOPMENTS
Lucent Shareowner Litigation
      On April 3, 2006, a putative class action entitled Resnick v. Lucent Technologies Inc., et al was filed against Lucent and members of its board of directors in the Superior Court of New Jersey, Law Division, Union County. The named plaintiffs propose to represent a class of Lucent’s shareowners and claim that, among other things, the proposed merger with Alcatel is the product of breaches of duty by the Lucent board of directors in that they allegedly failed to maximize shareowner value in the transaction. Along with other relief, the complaint seeks an injunction against the closing of the proposed merger. Lucent believes the action is without merit and that Lucent has substantial defenses to the claims.
      On May 4, 2006, a putative class action entitled AR Maley Trust v. Lucent Technologies, et al was filed against Lucent and members of its board of directors in the U.S. District Court of the Southern District of New York. The named plaintiffs propose to represent a class of Lucent shareowners and claim that, among other things, Lucent and the directors breached their fiduciary duties by allegedly failing to maximize shareowner value in the transaction. Along with other relief, the complaint seeks an injunction against the closing of the proposed merger. Lucent believes the action is without merit and that Lucent has substantial defenses to the claims.
Reallocation of U.S. Pension Plan Assets
      Globally, based on preliminary estimates for certain asset classes, the fair market value of Lucent’s assets held in pension trusts was approximately $34 billion as of June 30, 2006. Almost all of these assets are related to Lucent’s U.S. pension plans.
      During the third quarter of fiscal 2006, the allocation of the U.S. pension plan assets was changed as part of a routine periodic review. The overall pension plan asset portfolio now reflects a balance of investments allocated approximately equally between equity and fixed-income securities, compared to the previous allocation of approximately 75% percent of assets in equity securities and approximately 25% of assets in fixed-income securities. Lucent believes that this action was prudent, given the demographics and funded status of the plans, and Lucent’s future obligations with respect to the pension plans.
      The shift in asset allocation from equity securities to fixed-income securities related to Lucent’s occupational pension plan whose beneficiaries are primarily formerly represented retirees. Assets in this pension plan are currently in excess of liabilities, and the plan fiduciaries, acting in accordance with advice from an independent external asset allocation advisor, determined that a higher allocation to fixed-income securities would be in the best interests of the plan participants.
Lucent Third Quarter Announcement
      On July 26, 2006, Lucent issued a press release reporting its results for the third quarter of fiscal year 2006, a copy of which was filed with the SEC on Form 8-K on July 27, 2006 and is incorporated herein by reference.

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THE LUCENT SPECIAL MEETING
Date, Time, Place and Purpose of the Lucent Special Meeting
      The special meeting of Lucent shareowners 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. The purpose of the Lucent special meeting is:
  •  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.
The Lucent board of directors unanimously recommends that you vote FOR the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement. For the reasons for this recommendation, see “The Merger — Recommendation of the Lucent Board of Directors and Its Reasons for the Merger.”
Who Can Vote at the Lucent Special Meeting
      Only holders of record of Lucent common stock at the close of business on July 17, 2006, the record date, are entitled to notice of, and to vote at, the Lucent special meeting. As of that date, 2006, there were 4,482,132,632 shares of Lucent common stock outstanding and entitled to vote at the Lucent special meeting, held by approximately 3.3 million shareowners of record. Each share of Lucent common stock is entitled to one vote at the Lucent special meeting. Shares that are held in Lucent’s treasury are not entitled 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 that 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-served 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.
Vote Required for Approval
      The affirmative vote of the holders of a majority of the outstanding shares of Lucent common stock entitled to vote at the special meeting as of the record date, voting as single class, either in person or by proxy, is necessary for the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement.

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      The holders of a majority of the total number of outstanding shares of Lucent common stock entitled to vote as of the record date, represented either in person or by proxy, will constitute a quorum at the Lucent special meeting.
Adjournments
      If no quorum of Lucent shareowners entitled to vote is present in person or by proxy at the Lucent special meeting, the Lucent special meeting may be adjourned from time to time until a quorum is present or represented. In addition, adjournments of the Lucent special meeting may be made for the purpose of soliciting additional proxies in favor of the proposal. However, no proxy that is voted against a proposal described in this proxy statement/ prospectus will be voted in favor of adjournment of the Lucent special meeting for the purpose of soliciting additional proxies.
Manner of Voting
      If you are a Lucent shareowner, you may submit your vote for or against the proposal 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. 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.
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.
      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 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.

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      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 adoption and approval of the merger agreement and the transactions contemplated by the merger agreement.
Revoking a Proxy
      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.
Shares Held in “Street Name”
      If your shares of Lucent common stock are held in an account at a broker, bank or other nominee and you wish to vote, you must return your instructions to the broker, bank or other nominee.
      If you own shares of Lucent common stock through a broker, bank or other nominee and attend the Lucent special meeting, you should bring a letter from your broker, bank or other nominee identifying you as the beneficial owner of such shares of Lucent common stock and authorizing you to vote.
Tabulation of the Votes
      Lucent has appointed IVS Associates, Inc. to serve as the Inspector of Election for the Lucent special meeting. IVS Associates, Inc. will independently tabulate affirmative and negative votes and abstentions.
Dissenters Rights of Appraisal
      Holders of Lucent common stock will not have any appraisal rights under the Delaware General Corporation Law or under Lucent’s certificate of incorporation in connection with the merger, and neither Lucent nor Alcatel will independently provide holders of Lucent common stock with any such rights.
Solicitation
      Lucent will pay the cost of soliciting proxies. Directors, officers and employees of Lucent may solicit proxies on behalf of Lucent in person or by telephone, facsimile or other means. Lucent has engaged MacKenzie Partners, Inc. and Morrow & Co., Inc. to assist it in the distribution and solicitation of proxies. Lucent has agreed to pay MacKenzie Partners a fee of $75,000 plus expenses for its services and has agreed to pay Morrow & Co. a fee of $75,000 plus expenses for its services.
      In accordance with the regulations of the SEC and the NYSE, Lucent also will reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending proxies and proxy materials to beneficial owners of Lucent common stock.

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THE MERGER
      The following is a description of the material aspects of the merger. While Alcatel and Lucent believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to you. Alcatel and Lucent encourage you to carefully read this entire proxy statement/prospectus, including the merger agreement attached to this proxy statement/prospectus as Annex A, for a more complete understanding of the merger.
General
      Each of the Alcatel and Lucent board of directors has unanimously approved the merger agreement and the transactions contemplated by the merger agreement. At the effective time of the merger, Lucent will be merged with Merger Sub and Lucent will survive as the surviving entity and a wholly owned subsidiary of Alcatel. The combined company will be renamed “Alcatel Lucent,” with effect upon completion of the merger. Lucent shareowners will receive the merger consideration upon the terms set forth in the merger agreement and further described below under “The Merger Agreement — Merger Consideration.”
Background of the Merger
      The boards of directors of Alcatel and Lucent continually review their respective companies’ results of operations and competitive positions in the industries in which they operate, as well as their strategic alternatives. In connection with these reviews, each of Alcatel and Lucent from time to time has evaluated potential transactions that would further its strategic objectives.
      As part of this continuous review, in the spring of 2001, Alcatel and Lucent held discussions regarding a possible transaction between the two companies. The parties exchanged confidential information under a confidentiality agreement, and conducted discussions regarding potential terms of such a transaction. In late May 2001, the parties determined that they could not at that time reach a mutual agreement regarding the terms of such a transaction and, therefore, decided to cease discussions regarding such a transaction. On May 29, 2001, Alcatel and Lucent issued a public statement confirming that they had been in discussions concerning a possible merger of the two companies, but that the discussions did not result in any agreement and were terminated.
      From 2002 to 2005, senior management of Alcatel and Lucent from time to time discussed the future of the telecommunications industry, including the merits of a possible future combination of Alcatel and Lucent.
      In late fall 2005, senior management of Alcatel and Lucent again contacted each other to discuss issues confronting the telecommunications industry as well as a possible future combination of their two companies.
      On January 11, 2006, Mr. Serge Tchuruk, Alcatel’s chairman of the board of directors and chief executive officer, and Ms. Patricia Russo, Lucent’s chairman of the board of directors and chief executive officer, re-engaged in discussions regarding a possible transaction, agreeing that the possibility of a transaction between Alcatel and Lucent merited further detailed analysis and consideration. A second meeting between Alcatel and Lucent senior management occurred on January 26, 2006, when Mr. Tchuruk, Mr. Michael Quigley, president and chief operating officer of Alcatel, Mr. Marc Rouanne, chief operating officer of Alcatel’s Mobile Communications Group and Jean-Pascal Beaufret, chief financial officer of Alcatel, met with Ms. Russo, Mr. Frank D’Amelio, chief operating officer of Lucent, and Janet Davidson, Lucent’s chief strategy officer and held a similar discussion concerning the future of the telecommunications industry and a possible combination of the two companies. On February 1, 2006, Mr. Tchuruk and other members of Alcatel senior management met with the Strategic Committee of the Alcatel board of directors. At that meeting, the Strategic Committee, joined by several other Alcatel directors, discussed the possibility of a transaction between Alcatel and Lucent, as well as other strategic alternatives.
      On February 9, 2006, Lucent and Alcatel entered into a confidentiality agreement to facilitate exchanges of due diligence materials between the managements of both companies. Over the course of February 2006 and early March 2006, Mr. Tchuruk and Ms. Russo had periodic discussions regarding possible transaction structures, the exchange ratio and the key social and governance issues presented by the merger. In this

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regard, Alcatel consulted with its financial advisor, Goldman Sachs, and its legal advisor, Skadden, Arps, Slate, Meagher & Flom LLP, which is referred to as Skadden, and Lucent consulted with its financial advisors, JPMorgan and Morgan Stanley, and its legal advisor, Wachtell, Lipton, Rosen & Katz, which is referred to as Wachtell Lipton.
      On February 15, 2006, the Lucent board of directors received an update on the status of contacts between Alcatel and Lucent. At the meeting, Lucent’s management provided its preliminary views on the possible benefits of the proposed transaction to Lucent. Thereafter, the Lucent board of directors authorized Lucent’s management to engage in further discussions with Alcatel.
      At a meeting of the Alcatel board of directors on March 8, 2006, Mr. Tchuruk briefed the Alcatel board members on his discussions with Ms. Russo regarding the proposed business combination of Alcatel and Lucent. Alcatel’s board of directors discussed the proposed combination, including Lucent’s business operations, the strategic rationale of the proposed transaction and the expected synergies. Following these discussions, the Alcatel board of directors authorized Mr. Tchuruk to continue discussions with Lucent on possible transaction structures, the exchange ratio and the key social and governance issues presented by the merger.
      On March 10, 2006, the Lucent board of directors met by telephone and received an update on the status of Lucent’s discussions with Alcatel. At the meeting, Lucent’s management, with the assistance of Wachtell Lipton, reviewed the key aspects of the principal terms of the proposed transaction that were being discussed with Alcatel and offered its guidance with respect to such terms. Thereafter, the Lucent board of directors authorized Lucent’s management to engage in further discussions with Alcatel consistent with such terms.
      Discussions continued on a regular basis during the first two weeks of March between Ms. Russo and Mr. Tchuruk. On March 16, 2006, Ms. Russo and Mr. Tchuruk agreed on a set of non-binding principles that would provide the basis on which the parties would continue to discuss a possible combination of the two companies. Specifically, these non-binding principles included the following:
  •  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.
      On March 14, 2006, Alcatel, through its legal advisor Skadden, delivered a draft merger agreement to Lucent, through its legal advisor Wachtell Lipton, for review and negotiation. From March 14, 2006 through April 2, 2006, representatives of Lucent and Wachtell Lipton reviewed and revised the draft merger agreement.
      At a telephonic meeting of the Lucent board of directors on March 18, 2006, Lucent’s management briefed the Lucent board of directors on the status of discussions with Alcatel. At the meeting, Lucent’s management discussed with the board of directors, among other things, the agreed upon non-binding principles discussed above. Thereafter, the Lucent board of directors authorized Lucent management to engage in further discussions with Alcatel consistent with such non-binding principles.
      In mid-March, 2006, Alcatel informed Lucent that it was also exploring engaging in a potential transaction with Thales Group, pursuant to which Alcatel would contribute assets to Thales in exchange for additional shares of Thales capital stock. Alcatel explained to Lucent that the terms of the transaction had not yet been agreed and were the subject of ongoing negotiations between Thales and Alcatel, but that Alcatel expected that the transaction would be publicly announced and that a definitive agreement would be executed with respect to that transaction after the execution and announcement of an agreement between Alcatel and Lucent. Alcatel agreed that it would keep Lucent reasonably apprised of material developments in its discussion with Thales.
      Concurrently with the review and discussions regarding the draft merger agreement, representatives of Alcatel, Lucent, Skadden, Wachtell Lipton and Darrois Villey Maillot & Brochier, Lucent’s special French counsel, conducted due diligence investigations with respect to Lucent’s and Alcatel’s business, legal, regulatory, tax and other matters. On March 20, 21 and 22, 2006, members of Alcatel’s and Lucent’s respective senior management and their respective legal and financial advisors attended meetings in New York City to conduct due diligence and to discuss the major terms of the transaction, including workforce reductions and synergy opportunities.
      During late afternoon on March 23, 2006, Lucent was contacted by the press to confirm rumors that merger discussions were taking place between Alcatel and Lucent, which Lucent and Alcatel learned would be reported in the press later that day. In response, later that evening, Alcatel and Lucent issued a joint press release stating:
  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.  
      Following the announcement, Alcatel and Lucent determined the formula for the proposed exchange ratio, which was to be calculated to reflect an “at market” transaction based on the average prices of Alcatel

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ADSs and Lucent common stock over a period ending on March 23, 2006. Alcatel and Lucent also had extensive discussions during this time with respect to contractual issues, including either party’s ability to have discussions with potential third-party acquirers, the size of termination fees, the nature and extent of representations and warranties to be given by each company, the extent of each company’s obligation to obtain regulatory approval for the transaction, the definition of “material adverse effect” and the conditions to closing.
      On March 27, 2006, the Lucent board of directors met by telephone to consider the proposed transaction. At the meeting, Lucent’s management reviewed the terms, strategic rationale and financial implications of the transaction. Management then reviewed Alcatel’s business operations and presented preliminary results of its business, accounting, legal and tax due diligence of Alcatel. Management also presented for the board’s consideration potential alternatives to a merger with Alcatel, including Lucent remaining an independent company or pursuing strategic acquisitions. Following extended discussion and review of the proposed transaction and Lucent’s strategic alternatives, the Lucent board authorized further discussions with Alcatel.
      The Alcatel board of directors met on March 30, 2006 to consider and discuss the proposed transaction with Lucent. At the meeting, Alcatel’s management presented the preliminary results of its business and financial due diligence on Lucent, including a review of Lucent’s human resources and compensation policies, and described the expected financial implications of the merger. Representatives from Goldman Sachs, Alcatel’s financial advisor, provided certain financial analyses with respect to the transaction. Representatives of Skadden reviewed the terms of the proposed merger agreement, including the governance terms, covenants, conditions to completion of the merger and termination provisions. Following extended discussion and review with its legal and financial advisors, the Alcatel board authorized further discussions with Lucent for the purpose of determining whether an agreement could be reached on acceptable terms.
      On March 30, 2006, the Lucent board of directors met again to consider the proposed transaction. At the meeting, Lucent’s management updated the board on its discussions with Alcatel and reviewed the strategic rational of the transaction. Lucent’s legal counsel, Wachtell Lipton, described the terms of the merger agreement and governance arrangements proposed to be entered into in connection with the merger. Representatives from JPMorgan and Morgan Stanley, Lucent’s financial advisors, provided a financial analysis of the transaction, including a discussion of alternatives to the transaction, the value and liquidity of the securities proposed to be offered by Alcatel, and the strategic benefits of the proposed transaction. Following extended discussion and review of the proposed transaction the Lucent board of directors authorized further discussions with Alcatel for the purpose of determining whether an agreement could be reached on acceptable terms.
      The Lucent board of directors had a telephonic meeting on April 1, 2006, and received an update on the discussions. The Lucent board of directors was informed that there had been progress on the contractual discussions. In addition, at the meeting, each of JPMorgan and Morgan Stanley, Lucent’s financial advisors, rendered its oral opinion, subsequently confirmed in writing, that, as of April 1, 2006 and based upon and subject to the various considerations set forth in each opinion, in the case of JPMorgan’s opinion, the exchange ratio in the proposed merger was fair from a financial point of view to the 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). A description of these opinions appears under “The Merger — Opinion of JPMorgan, Financial Advisor to Lucent” and “The Merger — Opinion of Morgan Stanley, Financial Advisor to Lucent,” respectively. The Lucent board of directors authorized Lucent management to continue its discussions with Alcatel’s management.
      In the early morning of April 2, 2006, Lucent, Alcatel and their respective legal advisors finalized a proposed merger agreement to be executed. Shortly thereafter, a meeting of the Alcatel board of directors was convened to consider whether to approve the merger agreement. At the meeting, Mr. Tchuruk informed the Alcatel board of directors that the merger agreement had been finalized. Management and the board then reviewed certain aspects of the proposed transaction, including the final exchange ratio, the conditions to closing, the status of discussions with Thales and the need for a retention plan for certain members of Lucent’s

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management. In addition, at the meeting, Goldman Sachs, Alcatel’s financial advisor, delivered its written opinion, that, as of April 2, 2006 and based upon and subject to the factors and assumptions set forth in the opinion, the exchange ratio pursuant to the proposed merger agreement was fair from a financial point of view to Alcatel. A description of this opinion appears under “The Merger — Opinion of Goldman Sachs, Financial Advisor to Alcatel.” The Alcatel board of directors unanimously adopted and approved the merger agreement and the transactions contemplated by the merger agreement.
      After completion of the Alcatel board meeting, on the morning of April 2, 2006, the Lucent board of directors held a telephonic meeting, to consider whether to approve the merger agreement. At the meeting, the Lucent directors received an update on the progress of the merger discussions and reviewed the current status of the Thales transaction with Lucent’s legal and financial advisors. In addition, Ms. Russo informed the Lucent board of directors that the Alcatel board of directors had approved the merger, and that the merger agreement had been finalized. Lucent’s legal counsel, Wachtell Lipton, reviewed with the directors the resolutions to approve the merger. Following deliberations, the Lucent board of directors resolved unanimously that the merger agreement and the merger represent a transaction that is advisable for, fair to and in the best interests of Lucent and the Lucent shareowners and approved and adopted the merger agreement and the transactions contemplated by the merger agreement, and further resolved unanimously to recommend that the Lucent shareowners vote in favor of the adoption of the merger agreement and the transactions contemplated by the merger agreement. Promptly after the meetings of the boards of directors of Alcatel and Lucent, the management of Alcatel and Lucent executed the merger agreement and issued a joint press release announcing the transaction.
      Subsequent to the announcement of the execution of the merger agreement, Alcatel continued to hold discussions with Thales about a possible transaction with Thales. On April 5, 2006, Alcatel announced that the Thales board of directors approved of a transaction with Alcatel. The transaction would be subject to the approval of the Alcatel board of directors within the framework of its proposed merger with Lucent, as well as the approval of its partner in satellite activities, Finmeccanica, as well as regulatory approvals.
      On April 26, 2006, the Alcatel board of directors met and approved the Thales transaction, subject to final documentation.
      On May 2, 2006, the Lucent board of directors received an update from Lucent’s management and its legal and financial advisors on the progress of the merger as well as the current status of the proposed Thales transaction.
      On May 5, 2006, Alcatel and Lucent announced the formation of the team that will lead both companies’ integration and transition planning efforts and that Serge Tchuruk, Alcatel’s chairman and chief executive officer, and Patricia Russo, Lucent’s chairman and chief executive officer, would be co-chairing the team in charge of the overall integration process.
      On June 7, 2006, the Antitrust Division of the U.S. Department of justice granted early termination of the HSR waiting period.
      On June 15, 2006, the Lucent board of directors received an update from Lucent’s management and its legal advisors on the progress of the merger as well as the current status of the proposed Thales transaction.
      On July 7, 2006, the Alcatel board of directors received an update from Alcatel’s management on the progress of the merger as well as the current status of the proposed Thales transaction.
      On July 10, 2006, Alcatel and Lucent made an announcement concerning the business model and the associated organization of the combined company expected to be implemented upon completion of the merger. In particular, it was announced that the business of the combined company would be divided into three sectors: a carrier business group, headed by Etienne Fouques, consisting 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. It was further announced that the combined company would have a decentralized regional structure, anticipated to include the following four geographic regions: Europe/ North, to include the United Kingdom, all scandina-

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vian 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. Lastly, it was announced that the combined company would have a management committee headed by Patricia Russo, chief executive officer, and including 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.
      On July 12, 2006, Alcatel and Lucent agreed on, and Alcatel published, the resolutions which Alcatel will submit to its shareholders’ meeting in connection with the merger.
      On July 24, 2006, the European Commission declared the merger compatible with the Common Market.
      On July 24, 2006, the Lucent board of directors received an update from Lucent’s management and its legal advisors on the progress of the merger as well as the current status of the proposed Thales transaction.
      On July 26, 2006, Alcatel and Lucent announced agreement on several management positions for the combined company, including that Jeong Kim would remain as president of Bell Labs; Olivier Baujard would become chief technology officer; Helle Kristoffersen would become the vice president of corporate strategy; John Giere would become chief marketing officer; and Elizabeth Hackenson would be head of information technology.
      On July 26, 2006, the Alcatel board of directors received an update from Alcatel’s management on the progress of the merger.
      On July 27, 2006, Alcatel and Lucent agreed that the combined company’s articles of association and bylaws (statuts) would provide for the appointment by the combined company’s shareholders of two employee representatives as board observers (censeurs). The censeurs will be appointed for two-year terms and will participate in meetings of the board of directors in a non-voting, consultative capacity.
      On July 27, 2006, Alcatel approved the agenda for the Alcatel shareholders meeting to be held on September 7, 2006, and Alcatel and Lucent agreed on revised resolutions which will be submitted to the shareholders’ meeting for approval. The resolutions nominated two employee representatives agreed upon by Alcatel and Lucent to serve as censeurs and twelve persons to serve as directors. In accordance with the merger agreement, six of the director nominees were designated by Alcatel from Alcatel’s board of directors and six nominees were designated by Lucent from Lucent’s board of directors. The Alcatel designees included Daniel Bernard, Frank W. Blount, Jozef Cornu, Jean-Pierre Halbron, Daniel Lebègue and Serge Tchuruk and the Lucent designees included Linnet Deily, Robert Denham, Edward Hagenlocker, Karl Krapek, Patricia Russo and Henry Schacht.
      On August 2, 2006, Alcatel issued revised resolutions for its September 7, 2006, shareholders meeting.
      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.
Alcatel’s Reasons for the Merger
      In reaching its conclusion to approve the merger and the merger agreement and recommend that Alcatel shareholders vote FOR approval of the issuance of Alcatel ordinary shares in connection with the merger, the issuance of Alcatel ordinary shares for delivery upon exercise of Lucent stock options, warrants, convertible debt and equity-based awards, the adoption of new Alcatel bylaws and the election of the new members of

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Alcatel’s board of directors, all as required pursuant to the merger agreement, the Alcatel board of directors considered a number of factors, including the following:
Strategic Considerations
      The Alcatel board of directors considered a number of factors pertaining to the strategic rationale for the merger as generally supporting its decision to enter into the merger agreement, including the following:
  •  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 Alcatel board of directors also considered a number of financial factors pertaining to the merger as generally supporting its decision to enter into the merger agreement, including the following:
  •  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 Alcatel board of directors also considered a number of additional factors as generally supporting its decision to enter into the merger agreement, including the following:
  •  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 Alcatel board of directors also identified and considered a number of uncertainties, risks and other potentially negative factors, including the following:
  •  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.”
      The Alcatel board of directors recognized that there can be no assurance about future results, including results expected or considered in the factors listed above. The Alcatel board of directors concluded, however, that the potential advantages of the merger outweighed its risks.
      The foregoing discussion of the information and factors considered by the Alcatel board of directors is not exhaustive, but includes the material factors considered by it. The Alcatel board of directors did not quantify or assign relative weights to the specific factors considered in reaching the determination to recommend that Alcatel shareholders vote FOR approval of the issuance of Alcatel ordinary shares required to be issued pursuant to the merger agreement. In addition, individual directors may have given different weights to different factors. This explanation of Alcatel’s reasons for the proposed merger and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements.”

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      After careful consideration, the Alcatel board of directors unanimously resolved that the merger and the other transactions contemplated by the merger agreement, including the issuance of Alcatel ordinary shares, are advisable and approved the merger agreement.
Financial Analysis of the Exchange Ratio by the Alcatel Board of Directors
      Under applicable French law and regulations, the French prospectus (note d’opération) relating to the Alcatel ordinary shares to be issued in connection with the merger must include an assessment of the exchange ratio by the Alcatel board of directors using a multi-criteria financial analysis. Since this financial analysis has been made available in the French prospectus, a translation of the financial analysis is included in this proxy statement/ prospectus. The financial analysis was performed solely to comply with French regulations in connection with the preparation of the French prospectus relating to the Alcatel ordinary shares to be issued in connection with the merger.
      The following is a translation from the French of the original disclosure regarding the financial analysis of the exchange ratio by the Alcatel board of directors as set forth in the French prospectus relating to the Alcatel ordinary shares to be issued in connection with the merger. Certain terminology has been conformed to the defined terms used in this proxy statement/ prospectus and certain typographical conventions have been conformed to United States usage.
Preliminary Information
Offered Exchange Ratio
      During its negotiations with Lucent, Alcatel was advised by its financial advisor, Goldman Sachs, and Lucent was advised by its financial advisors, Morgan Stanley and JP Morgan Inc. On April 2, 2006, the Alcatel board of directors decided to propose to the Lucent shareowners an exchange ratio of 0.1952x, i.e. 0.1952 Alcatel ADSs for one Lucent share.
      As is customary, the financial analysis was carried out using a multi-criteria approach, in which the stock market approach predominated, in view of the liquidity of Alcatel ADSs and Lucent common stock.
Reference Aggregates
      Historical financial aggregates. Unless otherwise indicated, the historical financial aggregates used to assess the terms of the proposed exchange ratio were drawn from the Lucent audited consolidated financial statements (for the fiscal years ending on September 30, 2005 and on December 31, 2005 (unaudited) prepared in compliance with U.S. GAAP) and the Alcatel audited consolidated financial statements (for the fiscal year ending on December 31, 2005 prepared in compliance with IFRS principles).
      Forecasted financial aggregates. Two types of forecasted financial aggregates were used: (i) the observed market consensus (source: IBES) and (ii) the estimates prepared, both for Alcatel and for Lucent, by the Alcatel management team. These estimates, with regard to the Lucent aggregates, either include or exclude the financial earnings/fees relating to Lucent’s retirement programs and medical coverage (however, the fiscal year’s normal charge for pensions and medical coverage is taken into account). For Lucent, the financial earnings/fees relating to its retirement programs and medical coverage — which do not involve its core business — have such an impact on its financial results that it would appear to be more appropriate to isolate their incidence.
      Alcatel established, as a precautionary measure, forecast data relating to Lucent for 2006 and beyond. Alcatel did not have access to forecast data for the period after 2006.
      Whether historical or forecast data, the aggregates used were not subject to any accounting adjustment that could result from completion of the merger.

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Elements for the Assessment of the Ratio
Description of the Criteria Used for the Comparison of the Companies
      Share Price. The Alcatel and Lucent securities, listed in Paris and New York, are liquid and are followed by many financial analysts. Alcatel and Lucent regularly disclose information with regard to their results, prospects and the evolution of their business. Therefore, Alcatel assumed that these elements would be reflected in the reports that analysts publish on Alcatel and Lucent, and it can also be considered that their share price is a relevant reference.
      On March 24, 2006, Alcatel and Lucent were required to issue a common press release confirming the existence of merger negotiations. Thus, March 23, 2006 was established as the last trading day for the assessment of the proposed exchange ratio.
      The exchange ratios observed over different periods, and the resulting premium or discount levels, are presented in the following table:
                 
        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.
Therefore, the proposed ratio generates:
  •  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.
      Share Price Objectives. For the same reasons that led Alcatel to use share price as a relevant reference, Alcatel also assumed that the share price objectives published by financial analysts would be relevant.
      Fifteen financial analysts provide share price objectives for Lucent, and twenty-six for Alcatel. The median of the share price objectives is presented in the following table:
                                 
                Premium Implied by
    Lucent   Alcatel   Implied Ratio   the Proposed Ratio
                 
Median
  $ 2.70       12.00       0.1878 x     3.8 %
 
The implied ratio is calculated on the basis of the exchange rate on March 23, 2006, i.e. 0.8345 /$.
     Respective Contributions of the Two Companies to the Combined Company’s Financial Aggregates. This method involves observing the respective contributions of Alcatel and Lucent to the combined company’s forecasted financial aggregates.
      The contributions indicated under sub-sections (A) and (B) below were compared with the percentage of the shareholders equity of the combined company going to Alcatel shareholders based on the proposed exchange ratio. By applying the exchange ratio of 0.1952 to the price of Alcatel ADSs on March 23, 2006 and

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to the total number of shares (1,383 million for Alcatel, 4,716 million for Lucent, based on fully diluted data), Alcatel shareholders would account for 60.1% of the shareholders’ equity of the combined company.
(A) The respective contributions of both companies to the combined company’s aggregates were first calculated according to the aggregates determined by the Alcatel management team, both for Alcatel and for Lucent.
      In light of the above, the aggregates used for Lucent exclude the financial data relating to its retirement programs and medical coverage, (taking into account, however, the fiscal year’s normal charge for pensions and medical coverage).
      The results of this analysis are presented below:
Alcatel’s contribution to the combined company’s aggregates
     (projections of Alcatel management, excluding the financial earnings/fees relating to the retirement programs/medical coverage)
                                 
    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
(B) This contribution analysis was also carried out based on the median of the market estimates (source: IBES). Unlike the estimates prepared by the Alcatel management team relating to the Lucent aggregates, these IBES estimates include the financial data relating to the Lucent retirement programs and medical coverage.
      The results of this analysis are presented below:
Alcatel contribution to the combined company’s aggregates
     (IBES projections)
                                 
    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%  
 
* Post-restructuring costs
(C) This analysis was carried out in view of the contribution of the Alcatel shareholders’ equity and of the Alcatel enterprise value to the value of the combined shareholders’ equity and the combined company value. The analysis showed that, based on the closing share price of March 23, 2006, Alcatel shareholders would represent 61.6% of the value of the combined shareholders’ equity and 58.5% of the combined company value. As part of this analysis, the Alcatel stock market capitalization was calculated on the basis of 1,383.8 million Alcatel shares (on a fully diluted basis) and a share price of 12.85 on March 23, 2006, whereas Lucent’s stock market capitalization was calculated on the basis of 4,716.2 million shares (on a fully diluted basis), and a share price of US $2.82 on March 23, 2006. The stock market capitalization and the enterprise value of Lucent were converted into euros at the / USD exchange rate of 0.8345 on March 23, 2006, and Lucent’s net debt was calculated to include minority holdings without adjustments for pension liabilities.
  Valuation Methods not Considered
      Comparable Transactions. This method involves comparing the Enterprise Value/ Revenue, Enterprise Value/ EBITDA, Enterprise Value/ EBIT or Shareholders’ Equity/ Net Earnings ratios, among others, resulting from the proposed exchange ratio of 0.1952x, with the same ratios resulting from comparable transactions.

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      The transactions for which public information is available are either of a size that is not readily comparable with the proposed merger, or involve companies that are active in a sector other than that of manufacturers of telecommunications equipment. Thus, this valuation method was not considered, as its contributions are less reliable than those resulting from the other adopted methods.
      Discounted Cash Flows. During the negotiation of the merger, and therefore during the determination of the exchange ratio, the Alcatel management team did not have access to forecast information for the period after 2006.
      The speed of technological developments in the telecommunications sector makes the preparation of long-term forecasts very difficult. The end value included in the valuation by discounting the cash flows weighs very significantly in the valuation of Lucent, although the amount of this end value is very strongly influenced by the adopted long-term growth hypotheses, by the adopted recurring operating margin and by the discounting rate that is used.
      In light of the above, discounted cash flows was not selected as a sufficiently reliable method.
Other Studied Financial Analyses
      Potential Synergies Analysis Relating to the Transaction. The cost synergies that could result from the merger have been jointly identified and quantified by the Alcatel and Lucent management teams for the calendar years 2007, 2008 and 2009. The merger should serve to generate cost synergies estimated at 1.4 billion over three years. The cash expenditures needed in terms of costs to bring about these potential synergies are estimated at 1.4 billion.
      The value of these synergies was estimated using the discounted cash flows method. The net discounted value amounts to approximately 10 billion.
      Accretion/Dilution Analysis for Alcatel Shareholders. The merger’s financial consequences on the Alcatel forecasted net income per share have been analyzed using: (1) estimates of earnings per share for Alcatel and Lucent based on the views of Alcatel management using the fully diluted share capital and (2) estimates of earnings for Alcatel and Lucent based on IBES estimates. For calendar years 2007, 2008 and 2009, the projected earnings per share of Alcatel common stock were compared, on a standalone basis, to the projected earnings per share of the combined company. This analysis indicated that the proposed merger would be accretive to Alcatel’s shareholders on an earnings per share basis for all three years analyzed, assuming inclusion of revenue synergies and operating synergies, exclusion of transaction restructuring costs and exclusion of any transaction accounting adjustments relating in particular to amortization of intangibles. The following table summarizes the results of this analysis:
     Accretion/dilution of the net earnings per share before restructuring fees and taking into account any accounting adjustment linked to the merger and notably relating to the potential amortization of goodwill
                 
        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%  
      Analysis of Comparable Listed Companies. Companies in the telecommunications sector are commonly valued in view of the ratio between, on the one hand, the value of their shareholders’ equity or their enterprise value, and, on the other hand, their revenues or net earnings.
      The enterprise value corresponds to the sum of the stock market capitalization, the financial debt and the minority holdings, less any available cash and investment securities (according to the last published consolidated accounts).

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      The sample of listed comparable companies includes Cisco, Ericsson, Nokia, Nortel, Motorola and Siemens, as well as Alcatel or Lucent, depending on whether Lucent or Alcatel is being valued.
      It should be noted that none of the companies mentioned above is directly comparable to Alcatel or Lucent. Indeed, certain characteristics specific to these companies (size of the company, diversity of the business lines, accounting system, existence or not of significant reportable losses) are very different from Alcatel or Lucent. These companies have nevertheless been chosen because they are publicly traded companies with operations that, for purposes of analysis, may be considered similar to certain operations of Alcatel or Lucent.
      The forecasted data for the companies comprising the sample have been prepared on the basis of the observed market consensus (source: IBES and documents filed with the relevant market authorities).
      The multiples of the comparable listed companies and the implied multiples for various forecasted data for Lucent are presented below:
                                         
            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.
     The multiples of the comparable listed companies and the implied multiples for various forecasted data for Alcatel are presented below:
                                 
        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.
Summary of the Criteria Used
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%  
Alcatel contribution to the combined company’s aggregates (IBES projections)
                                 
    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
Accretion/dilution of earnings per share before accounting for potential amortization of goodwill
                 
        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 %
Financial opinion of BNP Paribas
      Given the significant nature of the proposed merger, the AMF notified Alcatel that the Alcatel board of directors should obtain an independent financial assessment of its recommendations to the Alcatel shareholders. Therefore, on April 15, 2006, the Alcatel board of directors engaged BNP Paribas as a financial expert to deliver a financial opinion to the Alcatel board of directors concerning the proposed exchange ratio. An English translation of the text of the opinion of BNP Paribas is attached to this proxy statement/ prospectus as Annex F.
      BNP Paribas was engaged by the Alcatel board of directors after its approval of, and Alcatel’s execution of, the merger agreement, and accordingly the BNP Paribas opinion was not a factor considered by the Alcatel board of directors in its decision to enter into the merger agreement. Because the BNP opinion is being made available in the French prospectus (note d’opération) relating to the Alcatel ordinary shares to be issued in connection with the merger, an English translation of the BNP Paribas opinion is included in this proxy statement/ prospectus. On May 12, 2006, BNP Paribas delivered its written opinion to the Alcatel board of directors that, based on public information and information made available to BNP Paribas by Alcatel, the assumptions made by Alcatel and the features of the merger described in their written opinion, the exchange ratio (0.1952 Alcatel ADSs for each Lucent share) appears to be reasonable for the Alcatel shareholders as of April 2, 2006 from a financial point of view. You are encouraged to read the full text of the English translation of the BNP Paribas opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations to the review undertaken. BNP Paribas’ opinion is directed to the Alcatel board of directors and does not constitute a recommendation to any shareholder as to any matters relating to the merger.
      BNP Paribas’ opinion letter was delivered in the French language and is governed by French law. The English translation of the opinion letter attached to this proxy statement/prospectus is provided for informational purposes only and is qualified in its entirety by reference to the original French-language opinion letter filed with the AMF. BNP Paribas disclaims any responsibility for any errors or omissions in the translation.

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Recommendation of the Lucent Board of Directors and Its Reasons for the Merger
      By unanimous vote, the Lucent board of directors, at a meeting held on April 2, 2006, determined that the merger agreement and the transactions contemplated by the merger agreement were advisable and in the best interests of the Lucent shareowners and approved and adopted the merger agreement and the transactions contemplated thereby, including the merger. The Lucent board of directors unanimously recommends that the Lucent shareowners vote FOR the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement at the Lucent special meeting.
      In reaching this decision, the Lucent board of directors consulted with Lucent’s management and its financial and legal advisors and considered a variety of factors, including the material factors described below. In light of the number and wide variety of factors considered in connection with its evaluation of the transaction, the Lucent board of directors did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors that it considered in reaching its determination. The Lucent board of directors viewed its position as being based on all of the information available and the factors presented to and considered by it. In addition, individual directors may have given different weights to different factors. This explanation of Lucent’s reasons for the proposed merger and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements.”
Strategic Considerations
      The Lucent board of directors considered a number of factors pertaining to the strategic rationale for the merger as generally supporting its decision to enter into the merger agreement, including the following:
  •  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
      The Lucent board of directors also considered a number of financial factors pertaining to the merger as generally supporting its decision to enter into the merger agreement, including the following:
  •  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
      The Lucent board of directors also considered a number of additional factors as generally supporting its decision to enter into the merger agreement, including the following:
  •  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 Lucent board of directors also identified and considered a number of uncertainties, risks and other potentially negative factors, including the following:
  •  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.
      The Lucent board of directors weighed the potential benefits, advantages and opportunities of a merger and the risks of not pursuing a transaction with Alcatel against the risks and challenges inherent in the proposed merger. The Lucent board of directors realized that there can be no assurance about future results, including results expected or considered in the factors listed above. However, the Lucent board of directors concluded that the potential benefits outweighed the risks of consummating the merger with Alcatel.
      After taking into account these and other factors, the Lucent board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were advisable and in the best interest of the Lucent shareowners, approved the merger with Alcatel and the other transactions contemplated by the merger agreement, and approved and adopted the merger agreement.

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Opinion of Goldman Sachs, Financial Advisor to Alcatel
      On April 2, 2006, Goldman Sachs delivered its written opinion to the Alcatel board of directors that, as of the date of the fairness opinion and based upon and subject to the factors and assumptions set forth therein, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to Alcatel.
      The full text of the written opinion of Goldman Sachs, dated April 2, 2006, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Goldman Sachs provided its opinion for the information and assistance of the Alcatel board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of Lucent common stock, Alcatel ADSs or Alcatel ordinary shares should vote with respect to the merger or any issuance of Alcatel ordinary shares.
      In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:
  •  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.
      Goldman Sachs also held discussions with members of the senior management of Alcatel and Lucent regarding their assessment of the strategic rationale for, and the potential benefits of, the merger and the past and current business operations, financial condition, and future prospects of Alcatel and Lucent. In addition, Goldman Sachs reviewed the reported price and trading activity for the Alcatel ADSs and Alcatel ordinary shares and the Lucent common stock, compared certain financial and stock market information for Alcatel and Lucent with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the communications technology industry specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as it considered appropriate.
      Goldman Sachs relied upon the accuracy and completeness of all of the financial, accounting, legal, tax, pension and other post-employment benefit obligations and other information discussed with or reviewed by it and assumed such accuracy and completeness for purposes of rendering the opinion described above. Goldman Sachs assumed, with the consent of Alcatel’s board of directors, that the Forecasts prepared by the management of Alcatel and Synergies prepared by the managements of Alcatel and Lucent were reasonably prepared on a basis reflecting the best currently available estimates and judgments of Alcatel and Lucent. Goldman Sachs also assumed that all governmental, regulatory or other consents or approvals necessary for the completion of the merger would be obtained without any adverse effect on Alcatel or Lucent or on the expected benefits of the merger in any way meaningful to its analyses. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of Alcatel or Lucent or any of their respective subsidiaries, and Goldman Sachs was not furnished with any such evaluation or appraisal. Goldman Sachs’ opinion did not address the underlying business decision of Alcatel to engage in the merger, and Goldman Sachs was not

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expressing any opinion as to the prices at which Alcatel ADSs or Alcatel ordinary shares would trade at any time.
      The following is a summary of the material financial analyses delivered by Goldman Sachs to the board of directors of Alcatel in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent the relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before April 2, 2006 and is not necessarily indicative of current market conditions.
      Historical Stock Trading Analysis. Goldman Sachs reviewed the historical trading prices for the Lucent common stock for the latest twelve-month period ended March 23, 2006, the day before news concerning a potential combination was reported in the press, following which Alcatel and Lucent issued a joint press release confirming the existence of discussions and negotiations between them, both in terms of absolute share price performance and in terms of relative share price performance. The relative share price performance of Lucent was examined in relation to the Selected Companies (as hereinafter defined) and Alcatel and in relation to the S&P 500 Index and the S&P 500 Telecom Index.
      Goldman Sachs also reviewed the historical trading prices for the Alcatel ordinary shares and the Alcatel ADSs for the latest twelve-month period ended March 23, 2006, both in terms of absolute share price performance and in terms of relative share price performance. The relative share price performance of Alcatel was examined in relation to the Selected Companies and Lucent and in relation to the CAC 40 Index and the DJ Eurostoxx Telecom Index.
      In addition, Goldman Sachs reviewed the share price performance of Alcatel ordinary shares as well as the share price performance of Alcatel ADSs relative to Lucent common stock, in each case, during the day of March 24, 2006. Goldman Sachs also reviewed the share price performance of Alcatel ordinary shares, Alcatel ADSs and Lucent common stock during the period of March 23, 2006 through March 29, 2006.
      Selected Companies Analysis. Goldman Sachs reviewed and compared certain financial information for Alcatel and Lucent to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the communications technology industry, of which each is referred to as a Selected Company and collectively as the Selected Companies:
  •  Cisco Systems Inc.;
 
  •  L.M. Ericsson Telephone Co.;
 
  •  Nokia Corp.;
 
  •  Nortel Networks Corp.;
 
  •  Motorola Inc.; and
 
  •  Siemens AG.
      Although none of the Selected Companies is directly comparable to Alcatel or Lucent, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Alcatel and Lucent.
      Goldman Sachs calculated and compared various financial multiples and ratios for the Selected Companies, Alcatel and Lucent based on information that it obtained from (i) public filings and estimates of the Institutional Brokers Estimate System, or IBES, with respect to the Selected Companies, and, where indicated, Alcatel and Lucent and (ii) Alcatel management with respect to Alcatel and Lucent, where indicated. With respect to the Selected Companies, Alcatel and Lucent, Goldman Sachs calculated estimated enterprise value to estimated calendar year 2008 revenue ratios. Goldman Sachs also calculated estimated

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price to estimated calendar year 2008 earnings per share ratios. The following table presents the results of this analysis with respect to Lucent:
                                         
            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.
     The following table presents the results of this analysis with respect to Alcatel:
                                 
    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.
     Historical Exchange Ratio Analysis. For the period from March 23, 2005 through March 28, 2006, Goldman Sachs computed the daily implied exchange ratios of closing stock market prices of Alcatel ADSs to Lucent common stock and compared it to the fixed exchange ratio of Alcatel ADSs to Lucent common stock of 0.1952x. Goldman Sachs also computed the daily implied ownership of Alcatel in the combined entity (assuming 1,383.8 million Alcatel ordinary shares (diluted) and 4,716.2 million Lucent common stock (diluted)) based on the above daily exchange ratios during the period from March 23, 2005 through

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March 28, 2006, as compared to a fixed ownership percentage of 60.1% (diluted, based on the 0.1952x fixed exchange ratio). The following table presents the results of these analyses:
         
    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%
      Contribution Analysis. Goldman Sachs reviewed the estimated future operating and financial information including, among other things, sales, earnings before interest, taxes, depreciation and amortization (or EBITDA), earnings before interest and taxes (or EBIT) and net income of Alcatel, Lucent and the combined entity resulting from the merger based, in the first instance, on Alcatel management’s assumptions for Alcatel and Lucent, which exclude gross pension credits but include related pension and other benefits service costs and assume a /$ exchange rate of 0.8333 per Alcatel management’s business plan, and, in the second instance, on the median of estimates from IBES, which include pension credits. The following tables present the results of this analysis:
                                 
    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 %
The analysis also indicated that, at share prices as of March 23, 2006, holders of Alcatel ordinary shares represented 61.6% of the combined outstanding common equity and 58.5% of the combined enterprise value. In conducting this analysis, Alcatel’s market capitalization was calculated based on 1,383.8 million diluted number of shares for Alcatel and a share price of 12.85 as of March 23, 2006, Lucent’s market capitalization was calculated based on a 4,716.2 million diluted number of shares for Lucent and a share price of $2.82 as of March 23, 2006, the market capitalization and enterprise value of Lucent were converted into euros at a /$ exchange rate of 0.8345 as of March 23, 2006, and net debt was calculated to include minority interests and was unadjusted for unfunded pension liabilities.
      Synergies Analysis. Goldman Sachs reviewed the impact of the estimated pre-tax operating synergies, including revenues synergies and cash restructuring costs, for calendar years 2007, 2008, 2009 and 2010, which estimates were provided by the managements of Alcatel and Lucent.

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      Based on the synergy estimates provided by Alcatel and Lucent managements, Goldman Sachs analyzed the value of 100% of the synergies (post-cash restructuring costs) using discounted cash flows analysis and multiples analysis. Using discounted cash flows analysis, Goldman Sachs calculated illustrative net present value indications of the synergies to be equal to 10.7 billion (including 1.2 billion of incremental value due to management forecasts concerning the acceleration of use of net operating losses or NOLs), assuming an illustrative discount rate of 10.6% (blended weighted average cost of capital or WACC of Alcatel and Lucent assuming a tax rate of 30%), and 12.9 billion, assuming an illustrative discount rate of 11.2% (blended WACC of Alcatel and Lucent assuming a tax rate of 0%). In both illustrative net present value indications, Goldman Sachs calculated illustrative terminal values for year 2010 based on a perpetuity growth rate of 1.5%. Using multiples analysis, Goldman calculated illustrative value indications of the synergies to be 15.7 billion by applying Alcatel’s estimated 2007 P/ E multiple of 16.6x to Alcatel management’s forecast of run-rate synergies post-tax (using a 15% tax rate per Alcatel’s estimate) and discounting this value to year 2007 using an illustrative Alcatel WACC of 9.76%, and 12.4 billion by applying Lucent’s estimated 2007 P/ E multiple of 13.9x to Alcatel management’s forecast of run-rate synergies post-tax (using a 15% tax rate per Alcatel’s estimate) and discounting this value to year 2007 using an illustrative Lucent WACC of 11.24%. In comparison, the market capitalization of Lucent as of March 23, 2006 was 11.1 billion (based on Lucent share price of $2.82 as of March 23, 2006, a diluted number of shares of 4,716.2 million and a /$ exchange rate of 0.8345 as of March 23, 2006).
      Accretion/ Dilution Analysis. Goldman Sachs analyzed the pro forma financial effects of the merger on Alcatel’s estimated earnings per share using: (1) estimates of earnings for Alcatel and Lucent based on the views of Alcatel management using the fully diluted number of shares and (2) estimates of earnings for Alcatel and Lucent based on IBES estimates. For calendar years 2007, 2008 and 2009, Goldman Sachs compared the projected earnings per share of Alcatel common stock, on a standalone basis, to the projected earnings per share of the combined company. This analysis indicated that the proposed merger would be accretive to Alcatel’s shareholders on an earnings per share basis for all three years analyzed, assuming inclusion of revenue synergies and operating synergies with respect to operating expenses, marketing, sales and capital expenditures, exclusion of transaction restructuring costs and exclusion of any non-cash purchase accounting adjustments related to the amortization of intangibles. The following table summarizes the results of this analysis:
                 
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 %
The financial forecasts that underlie this analysis are subject to substantial uncertainty and, therefore, actual results may be substantially different.
      The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Alcatel or Lucent or the contemplated merger.
      Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to Alcatel’s board of directors as to the fairness from a financial point of view of the exchange ratio. These analyses do not purport to be appraisals, nor do they necessarily reflect the prices at which businesses or securities actually

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may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Alcatel, Lucent, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.
      The exchange ratio was determined through arm’s-length negotiations between Alcatel and Lucent and was approved by the Alcatel board of directors. Goldman Sachs provided advice to Alcatel during these negotiations. Goldman Sachs did not, however, recommend any specific exchange ratio to Alcatel or the Alcatel board of directors or that any specific exchange ratio constituted the only appropriate exchange ratio for the merger.
      As described above, Goldman Sachs’ opinion to the Alcatel board of directors was one of many factors taken into consideration by the Alcatel board of directors in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex C.
      Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. Goldman Sachs and its affiliates have acted as financial advisor to Alcatel in connection with, and have participated in certain of the negotiations leading to, the transaction contemplated by the merger agreement. In addition, Goldman Sachs and its affiliates have provided certain investment banking services to Alcatel from time to time, including having acted as co-managing underwriter of a public offering of 20,125,000 shares of Nexans, the cable and components segment of Alcatel, in June 2001. Goldman Sachs and its affiliates also may provide investment banking services to Alcatel and Lucent in the future. In connection with the above-described investment banking services, Goldman Sachs and its affiliates have received, and may receive, compensation.
      Goldman Sachs is a full service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman Sachs and its affiliates may provide such services to Alcatel, Lucent and their respective affiliates, may actively trade the debt and equity securities (or related derivative securities) of Alcatel, Lucent or their respective affiliates for their own account and for the accounts of their customers and may at any time hold long and short positions of such securities.
      The Alcatel board of directors selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the proposed merger. Pursuant to a letter agreement dated March 27, 2006, Alcatel engaged Goldman Sachs to act as its financial advisor in connection with the merger. Pursuant to the terms of this engagement letter, Alcatel has agreed to pay Goldman Sachs a transaction fee of $20,000,000 and an additional fee of $5,000,000 payable at the discretion of Alcatel, a substantial portion of which is payable upon completion of the merger. In addition, Alcatel has agreed to reimburse Goldman Sachs for its reasonable expenses, including attorneys’ fees and disbursements and value added, sales, turnover, consumption or similar tax of any jurisdiction (if any), and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.
Opinion of JPMorgan, Financial Advisor to Lucent
      Pursuant to an engagement letter dated March 31, 2006, Lucent retained JPMorgan as its financial advisor in connection with the merger.

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      At the meeting of the Lucent board of directors on April 1, 2006, JPMorgan rendered its oral opinion, subsequently confirmed in writing, to the board of directors that, as of such date and based upon and subject to the factors, limitations and assumptions set forth in its opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to the Lucent shareowners. No limitations were imposed by the Lucent board of directors upon JPMorgan with respect to the investigations made or procedures followed by it in rendering its opinion.
      The full text of the written opinion of JPMorgan, dated April 1, 2006, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limits on the opinion and review undertaken in connection with rendering its opinion, is included as Annex D to this proxy statement/prospectus. You are urged to read the opinion in its entirety.
      JPMorgan’s opinion is addressed to the Lucent board of directors, is directed only to the exchange ratio in the merger and does not constitute a recommendation to any Lucent shareowner as to how such shareowner should vote with respect to the merger or any other matter. JPMorgan’s opinion did not address the underlying decision by Lucent or its board of directors to engage in the merger. The summary of the opinion of JPMorgan set forth in this proxy statement/ prospectus is qualified in its entirety by reference to the full text of such opinion.
      In arriving at its opinion, JPMorgan, among other things:
  •  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.
      JPMorgan also held discussions with certain members of the managements of Lucent and Alcatel with respect to certain aspects of the proposed merger, and the past and current business operations of Lucent and Alcatel, the financial condition and future prospects and operations of Lucent and Alcatel, the effects of the merger on the financial condition and future prospects of Lucent and Alcatel, and certain other matters JPMorgan believed necessary or appropriate to its inquiry.
      In giving its opinion, JPMorgan relied upon and assumed, without assuming responsibility or liability for independent verification, the accuracy and completeness of all information that was publicly available or was furnished to or discussed with JPMorgan by Lucent and Alcatel or otherwise reviewed by or for JPMorgan. JPMorgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did JPMorgan evaluate the solvency of Lucent or Alcatel under any state, federal or foreign laws relating to bankruptcy, insolvency or similar matters. In relying on analyses and forecasts provided to it, including the Synergies, JPMorgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of Lucent and Alcatel to which such analyses or forecasts related. JPMorgan expressed

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no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. JPMorgan also assumed that the merger would qualify as a tax-free reorganization for U.S. federal income tax purposes, that the other transactions contemplated by the merger agreement would be consummated as described in the draft merger agreement, and that the merger agreement would not differ in any material respects from the draft merger agreement furnished to JPMorgan. JPMorgan relied as to all legal matters relevant to rendering its opinion upon the advice of counsel. JPMorgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the completion of the merger would be obtained without any waiver of any condition to the completion of the merger contained in the merger agreement.
      JPMorgan’s opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to JPMorgan as of April 1, 2006. It should be understood that subsequent developments may affect JPMorgan’s opinion and that JPMorgan does not have any obligation to update, revise or reaffirm its opinion. JPMorgan’s opinion is limited to the fairness, from a financial point of view, to holders of Lucent common stock of the exchange ratio in the proposed merger, and JPMorgan has expressed no opinion as to the fairness of the proposed merger to, or any consideration of, the holders of any other class of securities, creditors or constituencies of Lucent or as to the underlying decision by Lucent to engage in the proposed merger. JPMorgan expressed no opinion as to the price at which Lucent common stock or Alcatel ADSs would trade at any future time.
      JPMorgan’s opinion notes that it was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of Lucent or any other alternative transaction. JPMorgan’s opinion notes that on March 23, 2006 the parties publicly confirmed that they were in discussions regarding a potential business combination transaction.
Summary of Certain Financial Analyses Conducted by JPMorgan
      In connection with rendering its opinion to the Lucent board of directors, JPMorgan performed a variety of financial and comparative analyses, including those described below. The summary set forth below does not purport to be a complete description of the analyses or data presented by JPMorgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. JPMorgan believes that the summary set forth below and its analyses must be considered as a whole and that selecting portions thereof, or focusing on information in tabular format, without considering all of its analyses and the narrative description of the analyses, could create an incomplete view of the processes underlying its analyses and opinion. The order of analyses described does not represent the relative importance or weight given to those analyses by JPMorgan. In arriving at its fairness determination, JPMorgan considered the results of all the analyses and did not attribute any particular weight to any factor or analysis considered by it; rather, JPMorgan arrived at its opinion based on the results of all the analyses undertaken by it and assessed as a whole. JPMorgan’s analyses are not necessarily indicative of actual values or actual future results that might be achieved, which values may be higher or lower than those indicated. Moreover, JPMorgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 31, 2006 and is not necessarily indicative of current market conditions.
      JPMorgan’s opinion and financial analyses were only one of the many factors considered by Lucent in its evaluation of the proposed merger and should not be viewed as determinative of the views of the Lucent board of directors or management with respect to the proposed merger or the merger consideration.
      Historical Common Stock Performance. JPMorgan’s analysis of the performance of Lucent common stock and Alcatel ADSs comprised a historical analysis of their respective trading prices over the period from December 30, 2005 to March 31, 2006, the last trading day prior to the public announcement of the merger. During that three-month period, Lucent common stock achieved a closing price high of $3.09 per share and a closing price low of $2.50 per share on March 30, 2006 and January 23, 2006, respectively. During the same time period, Alcatel ADSs achieved a closing price high of $15.71 per share and a closing price low of

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$12.40 per share on March 30, 2006 and December 30, 2005, respectively. JPMorgan noted that the exchange ratio as calculated using the daily closing prices of Lucent common stock and Alcatel ADSs over the period from December 30, 2005 to March 31, 2006 ranged from a low of 0.183x to a high of 0.215x, compared to the merger exchange ratio of 0.1952x.
      The purpose of this historical stock trading analysis is to provide illustrative exchange ratios, or a measure of the relative market values of Lucent common stock to Alcatel ADSs for the periods specified.
      Exchange Ratio Premium Analysis. JPMorgan reviewed publicly available information relating to the following selected transactions:
          Sprint/ Nextel
          Regions Financial Corp./ Union Planters Corp.
          JPMorgan/ Bank One
          Biogen/ IDEC Pharmaceutical
          Phillips Petroleum/ Conoco
          Halifax/ Bank of Scotland
          First Union Corp/ Wachovia
          Phone.com/ Software.com
          Glaxo Wellcome/ SmithKline Beecham
          Monsanto/ Pharmacia & Upjohn
          PECO Energy/ Unicom
          Bell Atlantic/ GTE
          Norwest Corp./Wells Fargo
          Banc One/ First Chicago
          Travelers Group/ Citicorp
          Commercial Union Plc/ General Accident Plc
          TransCanada/ Nova Corp.
          CUC International/ HFS
          Grand Metropolitan/ Guinness
          Dean Witter — Discover/ Morgan Stanley Group
          Bell Atlantic/ NYNEX
          Upjohn/ Pharmacia
      JPMorgan calculated the exchange ratio premium/(discount) for the selected transactions relative to the implied exchange ratio based on average prices over the 30-day period before the official announcement of the transaction. For the selected transactions, the average 30-day exchange ratio premium was 2% and median 30-day exchange ratio premium was 1%. With respect to the proposed merger, JPMorgan noted the discount of the merger exchange ratio of 0.1952x to the implied exchange ratio based on Lucent common stock and Alcatel ADS average closing prices from March 1, 2006 to March 31, 2006 to be (1)%.
      Relative Contribution Analysis. JPMorgan reviewed the relative contribution of Lucent and Alcatel to the historical and forecasted revenue, EBITDA and net income of the combined company for the calendar years ending December 31, 2005 and December 31, 2006. The calendar year 2006 forecasted revenue, EBITDA and net income for both Lucent and Alcatel were based on management estimates. EBITDA means earnings before interest, taxes, depreciation and amortization. The relative contribution analysis did not give effect to the impact of any synergies as a result of the proposed merger.

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      JPMorgan adjusted the relative contribution percentages resulting from revenue and EBITDA to reflect the relative capital structures for each of Lucent and Alcatel. The adjusted relative contribution percentages resulting from revenue and EBITDA as well as the relative contribution percentages based on net income were used to determine the implied pro forma ownership percentages, which is referred to as PF Ownership, of the combined company for the common shareholders of Alcatel and Lucent. The PF Ownership percentages were used to determine the implied exchange ratio of each Lucent common stock to Alcatel ADSs. The following table presents the results of the relative contribution analysis:
                         
    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  
      In addition, JPMorgan calculated the relative contribution percentages of Lucent and Alcatel to EBITDA and net income (presented as “Adjusted EBITDA” and “Adjusted Net Income”) of the combined company after adjusting to exclude the impact of certain expenses and credits related to pension and other post-retirement benefits for both Lucent and Alcatel. The following table presents the results of the analysis:
                         
    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  
      JPMorgan noted that the equity contribution implied by the merger exchange ratio of 0.1952x would be approximately 60% for Alcatel shareholders and approximately 40% for Lucent shareowners.
      Publicly Traded Comparable Company Analysis. JPMorgan compared the financial and operating performance of Lucent and Alcatel with publicly available information of selected publicly traded companies engaged in businesses which JPMorgan deemed relevant to Lucent’s and Alcatel’s businesses. The companies were as follows:
  •  Cisco Systems

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  •  Nokia
 
  •  Motorola
 
  •  Ericsson
 
  •  Nortel Networks Corp.
 
  •  Juniper Networks
 
  •  Tellabs
      These companies were selected, among other reasons, because they share similar business characteristics to Lucent and Alcatel. However, none of the companies selected is identical or directly comparable to Lucent or Alcatel. Accordingly, JPMorgan made judgments and assumptions concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of the selected companies.
      For each of the selected companies, JPMorgan calculated:
  •  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.
      Firm value of a particular company was calculated as market value of the company’s equity (as of March 31, 2006); plus the value of the company’s indebtedness, capital leases, minority interest and preferred stock; minus the company’s cash and cash equivalents, marketable securities and equity investments.
      The estimates of EBITDA and EPS for each of the selected companies were based on publicly available estimates of certain securities research analysts.
      The following table reflects the results of the analysis:
                 
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  
Based on the Price/ Earnings multiple ranges set forth in the table above, this analysis implied a range for Lucent common stock of $3.00 to $3.50 per share and for Alcatel ADSs of $12.25 to $14.50 per share. JPMorgan noted that the implied range of exchange ratios given these ranges was 0.205x to 0.285x. Based on the Firm Value/ EBITDA multiple ranges set forth in the table above, this analysis implied a range for Lucent common stock of $3.00 to $3.75 per share and for Alcatel ADSs of $14.00 to $16.75 per share. JPMorgan noted that the implied range of exchange ratios given these ranges was 0.180x to 0.270x.
      JPMorgan repeated the analysis for both Lucent and Alcatel using Adjusted Net Income and Adjusted EBITDA. Based on the Price/ Earnings multiple ranges set forth in the table above, this adjusted analysis implied a range for Lucent common stock of $1.50 to $2.00 per share and for Alcatel ADS of $12.75 to $15.00 per share. JPMorgan noted that the implied range of exchange ratios given these ranges was 0.110x to 0.150x. Based on the Firm Value/ EBITDA multiple ranges set forth in the table above, this adjusted analysis implied a range for Lucent common stock of $2.00 to $2.50 per share and for Alcatel ADS of $14.25 to $17.00 per share. JPMorgan noted that the implied range of exchange ratios given these ranges was 0.115x to 0.175x. JPMorgan also noted that the merger transaction exchange ratio was 0.1952x.
      Discounted Cash Flow Analysis. JPMorgan calculated ranges of implied equity value per share for both Lucent common stock and Alcatel ADSs by performing discounted cash flow analysis based on management projections for the calendar year ending December 31, 2006 for both Lucent and Alcatel and using

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extrapolations of such projections for the calendar years ending December 31, 2007-2010, which were based on publicly available estimates of certain securities research analysts. The discounted cash flow analysis assumed a valuation date of March 31, 2006 and did not give effect to the impact of any synergies as a result of the proposed merger.
      A discounted cash flow analysis is a traditional method of evaluating an asset by estimating the future cash flows of an asset and taking into consideration the time value of money with respect to those future cash flows by calculating the “present value” of the estimated future cash flows of the asset. “Present value” refers to the current value of one or more future cash payments, or cash flows, from an asset and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors. Other financial terms utilized below are “terminal value,” which refers to the value of all future cash flows from an asset at a particular point in time, and “unlevered free cash flows,” which refers to a calculation of the future cash flows of an asset without including in such calculation any debt servicing costs.
      In arriving at the estimated equity values per share of Lucent common stock and per Alcatel ADS, JPMorgan calculated terminal values as of December 31, 2010 by applying a range of perpetual free cash flow growth rates of 3.0% to 4.0% and a range of discount rates of 10.0% to 11.0%. The unlevered free cash flows of calendar years 2006 through 2010 and the terminal value were then discounted to present values using a range of discount rates of 10.0% to 11.0% in order to derive the unlevered enterprise values for each of Lucent and Alcatel. JPMorgan incorporated a risk premium to Alcatel’s and Lucent’s predicted weighted average cost of capital to take into account unique risks for the companies and the communications equipment industry as a whole.
      In arriving at the estimated equity values per share of Lucent common stock and Alcatel ADS, JPMorgan calculated the equity value for both Lucent and Alcatel by reducing the unlevered enterprise values of each of Lucent and Alcatel by the value of their respective indebtedness, capital leases, minority interest and preferred stock; and by adding the value of their respective cash and cash equivalents, marketable securities and equity investments. In addition, the equity values for both Lucent and Alcatel were adjusted to reflect the present value of tax benefits derived from the utilization of the net operating tax loss carryforwards in the future.
      Based on the assumptions set forth above, this analysis implied a range for Lucent common stock of $2.25 to $3.00 per share and for Alcatel ADSs of $13.00 to $16.00 per share. JPMorgan noted that the implied range of exchange ratios given these ranges was 0.145x to 0.230x. JPMorgan noted that the merger exchange ratio was 0.1952x.
      Exchange Ratio Analysis. JPMorgan analyzed the consideration to be received by the holders of Lucent common stock pursuant to the merger agreement by calculating the range of the implied exchange ratio of Lucent common stock to Alcatel ADSs for the various valuation methodologies described above. For the publicly traded comparable company analysis and the discounted cash flow analysis, JPMorgan compared the highest value per share of Lucent common stock to the lowest value per share of Alcatel ADSs to derive the highest implied exchange ratio. JPMorgan also compared the lowest value per share of Lucent common stock

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to the highest value per share of Alcatel ADSs to derive the lowest implied exchange ratio. The results of this analysis are as follows:
           
    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  
      Pro Forma Analysis. JPMorgan analyzed the pro forma impact of the merger on estimated earnings per share for Lucent for calendar years ending December 31, 2007 and 2008. The pro forma results were calculated as if the merger closes on December 31, 2006 and were based on estimated earnings as well as potential synergies derived from both management and publicly available estimates of certain research analysts for both Alcatel and Lucent. In deriving the combined company’s net income estimates from pretax income estimates, JPMorgan used an effective tax rate that, based on discussions with the senior executives of Alcatel and Lucent, took into account potential tax benefits and deductions available to the combined company on a pro forma basis. The synergy estimates for the combined company were also derived from certain estimates provided by the management. The following table presents the accretion/(dilution) analysis on Lucent’s earnings per share for calendar years ending December 31, 2007 and 2008, based on pro forma Lucent EPS calculated using two methodologies: (a) EPS calculated in accordance with the International Financial Reporting Standards, or IFRS EPS, and (b) EPS calculated by excluding the impact of one-time restructuring charges and non-cash merger-related expenses, or Adjusted EPS:
                 
    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 %
      Value Creation Analysis. JPMorgan analyzed the pro forma impact of the merger on the equity value per share of Lucent common stock. The pro forma results were calculated as if the merger closed on December 31, 2006 and were based on the unaffected price per share of Lucent common stock on March 23, 2006, prior to the public disclosure by Lucent and Alcatel that they were in merger discussions. JPMorgan calculated the potential increase/(decrease) in the equity value per share of Lucent common stock based on (a) the after-tax present value of the expected synergies that could be achieved by the combined company after taking into account the cost of achieving the synergies, (b) the potential value creation from acceleration of the usage of net operating tax loss carryforwards, or NOLs, of both Lucent and Alcatel as a result of the merger, and (c) estimated transaction fees and expenses. The analysis was based on the merger agreement exchange ratio of 0.1952x and on estimates derived from management estimates for synergies, future taxable earnings and NOLs for each of Lucent and Alcatel. Based on the assumptions set forth above, this analysis implied value creation per share of Lucent common stock of up to $1.25.

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Miscellaneous
      As a part of its investment banking business, JPMorgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes.
      JPMorgan was selected by Lucent as one of its financial advisors based on JPMorgan’s qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions and its familiarity with Lucent. Upon announcement of the transaction, JPMorgan became entitled to a fee of $3 million and, if the merger is completed, will receive an additional fee of $24.5 million for its services as financial advisor, including the delivery of an updated fairness opinion with respect to the merger that takes into account any transaction involving the contribution of certain assets of Alcatel to Thales or Thales’ affiliates. In addition, Lucent has agreed to indemnify JPMorgan for certain liabilities arising out of its engagement, including liabilities under federal securities laws.
      JPMorgan and its affiliates have provided investment banking and commercial banking services from time to time to Lucent, Alcatel and their respective affiliates. Such past services include (i) acting as joint bookrunner, mandated lead arranger and documentation agent for the refinancing of a revolving credit facility for Alcatel in 2004, (ii) acting as lead dealer manager of a bond exchange offer for Alcatel in 2004, (iii) acting as financial advisor to Lucent on its acquisition of Riverstone Networks in 2006, (iv) acting as bookrunner and administrative agent of a secured credit facility for Lucent in 2006 and providing loan commitments thereunder, and (v) providing treasury services to Lucent and its affiliates from time to time. In the ordinary course of its businesses, JPMorgan and its affiliates may actively trade the debt and equity securities of Lucent or Alcatel for their own account or for the accounts of their customers and, accordingly, may at any time hold long or short positions in such securities.
Opinion of Morgan Stanley, Financial Advisor to Lucent
      Lucent retained Morgan Stanley to provide it with financial advisory services and a financial opinion in connection with the merger. Morgan Stanley was selected by Lucent based on Morgan Stanley’s qualifications, expertise, reputation and its knowledge of the business and affairs of Lucent. At the special meeting of Lucent’s board of directors on April 1, 2006, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that, as of April 1, 2006, based upon and subject to the various considerations set forth in the opinion, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to the holders of shares of Lucent common stock (other than Alcatel or any of its subsidiaries or affiliates).
      The full text of the written opinion of Morgan Stanley, dated as of April 1, 2006, is attached as Annex E to this proxy statement/ prospectus. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. You should read the entire opinion carefully. Morgan Stanley’s opinion is directed to Lucent’s board of directors and addresses only the fairness of the exchange ratio pursuant to the merger agreement from a financial point of view to the holders of shares of common stock of Lucent (other than Alcatel or any of its subsidiaries or affiliates) as of the date of the opinion. It does not address any other aspect of the merger and does not constitute a recommendation to the shareowners of Lucent or Alcatel as to how to vote at the shareowners meetings to be held in connection with the merger. The summary of the opinion of Morgan Stanley set forth in this proxy statement/ prospectus is qualified in its entirety by reference to the full text of its opinion.
      In rendering its opinion, Morgan Stanley, among other things:
  •  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.
      In rendering its opinion, Morgan Stanley assumed and relied upon without independent verification the accuracy and completeness of the information supplied or otherwise made available to Morgan Stanley by Lucent and Alcatel for the purposes of the opinion. With respect to the financial projections, including information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the then best currently available estimates and judgments of the future financial performance of Lucent and Alcatel. Morgan Stanley relied upon, without independent verification, the assessment by the managements of Lucent and Alcatel of the timing and risks associated with the integration of Lucent and Alcatel, their ability to retain key employees of Lucent and Alcatel, respectively, and the validity of, and risks associated with, Lucent’s and Alcatel’s existing and future technologies, intellectual property, products, services and business models.
      In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the merger will be treated as a tax-free reorganization pursuant to the Internal Revenue Code. In addition, Morgan Stanley assumed that in connection with the receipt of all necessary government, regulatory or other consents and approvals required for the merger, no delays, limitations, conditions or restrictions will be imposed that would cause a failure of any condition to either party’s obligation to complete the proposed merger. Morgan Stanley is not a legal or tax advisor and relied upon, without independent verification, the assessment of Lucent with respect to legal and tax matters. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Alcatel, nor was Morgan Stanley furnished with any such appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, the date of Morgan Stanley’s opinion. Events occurring after the date of Morgan Stanley’s opinion may affect its opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

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      In arriving at its opinion, Morgan Stanley was not authorized to solicit, and did not solicit, interest from any party with respect to the acquisition, business combination or other extraordinary transaction involving Lucent. Morgan Stanley noted, for the purposes of its opinion that Lucent and Alcatel confirmed on March 23, 2006, that they were in discussions regarding a potential business combination transaction.
Summary of Certain Financial Analyses Conducted by Morgan Stanley
      The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its opinion dated April 1, 2006. This summary of financial analyses includes information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.
      Historical Common Stock Performance. Morgan Stanley’s analysis of the performance of Lucent common stock consisted of a historical analysis of trading prices over the period from December 30, 2005 to March 31, 2006, the last trading day prior to the public announcement of the merger. During that three-month period, Lucent common stock achieved a closing price high of $3.09 per share and a closing price low of $2.50 per share on March 30, 2006 and January 23, 2006, respectively. Over the same period of time, the Alcatel ADSs achieved a closing price high of $15.71 per share and a closing price low of $12.40 per share on March 30, 2006 and December 30, 2005, respectively. Morgan Stanley noted that the exchange ratio as calculated using the daily closing prices of Lucent common stock and the Alcatel ADS over the period from December 30, 2005 to March 31, 2006 ranged from a low of 0.183x to a high of 0.215x, compared to the merger exchange ratio of 0.1952x.
      Comparative Stock Price Performance. Morgan Stanley performed analyses of historical closing prices of Lucent common stock, the Alcatel ADSs, and an equally weighted index of communications equipment companies consisting of L.M. Ericsson Telephone Co. and Nortel Networks Corp. Morgan Stanley compared the performance of this index to that of The Nasdaq National Market generally and to the performance of Lucent common stock and the Alcatel ADSs during the period from March 31, 2005 to March 31, 2006, the last trading day prior to the public announcement of the merger. Morgan Stanley observed that over this period, the communications equipment companies index increased 25%, The Nasdaq National Market increased 17%, Lucent common stock increased 11% and the Alcatel ADS increased 28%.
      Exchange Ratio Premium Analysis. Morgan Stanley reviewed the ratios of the closing prices of Lucent common stock divided by the corresponding closing prices of the Alcatel ADSs over various periods ending March 31, 2006, the last trading day prior to the public announcement of the merger. These ratios are referred to as period average exchange ratios. Morgan Stanley examined the premiums represented by the merger exchange ratio of 0.1952x, over the period average exchange ratios and found them to be as follows:
                 
        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 %
      Relative Contribution Analysis. Morgan Stanley analyzed the relative contribution of Lucent and Alcatel to historical and estimated revenue, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and net income of the combined company for the calendar years ending December 31, 2005 and December 31, 2006 based on available management estimates for Lucent and Alcatel. Morgan Stanley’s relative contribution analysis assumed there would be no synergies. Morgan Stanley adjusted the relative contribution percentages for revenue and EBITDA to reflect the relative capital structure of each company to determine the implied pro forma ownership percentages of the combined company for the shareholders of

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Alcatel and Lucent, respectively. The pro forma ownership percentages were then used to calculate implied exchange ratios. The results are set forth below:
                         
    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  
      Additionally, Morgan Stanley adjusted the relative contribution percentages for EBITDA and net income (presented as “Adjusted EBITDA” and “Adjusted Net Income,” respectively) to exclude the impact of expenses and credits related to pensions and other post-retirement benefits for both Lucent and Alcatel. The following table presents the results of that analysis:
                         
    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
      Morgan Stanley noted that the pro forma ownership percentage of the combined company implied by the merger exchange ratio of 0.1952x would be approximately 60% for Alcatel shareholders and approximately 40% for Lucent shareowners.
      Present Value of Equity Research Analyst Price Targets Analysis. Morgan Stanley performed an analysis of the present value per share of Lucent common stock and Alcatel ordinary shares by analyzing the twelve-month target prices based upon publicly available equity research estimates. Morgan Stanley noted that the range of twelve-month target prices of Lucent common stock was between $2.25 and $4.00 per share. Morgan Stanley further calculated that using a discount rate of 10.5% and a discount period of one year, the present value of the analyst price target range was $2.00 to $3.50. Morgan Stanley noted that the range of twelve-month target prices of Alcatel ordinary shares was between 9.00 and 15.00 per share. Morgan Stanley further calculated that using a discount rate of 10.5%, a discount period of one year, and a foreign exchange rate of $1.21/ as of March 31, 2006, the last trading day prior to the public announcement of the merger, the present value of the analyst price target range for Alcatel was $9.75 to $16.25. Morgan Stanley observed that the implied exchange ratio using the arithmetic mean of the analyst price target ranges was 0.195x, compared to the merger exchange ratio of 0.1952x.
      Comparable Company Analysis. While noting that no comparable public company is exactly identical to Alcatel or Lucent, Morgan Stanley compared selected financial information for Alcatel and Lucent with publicly available information for comparable communications equipment companies that shared certain product characteristics and similar customer bases with Alcatel and Lucent, respectively. Based upon publicly available estimates of certain securities research analysts and using the closing prices as of March 31, 2006,

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the last trading day prior to the public announcement of the merger, Morgan Stanley calculated for each of these companies, both (1) the closing stock price divided by the estimated earnings per share for calendar years 2006 and 2007, referred to as the “price/earnings” multiple, and (2) the aggregate value divided by the estimated EBITDA for calendar years 2006 and 2007, referred to as the “aggregate value/ EBITDA” multiple. The aggregate value of a company was defined as the market value of equity less cash and cash equivalents plus the value of any debt, capital leases, minority interests, and preferred stock obligations of the company. The following table shows the results of these calculations:
                                 
        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  
      Based on the price/earnings multiple ranges set forth in the table above, this analysis implied a range for Lucent common stock of $3.00 to $3.50 per share and for the Alcatel ADSs of $12.25 to $14.50 per share. Morgan Stanley noted that the implied range of exchange ratios given these ranges was 0.205x to 0.285x. Based on the aggregate value/ EBITDA multiple ranges set forth in the table above, this analysis implied a range for Lucent common stock of $3.00 to $3.75 per share and for the Alcatel ADSs of $14.00 to $16.75 per share. Morgan Stanley noted that the implied range of exchange ratios given these ranges was 0.180x to 0.270x.
      Morgan Stanley repeated the analysis for both Lucent and Alcatel using Adjusted Net Income and Adjusted EBITDA. Based on the price/earnings multiple ranges set forth in the table above, this adjusted analysis implied a range for Lucent common stock of $1.50 to $2.00 per share and for the Alcatel ADSs of $12.75 to $15.00 per share. Morgan Stanley noted that the implied range of exchange ratios given these ranges was 0.110x to 0.150x. Based on the aggregate value/ EBITDA multiple ranges set forth in the table above, this adjusted analysis implied a range for Lucent common stock of $2.00 to $2.50 per share and for the Alcatel ADSs of $14.25 to $17.00 per share. Morgan Stanley noted that the implied range of exchange ratios given these ranges was 0.115x to 0.175x. Morgan Stanley noted that the merger transaction exchange ratio was 0.1952x.
      No company included in the comparable company analysis is identical to Lucent or Alcatel. In evaluating the comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters. Many of these matters are beyond the control of Lucent or Alcatel, such as the impact of competition on the businesses of Lucent and Alcatel and the industry in general, industry growth and the absence of any material adverse change in the financial condition and prospects of Lucent or Alcatel or the industry or in the financial markets in general. Mathematical analysis, such as determining the arithmetic mean or median, or the high or low, is not in itself a meaningful method of using comparable company data.
      Discounted Cash Flow Analysis. Morgan Stanley calculated ranges of implied equity values per share for Alcatel and Lucent as of March 31, 2006 based on a discounted cash flow analysis utilizing management projections for the calendar years 2005 and 2006 and extrapolations of such projections for the calendar years from 2007 to 2010. In arriving at the estimated equity values per share of Lucent common stock and per Alcatel ADSs, Morgan Stanley calculated a terminal value as of December 31, 2010 by applying a range of perpetual free cash flow growth rates from 3.0% to 4.0%. The unlevered free cash flows from calendar years 2006 through 2010 and the terminal value were then discounted to present values using a range of discount rates from 10.0% to 11.0%. Morgan Stanley incorporated a risk premium to Alcatel’s and Lucent’s predicted

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weighted average cost of capital to take into account unique risks for the companies and the communications equipment industry as a whole.
      Based on the assumptions set forth above, this analysis implied a range for Lucent common stock of $2.25 to $3.00 per share and for the Alcatel ADSs of $13.00 to $16.00 per share. Morgan Stanley noted that the implied range of exchange ratios given these ranges was 0.145x to 0.230x. Morgan Stanley noted that the merger transaction exchange ratio was 0.1952x.
      Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro forma impact of the merger on estimated earnings per share for Lucent for calendar years 2007 and 2008. The pro forma results were calculated as if the merger had closed at the end of calendar year 2006 and were based on estimated earnings derived from publicly available equity research estimates for Alcatel and Lucent. In deriving the combined company’s net income estimates from pretax income estimates, Morgan Stanley used an effective tax rate that, based on discussions with the senior executives of Alcatel and Lucent, took into account potential tax benefits and deductions available to the combined company on a pro forma basis. The following table presents estimated pro forma calendar year 2007 and 2008 Lucent earnings per share and accretion/(dilution) analysis based on the merger exchange ratio of 0.1952x, according to the equity research estimates, which excludes the impact of one-time and non-cash acquisition-related expenses, as well as IFRS accounting. Morgan Stanley performed the analysis assuming no synergies as well as with the realization of annual pretax synergies during calendar years 2007 and 2008.
                 
    Accretion/(Dilution)
     
Equity Research Estimates   CY2007E   CY2008E
         
No Synergies
    (2 )%     (7 )%
With Synergies
    24 %     37 %
IFRS
               
No Synergies
    (29 )%     (29 )%
With Synergies
    (3 )%     15 %
      In connection with the review of the merger by Lucent’s board of directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any particular analysis or factor considered by it. Furthermore, Morgan Stanley believes that the summary provided and the analyses described above must be considered as a whole and that selecting any portion of Morgan Stanley’s analyses, without considering all of its analyses, would create an incomplete view of the process underlying Morgan Stanley’s opinion. In addition, Morgan Stanley may have deemed various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of Lucent or Alcatel.
      In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Lucent or Alcatel. Any estimates contained in Morgan Stanley’s analysis are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. The analyses performed were prepared solely as part of Morgan Stanley’s analysis of the fairness of the exchange ratio pursuant to the merger agreement from a financial point of view to the holders of Lucent common stock and were conducted in connection with the delivery of the Morgan Stanley opinion to the board of directors of Lucent. The analyses do not purport to be appraisals or to reflect the prices at which Lucent common stock or the Alcatel ADSs might actually trade. The exchange ratio pursuant to the merger agreement and other terms of the merger agreement were determined through arm’s-length negotiations between Lucent and Alcatel and were approved by Lucent’s board of directors. Morgan Stanley provided advice to Lucent during these negotiations; however, Morgan Stanley did not recommend any specific consideration to Lucent or that any specific consideration constituted the only appropriate

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consideration for the merger. In addition, as described above, Morgan Stanley’s opinion and presentation to Lucent’s board of directors was one of many factors taken into consideration by Lucent’s board of directors in making its decision to approve the merger. Consequently, the Morgan Stanley analyses as described above should not be viewed as determinative of the opinion of Lucent’s board of directors with respect to the exchange ratio or whether the Lucent board of directors would have been willing to agree to a different consideration.
Miscellaneous
      The Lucent board of directors retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwriting, competitive bidding, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the ordinary course of Morgan Stanley’s trading and brokerage activities, Morgan Stanley or its affiliates may at any time hold long or short positions, trade or otherwise effect transactions, for their own accounts or for the accounts of customers, in the equity or debt securities or senior loans of Lucent and/or Alcatel.
      Pursuant to an engagement letter, Morgan Stanley provided financial advisory services and a financial opinion in connection with the merger, and Lucent agreed to pay Morgan Stanley a fee of $3 million upon announcement of the merger and an additional fee of $24.5 million which is contingent upon closing of the merger. Lucent has also agreed to reimburse Morgan Stanley for its expenses incurred in performing its services. In addition, Lucent has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement and any related transactions. In the past, Morgan Stanley and its affiliates have provided advisory and financing services to Lucent and Alcatel and have received fees for the rendering of these services. Morgan Stanley and its affiliates may also seek to provide such services to Alcatel and its affiliates in the future and will receive fees for the rendering of these services.
Interests of the Directors and Executive Officers of Lucent in the Merger
      In considering the recommendation of the Lucent board of directors with respect to the merger agreement and the transactions contemplated by the merger agreement, you should be aware that some of Lucent’s directors and executive officers have interests in the merger and have arrangements that are different from, or in addition to, those of the Lucent shareowners generally. These interests and arrangements may be deemed to create potential conflicts of interest. The Lucent board of directors was aware of these interests and considered them, among other matters, in making its recommendation.
Employment Agreement with Patricia F. Russo
      Pursuant to a January 6, 2002 employment agreement between Lucent and Ms. Russo, Lucent would be obligated to provide Ms. Russo with certain severance benefits in the event of a termination of her employment by Lucent without cause (as defined in the agreement) or by her for good reason (as defined in the agreement). In the event of such a termination, she would receive (i) vesting of any unvested “make-whole” stock options and restricted stock units granted to her upon her commencement of service as Lucent’s chief executive officer in 2002 (the remaining unvested installments of these awards are scheduled to vest on January 6, 2007), with such options remaining exercisable until the end of their originally scheduled terms, (ii) pro rata vesting in any unvested “inducement” stock options and restricted stock units granted to her upon her commencement of service as Lucent’s chief executive officer in 2002 (the remaining unvested installments of these awards are scheduled to vest on January 6, 2007), with such options remaining exercisable until the end of their originally scheduled terms, (iii) severance benefits pursuant to Lucent’s Officer Severance Policy described below, and (iv) pro rata vesting in a supplemental pension arrangement set forth in the employment agreement. Ms. Russo’s agreement also provides a “tax gross-up” if she is subject to the change

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of control excise tax under Section 280G of the Internal Revenue Code. Pursuant to the merger agreement, Ms. Russo will be named chief executive officer of the combined company following the merger, and Alcatel and Lucent expect that the combined company will enter into a new employment agreement with Ms. Russo, which will be effective as of and conditioned upon the completion of the merger. The terms of this new employment agreement have not yet been determined or agreed.
Severance Programs
      Lucent’s executive officers who were officers of Lucent prior to October 2003 are provided with severance protection under Lucent’s Officer Severance Policy in the event of a termination of employment by Lucent without cause (as defined in the policy) or, following a change of control of Lucent, by the covered individual for good reason (as defined in the policy). Upon such a qualifying termination, the policy provides the terminated employee with two years of salary continuation and with a bonus payment at target levels during each of the two Decembers during the continuation period. The severance period and payments are counted towards age, service, and compensation for purposes of calculating pension benefits. Terminated employees also continue to participate in welfare, retirement, and fringe benefit plans and are considered employed during this continuation period for purposes of equity awards. The severance benefits are subject to execution of a release (including non-competition and non-solicitation provisions). The following Lucent executive officers are covered by the Officer Severance Policy: Ms. Russo, Frank D’Amelio, Janet Davidson, James Brewington, Cynthia Christy-Langenfeld, William Carapezzi, John Kritzmacher, and John Meyer. The merger will constitute a change of control of Lucent under the Officer Severance Policy and under all other Lucent plans and programs with change-of-control triggers.
      Lucent executive officers who became officers of Lucent on or after October 1, 2003 are covered by Lucent’s Officer Severance Program, which, following a change of control, provides benefits upon qualifying terminations that are substantially similar to those provided by the Officer Severance Policy, but with a continuation period of one year rather than two years (including for purposes of base salary continuation and payment of target bonus). The following Lucent executive officers are covered by the Officer Severance Program: David Hitchcock, Michael Jones, and Jeong Kim. However, the Officer Severance Program was amended effective April 14, 2006 to provide that the merger will not constitute a change in control for officers who began coverage under the program after that date. Michael Jones began coverage under the program on April 17, 2006.
      Neither the Officer Severance Policy nor the Officer Severance Program may be amended adversely to participants during the two-year period following the merger.
      The estimated aggregate cash severance benefits under these policies (not including, in the case of Ms. Russo, any potential tax gross-up payments or pro rata pension vesting) for each named executive officer and for all Lucent executive officers as a group, assuming all such individuals incurred a qualifying termination of employment following the merger on October 1, 2006, would be as follows:
         
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
      Lucent’s executive officers participate in Lucent’s equity and long-term incentive plans under which stock options, restricted stock units and three-year performance awards have been granted. The conversion of these awards in the merger into Alcatel awards is discussed under “The Merger Agreement — Merger

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Consideration — Stock Options and Other Stock Awards.” Pursuant to the change-of-control provisions of the plans, the merger will have the following impact upon these awards:
  •  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 following table shows, for each Lucent-named executive officer and for Lucent’s executive officers as a group, based on holdings outstanding as of May 31, 2006:
  •  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
      Lucent maintains deferred compensation and supplemental pension programs for both employees and non-employee directors, although the employee deferred compensation program was frozen in 2002. Lucent’s executive officers and non-employee directors participate in these programs. Pursuant to the requirements of a trust agreement, shortly following execution of the merger agreement, Lucent funded in a trust that is subject to Lucent’s creditors the accrued balances under these programs of its former and current officers. Within 90 days following the merger, Lucent will be required to distribute to all participants their outstanding account balances in the deferred compensation programs.

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Designation as Directors of the Combined Company
      Under the terms of the merger agreement, five directors from Lucent’s current board of directors in addition to Ms. Russo will be designated by Lucent to serve on the combined company’s board of directors after the effective time of the merger. As of the date of this proxy statement/ prospectus, those persons have not been determined.
Continued Employment with the Combined Company
      Certain of Lucent’s current executive officers will be offered continued employment with the combined company after the effective time of the merger.
Indemnification and Insurance
      The merger agreement provides that, for a period of six years following the effective time of the merger, the combined company will maintain in effect the exculpation, indemnification and advancement of expenses provisions of the organizational documents of Lucent and its subsidiaries and in any indemnification agreements of Lucent and its subsidiaries with any of their respective directors, officers or employees in effect immediately prior to the effective time with respect to acts or omissions prior to the effective time of the merger. Alcatel and Lucent have also agreed, for a period of six years following the effective time of the merger, to indemnify the officers, directors and employees of Lucent and its subsidiaries with respect to all acts or omissions by them in their capacities as such prior to the effective time of the merger, to the extent provided under Lucent’s certificate of incorporation and bylaws in effect on April 2, 2006.
      The merger agreement further requires the combined company to, for a minimum of six years following the effective time of the merger, maintain coverage under an officers’ and directors’ liability insurance policy on terms and conditions no less advantageous to the directors and officers than the liability insurance policy that Lucent maintained for its directors and officers prior to the merger. The combined company will not be obligated to make annual premium payments for this insurance to the extent that the premiums exceed 250% of the most recent annual premiums paid by Lucent prior to April 2, 2006. The agreements regarding insurance and indemnification are enforceable by the directors and officers of Lucent and are binding on the successors and assigns of Alcatel and the surviving corporation.
Regulatory Approvals Required for the Merger
U.S. Antitrust
      The merger is subject to review by the Antitrust Division and the FTC under the HSR Act. Lucent and Alcatel were informed by the Antitrust Division that on or before April 2, 2006, the Antitrust Division opened a preliminary investigation into the merger. Lucent filed on May 5, 2006, and Alcatel filed on May 8, 2006, the requisite Pre-Merger Notification and Report Forms under the HSR Act with the Antitrust Division and the FTC. After such filings, the Antitrust Division received clearance to review the merger under the HSR Act. On June 7, 2006, the Antitrust Division granted early termination of the HSR waiting period. The Antitrust Division, the FTC, state attorneys general and others may challenge the merger on antitrust grounds after termination of the waiting period. Accordingly, at any time before or after the completion of the merger, any of the Antitrust Division, the FTC, state attorneys general or others could take action under the antitrust laws, including, without limitation, by seeking to enjoin the completion of the merger or permitting completion subject to regulatory concessions or conditions.
European Union Antitrust
      Alcatel and Lucent each conduct business in Member States of the European Union. Council Regulation (EC) No. 139/2004 of the Council of the European Union, which is referred to as the EC Merger Regulation, requires notification to and prior approval by the European Commission of mergers or acquisitions involving parties with aggregate worldwide sales and individual European Union sales exceeding specified thresholds. Lucent and Alcatel exceed those thresholds, and filed the requisite notification with the European Commis-

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sion on June 16, 2006. On July 24, 2006, the European Commission declared the merger compatible with the Common Market.
Exon-Florio
      The Exon-Florio Amendment empowers the President of the United States to prohibit or suspend an acquisition of, or investment in, a U.S. company by a “foreign person” if the President, after investigation, finds credible evidence that the foreign person might take action that threatens to impair the national security of the United States and that other provisions of existing law do not provide adequate and appropriate authority to protect the national security. By a 1988 executive order, the President delegated to CFIUS the authority to receive notices of proposed transactions, determine when an investigation is warranted, conduct investigations and submit recommendations to the President to suspend or prohibit the completion of transactions or to require divestitures of completed transactions.
      A party or parties to a transaction may, but are not required to, submit to CFIUS a voluntary notice of the transaction. CFIUS has 30 calendar days from the date of submission to decide whether to initiate a formal investigation. If CFIUS declines to investigate, it sends a “no action” letter, and the review process is complete. If CFIUS decides to investigate, it has 45 calendar days in which to prepare a recommendation to the President of the United States, who must then decide within 15 calendar days whether to block the transaction.
      Alcatel and Lucent plan to submit a notice of the merger to CFIUS, in accordance with the regulations implementing the Exon-Florio Amendment in the near future. Alcatel and Lucent are working with the U.S. government to ensure that U.S. national security interests are protected. Although Lucent and Alcatel do not believe an investigation of, or recommendation to block, the merger by CFIUS is warranted under the standards of the Exon-Florio Amendment, CFIUS and the President of the United States have considerable discretion to conduct investigations and block transactions under the Exon-Florio Amendment. In addition, the U.S. Senate and House of Representatives each passed bills to amend the CFIUS review process in July 2006, and legislation may be enacted which could affect CFIUS review of this transaction.
      To address foreign ownership issues, Lucent and Alcatel agreed in the merger agreement to establish a separate subsidiary to perform certain work for the U.S. government that is of a sensitive nature. Under the terms of the merger agreement, Alcatel, Lucent and such separate subsidiary will enter into an appropriate form of agreement, effective as of the effective time of the merger, which will include security measures to protect classified and sensitive contracts, and protections for U.S. infrastructure and technologies. The terms of this agreement are being negotiated with the U.S. government. The agreement will provide that three special directors of such entity will be citizens and residents of the United States eligible to obtain personnel security clearance from the U.S. Department of Defense. Subsequent to entering into the merger agreement, Alcatel and Lucent agreed to nominate Hon. William J. Perry, former U.S. Secretary of Defense, Hon. R. James Woolsey, former director of the U.S. Central Intelligence Agency and former Under Secretary of the U.S. Navy, and Lt. Gen. Kenneth A. Minihan, U.S. Air Force (Ret.), former director of the National Security Agency, to be the special directors. The nominations are subject to U.S. government approval. In connection with CFIUS review, Lucent and Alcatel are engaged in discussions with the U.S. Department of Defense and other federal agencies regarding security protections for certain projects, which may include separation of certain employees, operations and facilities in a specified subsidiary, as well as, with respect to such subsidiary, restrictions of control by the parent company and on information flows.
Foreign and Certain Other Regulatory Matters
      The merger may be subject to certain regulatory requirements of other municipal, state, federal and foreign governmental agencies and authorities, including those relating to the offer and sale of securities. Alcatel and Lucent are currently working to evaluate and comply in all material respects with these requirements, as appropriate, and do not currently anticipate that they will hinder, delay or restrict completion of the merger.

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      It is possible that one or more of the regulatory approvals required to complete the merger will not be obtained on a timely basis or at all. In addition, it is possible that any of the governmental entities with which filings are made may seek regulatory concessions as conditions for granting approval of the merger. Under the merger agreement, Alcatel and Lucent have each agreed to use its reasonable best efforts to complete the merger, including to gain clearance from antitrust and competition authorities and obtain other required approvals. For this purpose, each of Alcatel and Lucent has agreed to commit to certain divestitures or restrictions, if necessary, that after the effective time of the merger would limit the combined company’s freedom of action with respect to, or its ability to retain, one or more of its businesses, product lines or assets. See “The Merger Agreement — Covenants and Agreements.”
      Although Alcatel and Lucent do not expect regulatory authorities to raise any significant objections to the merger, they cannot be certain that they will obtain all required regulatory approvals or that these approvals will not contain terms, conditions or restrictions that would be detrimental to the combined company after the merger. Alcatel and Lucent have not yet obtained any of the governmental or regulatory approvals required to complete the merger.
Material U.S. Federal Income Tax Consequences
General
      The following is a general discussion of material U.S. federal income tax consequences of the merger that may be relevant to you if you hold Lucent common stock as a capital asset and are:
  •  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.
      This discussion is addressed only to Lucent shareowners to the extent that they exchange Lucent common stock for Alcatel ADSs in the merger and therefore are treated for federal income tax purposes as receiving the Alcatel ordinary shares represented by such Alcatel ADSs. Holders of Lucent warrants or convertible debt obligations should consult their tax advisors as to the tax consequences to them of the merger.
      This discussion is not intended to be a complete analysis and does not address all potential tax consequences that may be relevant to you. Moreover, this discussion does not apply to you if you are subject to special treatment under the Internal Revenue Code, including, without limitation, because you are:
  •  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.
      In addition, this discussion does not address the tax consequences to you if you will become a “five-percent transferee shareholder” of Alcatel within the meaning of the applicable Treasury Regulations under Section 367 of the Internal Revenue Code. In general, a five-percent transferee shareholder is a person who holds Lucent common stock and will own directly, indirectly or constructively through attribution rules, at least five percent of either the total voting power or total value of Alcatel shares immediately after the merger. Based on the current value and ownership of Alcatel and Lucent, Alcatel does not expect that any Lucent shareowners will become five-percent transferee shareholders of Alcatel in connection with the merger. However, the attribution rules for determining ownership are complex, and neither Alcatel nor Lucent can offer any assurance that you will not be a five-percent transferee shareholder based on your particular facts and circumstances. If you believe you could become a five-percent transferee shareholder of Alcatel, you should consult your tax advisor about the special rules and time-sensitive tax procedures, including the requirement to file a gain recognition agreement, that might apply regarding your ability to obtain non-recognition treatment in the merger. The tax opinion to be provided by Wachtell Lipton as a condition to the obligation of Lucent to consummate the merger will assume that any shareowner who is a “five-percent transferee shareholder” with respect to Alcatel within the meaning of the applicable Treasury Regulations under Section 367 of the Internal Revenue Code will in a timely and effective manner file the gain recognition agreement described in such Treasury Regulations.
      This discussion also does not address the tax consequences of the merger under foreign, state, local or other tax laws or the tax consequences of transactions effectuated prior or subsequent to, or concurrently or in connection with, the merger. The following discussion is based on existing U.S. federal income tax law, including the provisions of the Internal Revenue Code, the Treasury Regulations thereunder, IRS rulings, judicial decisions and other administrative pronouncements, all as in effect on the date of this proxy statement/ prospectus. Neither Alcatel nor Lucent can provide any assurance that future legislative, administrative or judicial changes or interpretations will not affect the accuracy of the statements or conclusions set forth below. Any future change in the U.S. federal income tax law or interpretation thereof could apply retroactively and could affect the accuracy of the following discussion. In addition, Alcatel and Lucent do not presently anticipate seeking any advance income tax ruling from the IRS regarding the tax consequences of the merger or any transactions entered into concurrently or in connection with the merger, and neither Alcatel nor Lucent can assure you that the IRS will agree with the conclusions expressed herein.
      You are strongly urged to consult your own tax advisor as to the U.S. federal income tax consequences of the merger, including the income tax consequences arising from your own unique facts and circumstances, and as to any estate, gift, state, local or non-U.S. tax consequences, including French tax consequences, arising out of the merger and the ownership and disposition of Alcatel ADSs and/or Alcatel ordinary shares. You are also urged to consult your tax advisor as to the U.S. federal income tax consequences of other transactions entered into in connection with or in contemplation of the merger, which may depend on your particular situation.
Certain U.S. Federal Income Tax Consequences of the Merger
      The following discussion as to the U.S. federal income tax consequences of the merger assumes that the merger will be consummated as described in the merger agreement and this proxy statement/ prospectus and that, following the merger, Lucent will comply with the reporting requirements set forth in Treasury Regulations Section 1.367(a)-3(c)(6). The discussion is also based on certain other assumptions, including the assumption that the merger will be treated as a “reorganization” for U.S. federal income tax purposes 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 the merger will not be subject to Section 367(a)(1) of the Internal Revenue Code. In addition, the obligation of Lucent to consummate the merger is conditioned upon the receipt by Lucent of a tax opinion, dated the effective time of the merger, from

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its counsel, Wachtell, Lipton, Rosen & Katz, in form and in substance reasonably satisfactory 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(b) of the Internal Revenue Code and that each transfer of shares of Lucent common stock to Alcatel by a shareowner of Lucent pursuant to the merger will not be subject to Section 367(a)(1) of the Internal Revenue Code. Such tax opinion will be based on certain facts, representations, covenants and assumptions, including a representation that at the time of the merger Lucent will not have any issued and outstanding stock for U.S. federal income tax purposes other than its common stock, and certain other representations of Alcatel and Lucent and that the parties will comply with certain reporting obligations under the Internal Revenue Code. However, this discussion and the tax opinion are not binding on the IRS or any court and do not preclude the IRS or a court from reaching a contrary conclusion. Therefore, while Alcatel and Lucent believe that the merger will be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code, no assurance can be provided that the IRS will agree with this conclusion. Lucent has agreed that, after receipt of Lucent shareowner approval, Lucent will not waive receipt of a tax opinion from Wachtell Lipton as a condition to closing, unless further approval of the Lucent shareowner is obtained with appropriate disclosure.
      Assuming that the merger is treated as a reorganization under 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 the merger will not be subject to Section 367(a)(1) of the Internal Revenue Code, if you receive only Alcatel ADSs in exchange for your Lucent common stock as a result of the merger, you will not recognize gain or loss upon the exchange (except with respect to cash received in lieu of a fractional interest in an Alcatel ADS). Accordingly, (i) the aggregate tax basis of the Alcatel ADSs you receive in the merger will be the same as the aggregate tax basis of the Lucent common stock you surrender in exchange therefor and (ii) the holding period of the Alcatel ADSs you receive in the merger will include the holding period of the Lucent common stock you surrender in exchange therefor.
      Any cash you receive in lieu of a fractional Alcatel ADS will be treated as a deemed redemption, taxable as a sale of that interest for cash. The amount of any capital gain or loss attributable to the deemed sale will be equal to the amount of cash received with respect to the fractional interest less the ratable portion of the tax basis of the Lucent common stock surrendered that is allocated to the fractional interest. If you are an individual, any gain recognized will generally be subject to U.S. federal income tax at a maximum 15% rate if your holding period in the Lucent common stock is more than one year on the date of completion of the merger. The deductibility of capital losses is subject to limitations.
      If the IRS were successfully to challenge the qualification of the merger as a reorganization, you would generally be required to recognize gain or loss with respect to the Lucent common stock surrendered in the merger equal to the difference between your adjusted tax basis in the surrendered stock and the fair market value, as of the effective time of the merger, of the Alcatel ADSs (including any fractional Alcatel ADSs) received or to be received in the merger. Generally, in such event, your tax basis in the Alcatel ADSs received by you would equal their fair market value as of the date of the merger, and your holding period for the Alcatel ADSs would begin on the day after the merger. If the IRS were successfully to assert that transfers of shares of Lucent common stock to Alcatel pursuant to the merger were subject to Section 367(a)(1) of the Internal Revenue Code, you would generally be required to recognize gain (but not loss) with respect to the Lucent common stock surrendered in the merger. You should consult your tax advisor regarding the allowance or deductibility of any loss you may have with respect to your Lucent common stock.
U.S. Information Reporting and Backup Withholding
      If you receive Alcatel ADSs in the merger, you will be required (i) to file a statement with your U.S. federal income tax return providing a complete statement of all facts pertinent to the non-recognition of gain or loss upon your exchange of Lucent common stock, including the tax basis in the Lucent common stock that you surrendered and the fair market value of the Alcatel ADSs and any cash you received in the merger and (ii) to retain permanent records of these facts relating to the merger.

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      Additionally, you may be subject to a backup withholding tax at the rate of 28% with respect to any cash received in the merger in lieu of fractional Alcatel ADSs, unless you (i) are a corporation or come within certain other exempt categories and, when required, demonstrate this fact or (ii) provide a correct taxpayer identification number (which for an individual shareowner is the shareowner’s U.S. Social Security number), certify that you are not subject to backup withholding and otherwise comply with applicable requirements of the backup withholding rules. To prevent the backup withholding tax on payments made to you pursuant to the merger, you must provide the exchange agent with your correct taxpayer identification number by completing an IRS Form W-9 or a substitute Form W-9. If you do not provide your correct taxpayer identification number, you may be subject to penalties imposed by the IRS, as well as the backup withholding tax. However, any amounts withheld under these rules may be credited against your U.S. federal income tax liability.
Certain U.S. Federal Income Tax Consequences of Holding Alcatel ADSs
      Alcatel’s 2005 Form 20-F, which has been incorporated by reference into this proxy statement/ prospectus, contains a description of certain U.S. federal income tax consequences related to holding Alcatel ADSs, including the treatment of dividends paid with respect to Alcatel ADSs. The description contained in Alcatel’s 2005 Form 20-F, however, is only a summary and does not purport to be a complete analysis of all potential tax effects resulting from the ownership of Alcatel ADSs (such as tax consequences for holders who are subject to special treatment under U.S. federal income tax law).
Certain French Income Tax Consequences of the Merger